Year in advance outlooks have never faced more scrutiny than in 2020. The apt “Year of the Rat” saw the COVID-19 global pandemic sweep best laid plans aside, a seismic event not witnessed in scale or scope since the 1918 Spanish Flu pandemic.
Looking ahead in 2021, the “Year of the Ox”, financial markets are poised on a knife edge as vaccine distribution and efficacy largely determine the speed of the economic recovery. How are Banks planning to absorb ever lengthening tail risks from the crisis? Where are corporates turning to for advice and will the ‘business of banking’ ever be the same?
2020 Outlooks Shredded
CFOs and corporate treasurers scrambled to shore up balance sheets, overcome crippling mandated shutdowns and supply chain disruptions at the outset of the crisis in Q1 2020. East & Partners 2020 Outlook and key banking trends performed admirably last year as COVID transpired, notably supply chain finance reaching a tipping point, digitisation thrust forward, Fintech hype falling short and Banks repositioning to become the advisors CFOs need. Less pressing needs have fallen down the priority list, including value for money, key service attributes and cross border payments functionality.
As the first and second waves crested over financial markets, Banks implemented unprecedented loan deferral provisions and braced for a wave of insolvencies and bad debts. Surprisingly, these events did not eventuate to a great degree as record fiscal stimulus cushioned the blow in the absence of depleted monetary policy. How long can this last?
For example. the Reserve Bank of Australia (RBA) has extended quantitative easing through its Term Funding Facility. The central bank announced the purchase of an additional A$100 billion of bonds issued by federal and state governments at the current rate of A$5 billion a week when the current bond purchase program ends in early Q1 2021. The RBA's balance sheet has increased by A$160 billion since the outset of 2020 and does not expect to increase interest rates until 2024 as it continues to cushion the Australian economy despite the country faring comparatively better than its global counterparts in many facets. With China the only economy to record positive economic growth in 2020 of 2.3 percent, the world’s second largest economy’s approach to tapering off stimulus will be a notable bellwether in the context of global central banks managing an increasingly uncertain recovery timeframe.
East & Partners proprietary voice of the customer analytics confirms finer detail is required in forecasting ahead reliably to generate real value for key decision makers. As opposed to broad sweeping generalised statements, key 2021 predictions include:
- Critical cybersecurity breach, crippling an entire sector with widespread damage
- Two or more major regional Asian bank mergers ex-China
- Crisis Mangers firmly embedded for Banks striving for best practice risk management principles
- Customer co-creation rapidly takes hold as non-core process outsourced to Fintechs
- China’s rush to global influence will stumble as a result of a series of own goals
- Work from home (WFH) and smart casual to become de rigueur for financial services companies
- Wave of consolidation among Neobanks pared by continued SME funding shift away from incumbents
- Peak Buy-Now-Pay-Later popularity as card majors including Visa, MasterCard and AMEX fight back and ramp up new offerings to offset generational demographic online spending shift
- Regulatory shift towards supporting corporates in achieving real time 100% cash visibility alongside a greater uptake of supply chain finance with stricter oversight
- Trade war de-escalation between China and trading partners such as the US, Canada and Australia
- Business continuity hinges on clear and coherent ESG strategy, thrust back into the spotlight as ‘the’ long term strategic imperative as COVID recovery accelerates
"The pandemic has compelled us to rise up and deal with a unique set of challenges. Digital payment is no longer a nice-to-have, but an essential service. Digital payments will continue to play a significant role in driving greater global economic transformation and inclusion"
- PayPal Senior Vice President, International Markets, Cameron McLean
Digitisation Finally Fast-Tracked
One of the starkest outcomes from the pandemic is a rigorous re-evaluation of what is ‘really’ important, referred to by Deloitte as a ‘deceleration of megatrends’ such as the share economy, urbanisation and globalisation. The coronavirus pandemic has slowed these global megatrends.
The transformative impact of COVID-19 is undeniable, evidenced by both banks and corporates responding swiftly to navigate the most challenging global financial markets crisis since the Great Depression. The majority of banking institutions were woefully unprepared for the sheer magnitude of transformation brought about by COVID-19 and resulting shift in customer behaviour.
The result? Digitisation and business digital adoption has been forcefully thrust forward, in one estimate by McKinsey as much as five years and most of which took place in the ensuing eight weeks from Q2 2020.
East & Partners newly released “COVID’s Shake Up of Relationship Banking” Global Insight Report outlines the most important digital functionality corporates are crying out for yet do not have access to and urgently require to navigate the crisis. 14 percent are looking for further cloud technology and software-as-a-service (SaaS) support. One in ten need to link up e-Documentation, particularly in trade finance (11.1 percent), fraud protection (10 percent) and artificial intelligence (9 percent). The research further details forecast credit demand, expectations of how long the crisis will last and which Banks are leading the COVID response.
Key Digital Functionality – Current and Required
% of Total
Source: East & Partners H1 2021 Global Insight Report - COVID’s Shake Up of Relationship Banking
"As social distancing became the norm this year, an acceleration towards digitalisation has brought the future forward. This will pave the way for more innovation in financial services due to intensified market competition, with banks increasingly collaborating with fintech companies in the race to provide even better products and services for customers"
- Finastra Managing Director, Asia Pacific, Luc Hovhannessian.
What’s Next for Corporate Banking?
In many ways COVID has refocused much needed progress in crucial areas of customer demand, while also reweighting expectations. It is no surprise that immediately preceding the crisis, Australian middle market enterprises viewed digital support, internal compliance and regulatory requirements as the most distracting functions from their core cash management, treasury and liquidity management role.
Incredibly East’s latest research shows over one in ten institutional enterprises failed to nominate any bank who has provided reliable guidance and support through the crisis. What does this mean for customer churn? Regulatory changes and evolving customer behaviour will force global banks to reconcentrate on core competencies.
Immense pressure has been placed on institutional banking customer coverage teams to service major clients. How often do key clients expect to interact with their RM? As product specialists win out over dedicated RMs and execution teams, are leading banks capable of meeting changing customer expectations?
Although this environment is seemingly ripe for ambitious challenger banks to make their mark, so far consolidation and conservative action have been taken by Fintechs digesting the full impact of the new playing field. As customer switching intensifies, the above key predictions confirm the next crisis is always much closer than CFOs are willing to admit, requiring closer engagement and truly understanding customers who have withstood the most challenging year of operations in over a century.