Three Ways Covid-19 Changed Banking
As the Covid-19 pandemic slowly retreats in the United States, there is reasonable hope that normal life (or something akin to it) will return by the fall. I don’t believe the virus is done with us yet, but hopefully we’ll get to a point where it can be largely contained through widespread vaccination, and we can get our old lives back.
There’s no doubt in my mind that the pandemic has had a lasting impact on the banking industry, although it’s not what I might have expected a year ago when stay-at-home and social distancing requirements put the U.S. economy into a sickening tailspin, and GDP declined 32.8% in the second quarter of 2020. Banks braced themselves for a credit debacle that never materialized, and industry earnings may be buoyed this year by reversals of loan loss reserves that were piled up like sandbags against rising flood waters.
And yet, the pandemic has changed banking in ways that could have far-reaching consequences. One outcome has been an acceleration of the industry’s digital transformation, a trend that was already occurring as consumers became more comfortable doing their banking in a virtual space. When the economy went into lockdown last year, most banks closed their branches to foot traffic and relied more on digital channels like mobile and online. Branch traffic may pick back up as the economy reopens, but I sense that a permanent shift has occurred in consumer preferences for digital banking. If you weren’t yet convinced that digital is a “thing,” the pandemic offers proof. Each bank must determine its own survival strategy in this new world.
The industry demonstrated remarkable resiliency throughout the pandemic. Unlike the 2008 financial crisis, where the industry caught most of the blame, banks became heroes when they helped distribute nearly $800 billion in Paycheck Protection Program loans. Congress punished the industry after the financial crisis with the Dodd-Frank Act, but I think banking’s image has improved during the pandemic.
The third change I see is work culture. Over the past year, most banks have operated with a distributed workforce as employees relocated to their kitchen or dining room tables. Video meetings through formats like Zoom have definitely become a thing and may remain so!
Banks aren’t alone in this, of course. Many companies across a wide swath of industries are trying to figure how to repatriate their employees as the pandemic wanes. I’ve had many conversations with bank CEOs and directors on this topic, and opinions vary. Some want all their employees back in the office, all the time, by September 1, but many others are opting for more flexible work policies.
Some people worry that collaboration and culture will suffer if their employees aren’t working again in the same space, but I’m not convinced. Bank Director is a highly collaborative organization — it is one of our defining cultural characteristics — and most of us have been working from home for over a year. Bank Director’s 2021 Compensation Survey finds that banks have almost universally introduced remote work over the past year, and just a quarter of responding directors and executives believe this had a negative effect on their institution’s culture.
A flexible work policy can greatly improve the quality of life for employees. Several directors and executives have mentioned to me another benefit of a digital workplace: the ability to hire critical and hard-to-find talent outside of their bank’s geographic market. I think it’s too soon yet to gauge the pandemic’s full impact on work culture, but I sense a permanent shift toward the attitude that work is what you do and not necessarily where you do it.