The Cash Crunch
Chris Chan, Dan Selwyn
Business Consultants, Financial Services
The first transmission of COVID-19 within the UK was confirmed in February. The following month, the prime minister announced a nationwide lockdown with a drastic set of measures restricting movement and assembly. The economy shuts down, and thousands lose their jobs.
All of this happened in one month, and nobody was readily prepared for this.
Universal credit applications have rocketed since the lockdown. Figures from the Department for Work and Pensions show 500,000 people applied for universal credit, the government’s main welfare benefit, just in the last two weeks of March. This was followed by an additional 250,000 in the first week of April.1 In other words, almost a million people now likely have no more income, while they still have all the bills to pay to survive.
Unfortunately, we can expect the government to take weeks to process those applications (based on historical trends), with a few additional weeks added on top before anyone receives the funds requested. To survive the next few weeks, much of the public is turning towards their financial institutions as their only remaining lifeline.
Banks to the rescue
The Financial Conduct Authority (FCA) and the UK’s biggest banks have come together and announced a range of short-term measures to help individuals as well as businesses who are facing financial difficulties during this pandemic.
For instance, the four largest banks in the UK (HSBC, Barclays, Lloyds Banking Group and Royal Bank of Scotland) have all rolled out three-month payment holidays for customers who are experiencing short-term financial difficulties. Additionally, they have removed any late penalty charges for any missing payments during this quarter. Other providers have followed suit and have begun to offer payment holidays to their clients.
More importantly, to those who need funds urgently, customers will be able to apply for a temporary increase to their credit and overdraft limits to alleviate their financial woes. Some will also offer refunds on any cash advance fees charged for withdrawing cash on a credit card to be able to obtain funds instantly without financial fees.
Households as well as businesses, all over the country who are void of any income, are slowly running out of funds as the weeks go by, and requests for additional credit limit and overdraft increases are rapidly growing. Even global corporations, who are still operating and have not been completely shut down by the lockdown, are having the same challenge, experiencing a rapidly deteriorating cash position as well. Anheuser-Busch (AB), Boeing, Hilton, and IAG are a few recognisable large names that have tapped their credit lines already. This is because they are now rushing their banks to increase their credit limits to new highs to weather this pandemic. This will be a question of where the bank’s draw the line. Extending lines of credit, offering better payment and payback terms all come at a cost to a bank. Liquidity could be called into question if they overextend themselves, which would open up an entirely different economic question and level of support required for the government. Longevity and customer loyalty will have to be front of mind around the actions the banks’ take. Statistically, people in the UK change banks once every 17 years. We believe how banks react to this crisis and follow the Treating Customers Fairly (TCF) principles consistently pushed by the FCA, will affect the level of customers switching their banking services in the short, medium and long term.
Challenge to operations
The issue for all these banks is they have been flooded and backlogged with customer requests. Like all other businesses, banks have also been navigating their fair amount of challenges, notably staff shortages to support all the financial measures being rolled out.
Bank clients, businesses and individuals alike, have noticed that their banks now have drastically reduced hours to their phone customer support, in addition to notices of longer waiting times due to the COVID outbreak. Many banks have also cancelled their chat support. The banks have been trying hard on their end to provide quality customer support to their clients during these difficult times. TSB has offered to pay a customer support allowance of €50 a day from April to the end of May to about 700 lower-paid branch and call centre staff – equivalent to almost 30 per cent of its workforce. The Bank of Ireland has committed to paying €300 a month to employees who have to travel to a branch, call centre or other location up until the end of June. AIB has offered a one-off voucher of €250 to all non-management employees of the bank.2 Operationally, looming large, speed vs risk vs priority is a matrix at the core of decision making across Retail Banking.
Banks are under increasing pressure to make funds available for cash strapped businesses and customers. They need to achieve this while ensuring they aren’t taking on a risk profile which creates a poor lending decision or exposing themselves to financial crime. This comes alongside getting the processes to a point where they are fit for purpose and able to cope with the tranche of awaiting customers. Innovation and technological advancement have to be at the heart of this, attempting to manipulate incumbent legacy systems built for a different era, will only end in longer waiting times and a high-cost base.
The worst is yet to come
Unfortunately, the banks will not be able to sustain these extra costs for too long because they are facing dire financial challenges themselves. In the US, several banks who are amongst the largest banks in the world have released their Q1 results, where they reported a huge drop in earnings in the three months leading to March 31st. JP Morgan, Wells Fargo and Bank of America reported a 45% decline in earnings, while Citigroup and Goldman reported a 46% decline. 3 Similarly in the UK, we’ve seen some quite shocking financial performances with the likes of Lloyds, HSBC, and Barclays all suffering significant drops in their profits for Q1. With the pandemic still causing waves of chaos across the world, global economies are expected to stay halted for a while longer. Consequently, we do not expect the banks to really recover their financial position until at least 2021.
Without any profits coming in to up-size or incentivise the necessary workforce required to support and process credit relief measures in the coming months, banks will need to refocus on more effective, longer-lasting solutions to adequately support their clients. The banks will need to invest their resources on how they fundamentally operate and innovate their current practices. BJSS believes that robotic and intelligent process automation (RPA/IPA) will have a large part to play in this. There is a growing issue, particularly in retail banks, with customers who were previously accustomed to visiting physical branches. An immediate shift to digital banking has been required, which had surfaced a significant blocker around the resetting of users’ e-passwords. This has seen a large peak in customer service demand and is undoubtedly an opportunity for automation. There was a gap, that has now been filled in terms of our perceived trust in technology over the last five-ten years. RPA / IPA could be a useful tool in managing the cost challenges through efficiency savings based on time, cost and quality. However, that being said, the banking sector has been scarred by early adoption of RPA strategies that weren’t as mature as they are now. We feel that this could be the time to give it a second chance.
How can we help?
We are here to help businesses navigate throughout these challenging times.
At BJSS, we have a proven track record of working collaboratively with our customers, helping them to deliver complex technology solutions used by millions of people every day. We have worked with UK retail banks to develop data-driven tools to better forecast and optimise their resourcing levels as part of cost-reduction initiatives. For other clients, we have developed advanced solutions that can alleviate the workload for your current staff, freeing up capacity to service more clients and provide better support.
Additionally, our Business Consulting offers deep expertise in service design as well as operating model transformations. We can help transform your current teams into more agile cross-functional task forces in order to better respond to these difficult operational challenges. Backed by our award-winning Enterprise Agile approach, we can help you get set up to deliver results for your clients fast.