The COVID Recovery’s Uncertain Path and the Way Forward for Banks

Things are getting better for banks’ clients – well, at least for some of them. Unemployment in August dropped to 8.4 percent in the U.S., down from a pandemic-driven high of 14.7 percent in April. This is good news, and it’s tempting to breathe a sigh of release. Yet, as we’ve experienced, trends can quickly change and, in some industries, we’re still far from out of the woods.

The current unemployment rate stands only two percentage points below the Great Recession’s peak of 10.6 percent, and remains staggeringly high in certain sectors. In the wholesale and retail trade industry, 1.6 million people are out of work, as are 1 million manufacturing workers. In the leisure and hospitality sector, perhaps hit hardest by COVID-19, 2.8 million people remain jobless, with an industry unemployment rate of 21.3 percent.

While the news is encouraging for workers in IT, healthcare, and real estate, who are expected to get back to work in greater numbers over the coming months, some predict a much tougher climb for employees in small business and hospitality, whose recovery could take up to several years.

How the economic impact of COVID-19 impacts banks

For banks, this means that millions of customers could face an ongoing struggle to make mortgage and other loan payments, placing an enormous strain on hardship programs maintained by financial institutions across the country. The ability to communicate with customers is critical to minimizing the stress on customers looking for financial assistance.

We have seen some of the fallout first-hand, working with banks around the world to deploy IT platforms that enable these programs. Since the pandemic began, our clients have experienced initial hardship request volumes that halted normal operational activities, placing billions of dollars’ worth of mortgage and retail loans into hardship programs, and they are now managing the servicing impacts of those loans in hardship. Meanwhile, U.S. Federal and State legislation have mandated moratoriums on asset seizures and evictions during the pandemic. These conditions have caused banks to manage a careful balance between a loss of payments, requiring mitigation of financial and operational difficulties, and an ability to support their customers, many of whom are facing economic hardship for the first time.

How can banks navigate this uncertain path?

Difficult questions arise. How do you adapt financially while continuing to meet escrow commitments for customers with deferred payments? How do you communicate with thousands of customers to develop payment plans? How do you analyze customer data to determine a course of action?

The answers are made more difficult by the pandemic’s uncertainties. How long will the recovery last? Is this a “black swan” event or the new normal? How many of the current economic conditions are likely to be permanent?

There is no crystal ball, but my advice is to adapt and invest for the long term. That isn’t to say there’s no end in sight; rather, the pandemic has exposed how current systems have proven inadequate for effective interaction with customers – during a crisis or even “normal” business conditions. Simply put, a lack of digital tools and platforms has made it difficult for banks to track their position and plan for the future, and it has hindered their ability to efficiently and effectively manage customers’ challenges.

Despite the expectations of their customers, many banks’ default management programs arrived late to the digital revolution, with significant consequences during COVID-19. Most handled thousands of customer interactions over the phone with live agents or created web facades lacking automated functionality. Back office support teams were left to review and track hardship programs using spreadsheets. This caused considerable challenges given the volume of calls and cases, and was unsustainable even in scenarios that don’t include a national economic crisis.

Investments in technology supply chains are paying off

Banks prescient enough to have deployed digital tools before the pandemic are not only operating more effectively, but are positioned to permanently strengthen customer relationships, leverage data insights and maintain regulatory compliance.

Many tools exist to make life easier, both for banks and their customers. They include virtual agents, web-enabled approval processes, and other capabilities enabled by machine learning and artificial intelligence. The key is to have multiple channels for customer contact, whether the solution is mobile, or via chat, mobile phone apps or online.

Today, the decision to invest in these technologies must be considered outside the typical cost/benefit analysis. If the pandemic has proven anything, it’s that banks need automated, intelligent interaction with customers. Take, for example, the work we’ve done with a large U.S. regional bank and a national bank in Canada. And they need the data and analytics to optimize and prioritize how they leverage the various technologies alongside human resources. Now also is the time to define, gather and analyze key data required to implement long-term reparative actions.

These and other digital solutions for lending, customer self-service and financial hardship management can spare banks from high customer dissatisfaction, labor expenses, default rates, and the risk and expense of regulatory non-compliance. I recently outlined specific recommendations for banks, detailing strategies for customer self-service, digital workforce management, loan losses, modeling, compliance and technology partner selection.

There’s a lot to consider, and no shortage of complexity to navigate. Yet amid so much uncertainty, bank executives must first ask themselves an important non-technical question: is your organization proactively or reactively managing through the pandemic?

Regardless of the pandemic’s trajectory and its economic consequences – both immediate and in the years to come – investment in digital infrastructure offers an enduring blueprint for building more responsive, flexible and resilient financial institutions.

For more information on how CGI is helping banking clients manage their increasing customer hardship demands, read about our new offering, CGI Collections360 Self-Service Hardship.