ESTIMATED READING TIME: 13 minutes
- The pandemic and digital players have been driving established financial services and insurance companies to shore up their businesses and see vast new opportunities.
- To weather the short-term crisis and build for future growth, financial and insurance firms are investing in digital capabilities.
- With new digital processes, products, and services, savvy financial institutions are profiting by meeting the needs of digitally savvy customers.
Compared to other sectors, banking, capital markets and insurance firms have weathered the pandemic’s storm. They are well-positioned to play a vital role in the revival of economies the world over. However, with lockdowns, workforce disruptions and declining economic activity in every corner of the world, the pandemic has presented them with new challenges. In fact, the 33 largest U.S. banks could suffer $600 billion in loan losses if America’s unemployment rate moves into double digits from the current 6.7% rate and the economy doesn’t recover quickly, the Federal Reserve announced in December.1 In 2020, global insurance industry losses from man-made and natural disasters were at the fifth highest level in 50 years, at $83 billion, according to Swiss Re.2
That’s just on the customer side of the ledger. On the employee side, financial services and insurance companies had to provide a productive virtual working environment since the spring. Research TCS conducted last summer found that the vast majority of employees at 64 large banks, financial services and insurance companies in North America, Europe and Asia Pacific were working from home.3 These largely virtual workforces are likely to continue until vaccines have been widely distributed and life returns to something approaching normal.
Yet many changes wrought by the pandemic were set in motion years ago by the introduction of smartphones, social media, digital sensors, artificial intelligence (AI) and the internet itself. In this article, we explain why banks, financial services and insurance companies that emerge strongest from the pandemic will be those that revamp themselves with certain digital capabilities, ones that will enable them to achieve quantum leaps in growth and productivity.
We present best-practice examples of financial institutions that have put these pieces in place. We explore what they must do over three periods of time: the current crisis, the transition and the post-pandemic phases.
The Current State of Digital Capabilities in Banking and Insurance
Around the world, banks and securities companies were projected to spend about a half-trillion dollars in 2020 on information technology.4 Yet TCS’ Digital Readiness and COVID-19 survey found that no more than a quarter of them had six core digital capabilities: an end-to-end digital customer experience (CX); robust AI and analytics to continually improve that CX; high degrees of automation of core business processes; core enterprise software delivered via the cloud vs. on-premises; partnerships with key players in the digital ecosystems that include banks and insurers; and digital sensors for tracking their offerings and the customers that use them.5 What’s more, only 10 of the 64 financial institutions surveyed had deep capabilities in at least four of these areas.
Financial institutions will need these strengthened capabilities to meet the demands of the future.
Building Digital Capabilities: Three Kinds of Initiatives in Three Phases
We envision the changes that banks, financial services and insurance companies must make to build essential digital capabilities could be best accomplished in three phases: the current period, the near-future (when the pandemic’s impact begins to wane) and 2022 and beyond (when financial institutions hopefully no longer would treat the pandemic as a top-of-mind operational concern).
Within each phase, we categorize initiatives to be of three types: resilience (to ensure that financial institutions continue to operate despite having to conduct most business remotely); value (to respond well to customers, keep costs in line, and spur productivity); and growth (to identify and pursue new revenue opportunities).
Figure 1 illustrates these activities in all three phases, but also how their emphasis should shift over time.
Figure 1: Managing Financial Services Businesses Through Three Phases
Let’s examine the digital initiatives that we recommend in each phase in more detail.
The Current: Remaining Open While Remote, Automating Where Possible
In the pandemic, an overriding business objective has been to stay open while doors were closed. The byword for every employee is resilience (no matter the location in which they’re working). At the start of the pandemic, when bank branches were forced to close, it was clear that even processing loans and government assistance through them was a challenge as phone lines and other channels were overwhelmed with customers seeking help.6
Staying resilient has meant finding ways to enable their businesses to continue. As much as 40% of the world’s people have been forced to stay home, which has accelerated the rise of digital payments. Call centers across the world have seen call volumes surge fourto 10-fold due to shutdowns of branches and other field offices. And financial firms have beefed up their cybersecurity defenses in the face of a spike in attacks aimed at citizens’ stimulus checks and other pandemicrelated transactions.7
The byword for every employee is resilience (no matter the location in which they’re working).
While cyber security is one part of becoming resilient as well as futureready, welcoming new customers is another. Banks and credit card issuers have let customers open new accounts without in-person office visits. SBI Card (India’s largest pure-play creditcard issuer) developed a system by which it can sign up customers using videos and electronic signatures. For the institution, it’s a digital “know your customer” process that customers can complete in 15 minutes.8
Despite a depressed economy, mortgage lending has stayed strong in countries such as the U.S., as many inner-city Americans moved out to suburban and rural areas to escape the crowds. One mortgage lender’s automation initiative reduced credit decision cycles significantly, cut paper processing costs by 40% and enabled contactless processes through digital signatures and other technologies.
Insurance companies saw spikes in their customer contact centers, and many implemented bots that answer frequently asked questions using robotic process automation (RPA) and AI tools. Claims in life, business and health insurance have exploded. Insurers have used AI and machine learning tools to deal with them, as well as AI tools to get information from documents. Some financial services firms have provided personalized digital video messages to reassure customers about their annuities, pensions and other investments amidst the turmoil in financial markets.
Increasing value invariably points to efficiency gained through automation initiatives that reduce costs. Bank of America has been relying on its Erica virtual assistant ever since the coronavirus outbreak occurred. Over three months (March through May), the $90 billion (revenue) bank added a million Erica users per month. By the third quarter of 2020, 16 million BofA customers were using the digital assistant to balance their checking accounts, make payments and get payment reminders.9
Efficiency is crucial to increasing value to customers while reducing costs. U.S. financial services companies like First Home Bank turned to robotic process automation (RPA) to process 6,000 pandemic-related small-business relief loans in the first few months of the pandemic. That was six times the number in a typical year.10 Insurers have also been cutting costs and the burdens of manual processes by using RPA, for example, to post payment transactions from spreadsheets and copy details from external applications.11
Growth: The pandemic has created demand for a wave of new financial products. Financial services companies that responded fastest to these needs have grown during the downturn. Take the example of a Singapore insurance product. After the pandemic hit, a health insurance company went from design to launch of a COVID-19 insurance plan in four days—96 hours. What’s more, customers can buy and use the plan online.
The transition to a post-pandemic world will require financial institutions to keep a sharp eye on big changes in consumer behavior in the pandemic.
Near Future: Strengthen Workforce, Pinpoint Growth Areas
When the pandemic begins to recede this year, financial institutions are not likely to order all their people back to work. Many, in fact, may decide that certain jobs can be done as well, or even better, from workers’ homes. To support that, however, they will have to look for new technologies and new ways of motivating and managing the remote work force to spur productivity.
When this transition phase starts, financial institutions will be able to shift away from emphasizing business continuity and focus on reimagining the workplace, improving customer centricity and becoming more agile.
The “near future” phase will also be a good time for digital experimentation. Some companies haven’t waited for that time. For example, U.S. mutual fund giant Fidelity Investments last May started testing a virtual reality system to bring more than 140 new employees on board its operations division.12
New growth opportunities will abound, and a number of insurance companies have already jumped the gun. Next Insurance, a venture capital-funded startup focused on small-business clients, acquired analytics provider Juniper Labs to expand its customer base through machine-learning technology that uncovers underwriting opportunities.13 (Next is partially funded by Munich Re14, one the world’s largest reinsurance companies.15) In May 2020, another U.S. insurer (Buckle) began offering coverage to rideshare drivers who deliver food, household items and other products.16
The transition to a post-pandemic world will require financial institutions to keep a sharp eye on big changes in consumer behavior during the pandemic. Notably, one global study found that the number of consumers using digital banking channels in the pandemic grew from 68% in 2019 to 71% in 2020.17 As a group, retail banks have taken note of consumers’ accelerated embrace of digital channels—by not only fortifying their digital banking services but also by using them to reduce costs. At the end of October, U.S. banks and thrift institutions had closed more than twice as many branches (2,664) as they opened (1,092).18 Such moves are critical to maintaining in-person services where they are needed the most and freeing up resources to support new online and mobile services.
2022 and Beyond: Shore Up Digital Services, Seek New Opportunities
This assumes that the pandemic has gone away and financial services companies are no longer worrying about COVID health risks. They can shore up their workforces, strengthen customer and partner relationships and address weaknesses in business process changes implemented in the pandemic and transition phases.
In the post-pandemic phase, financial institutions should continue emphasizing their digital channels for customers and enable remote service delivery. They should analyze data patterns to determine how to increasingly personalize services for customers. For example, banks and their business partners should explore combining forces in providing investment services, insurance, contactless payments and other digital services. Near the end of 2020, the majority of Americans were using touch-free payment devices to buy groceries, medicine, fast food and other products.19
Insurers face a separate set of challenges. They need to see themselves in the larger digital ecosystems in which companies from multiple industries collaborate to provide more value. The auto insurance sector is a great example. The pandemic has forced people to drive less.20
A number of insurers have introduced usage-based car insurance, a market that is expected to grow in North America at 25% per year through 2027. But to better qualify their risks, insurers should be working with auto manufacturers, makers of chips and sensors and other entities in a “mobility” digital ecosystem that not only tracks how far customers drive but also monitors their driving behavior (i.e., too many panic stops) and their vehicles’ condition. That would enable auto insurers to better understand the risks they are underwriting.
In home insurance, Hippo, a startup that lets U.S. homeowners buy a policy in five minutes, attracted a $350 million investment from Japanese giant Mitsui Sumitomo. The Japanese firm also agreed to serve as a reinsurance company to Hippo.21 In our view, such partnerships are emblematic of the digital ecosystem opportunities for banks and insurers.
In the post-pandemic phase, financial institutions should continue emphasizing their digital channels for customers and enable remote service delivery.
Leading in the 2020s: Three Growth Fundamentals
What will separate the financial services companies that come out of the pandemic stronger from the ones that will emerge weaker? We believe it will come down to three core capabilities:
- A deep capacity for resilience: To be able to shift their operations from the old “brick-and-mortar” world of offices, branches and other physical locations to a remote working model rapidly without skipping a beat.
- High adaptability: The ability to reconfigure their core operations for unparalleled efficiency and effectiveness. This is only possible when their core business processes for creating demand and supply are digital, and when those digital systems are in the cloud, rather than held captive at on-premises data centers that are islands of automation.
- Purpose-driven: Using as their guide to develop new financial products and services the “North Star” of the customer journey. What greater value can they generate for retail, wholesale and other customers? How can they use technology—and ecosystems’ partner technologies—to deliver previously inconceivable products and services that delight customers?
Figure 2: Lead in the New Reality | Three Prime Characteristics of a Future Ready Bank
The COVID-19 pandemic reached every corner of the world, leaving no nation and no market unscathed. It forced companies in every industry to scramble.
Digital capabilities are at the center of every financial institution’s recovery plan. As HSBC’s group CEO put it, “You can’t possibly continue to lend money, serve customers, in today’s environment if you do not operate in a remote digital fashion.”22
Banks, financial services and insurance companies have abundant digital opportunities to grow and become more efficient and effective businesses. The winners will view their digital moves in the pandemic as a springboard for greater success this decade.
COVID-19 pandemic reached every corner of the world, leaving no nation and no market unscathed. It forced companies in every industry to scramble.
1 Associated Press, Dec. 18, 2020. Accessed here: https://apnews.com/article/coronavirus-pandemic-economy-4fb38ee1db83df6fbea64a1ed121ab44
2 Swiss Re web page, Dec. 15, 2020, accessed here: https://www.swissre.com/media/news-releases/nr-20201215-sigma-full-year-2020-preliminary-natcat-loss-estimates.html
3 An average of 67% of bank and financial service company employees were working from home, and 74% of insurance company employees, according to the TCS 2020 “Digital Readiness and COVID-19: Assessing the Impact” survey, Sept. 29, 2020. Accessed here: https://www.tcs.com/business-impact-survey-2020
4 Gartner press release Aug. 12, 2020, accessed here: https://www.gartner.com/en/newsroom/pressreleases/2020-08-12-gartner-forecasts-worldwide-banking-and-securities-it
5 “Digital Readiness and COVID-19: Assessing the Impact,” TCS COVID-19 Business Impact Survey 2020, accessed at: https://www.tcs.com/business-impact-survey-2020.
6 Guardian, April 15, 2020, accessed at: https://www.theguardian.com/business/2020/apr/15/covid-19-bailoutloans-issued-uk-firms-banks.
7 S&P Global Market Intelligence, June 26, 2020, accessed at: https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/cyberattacks-rise-in-pandemic-s-perfect-storm-8212-reminding-banks-ofrisks-ahead-59064396.
8 TCS, “SBI Card Becomes an Early Mover in Digital Sales Operations,” https://www.tcs.com/sbi-video-kyc-esign-vkyc.
9 The Motley Fool, Nov. 5, 2020, accessed here: https://www.fool.com/investing/2020/11/05/what-does-ericamean-to-bank-of-americas-stock/
10 “Banks Use Software Bots to Process Surge of Pandemic-Related Loans,” The Wall Street Journal, June 9, 2020, accessed at: https://www.wsj.com/articles/banks-use-software-bots-to-process-surge-of-pandemic-relatedloans-11591735728.
11 TCS white paper, “Robotic Process Automation: Hype or Reality?” accessed at: https://www.tcs.com/content/dam/tcs/pdf/Industries/Banking%20and%20Financial%20Services/Robotic-Process-Automation-Hype-or-Reality.pdf.
12 “New Hires to the Holodeck: Fidelity Investments Tries Collaboration Via Virtual Reality,” The Wall Street Journal, October 5, 2020, accessed at: https://www.wsj.com/articles/new-hires-to-the-holodeck-fidelity-investments-triescollaboration-via-virtual-reality-11601890201.
13 “Next Insurance purchased data analytics firm Juniper Labs in its first-ever acquisition,” Business Insider, December 11, 2020, accessed at: https://www.businessinsider.com/next-insurance-acquires-juniper-labs-to-helpimprove-underwriting-2020-12.
14 Crunchbase, Sept. 23, 2020, accessed here: https://news.crunchbase.com/news/next-insurance-lands-250mseries-d/
15 Munich Re web page, accessed here: https://www.munichre.com/en/company/about-munich-re/facts-figures.html#1555619028
16 Buckle press release, May 6, 2020. https://www.buckleup.com/press-releases/0506pressrelease
17 RFi Group mentioned on an HSBC web page, Nov. 26 2020, accessed here: https://www.hsbc.com/insight/topics/how-banking-will-change-after-covid-19
18 “Capital One, Wells Fargo lead the way with US bank branch closures in October,” S&P Global Market Intelligence,
November 17, 2020, accessed at: https://www.spglobal.com/marketintelligence/en/news-insights/latest-newsheadlines/capital-one-wells-fargo-lead-the-way-with-us-bank-branch-closures-in-october-61240187.
19 Mastercard poll, as reported by CNBC, November 18, 2020, accessed at: https://www.cnbc.com/select/mastercard-survey-contactless-payments/.
20 “Global Usage-Based Insurance Market to Reach $149.22 Billion by 2027, at 25.1% CAGR,” Allied Market Research, November 2, 2020, accessed at: https://www.globenewswire.com/news-release/2020/11/02/2118590/0/en/Global-Usage-Based-Insurance-Market-to-Reach-149-22-Billion-by-2027-at-25-1-CAGR.html.
21 “Japan’s Mitsui Sumitomo to invest $350 million in insurance startup Hippo,” Reuters, November 24, 2020, accessed at: https://www.reuters.com/article/us-hippoenterprises-fundraising-ms-ad-in-idUSKBN2842RU.
22 Quote from Noel Quinn in his video, “Embracing digital to enhance our service,” HSBC, November 6, 2020, accessed at: https://www.hsbc.com/who-we-are/hsbc-news/embracing-digital-to-enhance-our-service.