With the arrival of the COVID-19 pandemic, certain consumer segments of the general U.S. population have found themselves in increasingly-vulnerable financial positions. How banks and other financial services firms respond will play a critical role in the near-term future—not only for customer relationships, but also for employee relationships. If not handled well, many organizations may suffer from damaged public images.
It’s not just consumers getting squeezed. We could also see a rise in payment delays due to cash-flow constraints on businesses arising from the temporary drop in the demand for services. The hard part for the financial sector is telling the difference between a routine payment delay and a significant deterioration in credit quality.
3 Tips for Financial Services Organizations Facing Liquidity Challenges
FiServ organizations have continued to provide liquidity during the pandemic, but it’s getting more difficult given the volatility of the market. Businesses also need to comply with the new Stress Capital Buffer (SCB) rules imposed earlier this year.
Many organizations lobbied for this change, and it could (in theory) let some reduce their capital buffers. But others have observed that new capital constraints could be imposed in the short term, thus reducing liquidity. For companies facing these challenges, here are three immediate steps to consider as a way to alleviate the situation:
• Communicate early and often. Lenders could face many more transactional requests, both from borrowers looking for forbearance and from would-be borrowers looking for a deal. Communication speed will be valued more so than usual.
• Identify at-risk segments and geographies. This can be done by developing guidelines to address late and missed payments, even as you develop loss-mitigation strategies. In some cases, customers will need more formal assistance, or regulators may require organizations to grant relief.
• Gain insights into the future. Accurate, actionable information is particularly in short supply. So, along with developing clear communication plans for customers, employees and regulators, it’s a good idea to shore up operational processes around management information systems.
For this third tip, it’s also important “see around the corner” by using dashboards to understand trends in days past due, margin calls, collateral disputes, and other key indicators. And the sooner you start on all of these initiatives, the better.
You may also want to develop criteria for assistance programs and then implement them. This will require everything from job aids and call center programming to legal review and additional training.
Digital Maturity Streamlines Deployment of New Capabilities
How well-positioned your institution is to quickly roll out new capabilities like these is largely dependent on how advanced you are across the digital maturity spectrum. This includes aligning digital strategies with vision and strategy planning, brand differentiation efforts, channel organization and governance, and data technology tactics.
For example, does your organization develop solutions based on product data and customer insights? Do you deploy customer experience metrics across all solutions? Have you communicated a clear brand identity to customers and your other stakeholder audiences?
To help you answer these questions, stay tuned for R2i's forthcoming white paper, Digital Experience Maturity: The Financial Services Innovation Imperative. This whitepaper will present new ways to innovate your internal processes and customer services so that more transactions can take place virtually. This piece also examines the components of digital maturity and how to assess the current status of your institution. Completing a digital maturity assessment will give you a baseline understanding of where your bank currently stands, and what it will take to get to the point where you can deploy innovative services that sync with the demands of your customers.
For additional help on digitally transforming your internal and customer-facing processes, contact us today!