Traditional financial services brands were struggling to compete with fintech specialists long before Covid-19. But the pandemic has dramatically increased the pressure on brands to adapt.

This shock to the system may prove to be an invaluable wake-up call for established players still struggling to compete. These businesses must change, but to do so effectively they need to do more than simply copycat fintechs. Rather, in response to rapidly changing customer needs, they need to pivot, reorganise and simplify – and fast.

Fintechs competing with traditional financial servicing methods and delivery have left many established providers reeling. Globally, just 17% of banks have succeeded in digitally transforming at scale and, in the US, some 69% of retail banking brands rank average or below in digital performance. Closer to home, RBS announced the closure of its digital bank Bó after just six months in May.

However, fintechs are by no means immune to this crisis. Startups have continued to hire and raise funds during the pandemic – fuelled by customers’ growing preference for digital alternatives to traditional physical interactions, and cash. Yet a marked drop in new digital downloads experienced during March by Europe’s top challenger banks suggests COVID-19 may be negatively impacting their business.

What’s been holding traditional brands back?

It’s hard to think of a financial service organisation without a digital strategy or digital presence. Yet there is a marked variety when it comes to maturity and investment levels in digital.

When competition opened up as a result of Open Banking offering increased access to customer data, change was slower for established banks because of the need to navigate the checks and balances installed to improve governance after the financial crash of 2008.

These players are also burdened with legacy systems, processes, structures and mindsets. Updating outdated IT systems after years of under-investment was, and still is for some, a major challenge. Creating new digital products and services needs an environment that encourages innovation.

Innovation comes from experimentation. For traditional financial organisations built on the direct correlation between investment and return on investment, this requires a marked mindset shift and culture change. Why? Because in innovation, failure isn’t an indication of incompetence, rather, it’s a necessary stage in an iterative development process.

With the pressure to be more agile and innovative, it might be tempting to think the answer lies in simply copycatting fintechs. But traditional financial services businesses and small-scale start-ups are very different beasts. For this reason, the fundamental challenge remains: how to build an innovation culture that takes the best from both worlds?

COVID-19’s accelerator effect

In just a few weeks, the COVID-19 crisis has accelerated customers’ already rapidly evolving behaviour, needs, expectations and financial outlook.

Not only are people spending less cash – in the UK, for example, cash withdrawals slumped 60% during the first six weeks of lockdown – they are spending less, and spending differently. UK retailers reported sales down 71% in April, year on year. Consumers have shifted towards digital channels, products and services across all sectors.

Meanwhile, physical interaction between customers and customer service staff at point of sale have dropped off, with branches closing and banks that remain open directing people towards online and telephone banking. In the US, mobile banking engagement rose 50% in Q1.

But COVID-19 has shown that, even for traditional finance brands, speed is possible. Under pressure, many have quickly re-organised services to better cater for both existing and rapidly evolving customer and employee needs. For example, Barclays is looking at introducing a more de-centralised approach to staff working and the prospect of local branches becoming satellite offices for more employees.

React, rebound, reimagine

Further change will be required as the pandemic crisis begins to recede and the lockdown is lifted. To succeed brands must react, rebound and reimagine.

Reacting to immediate change involves reducing the use of cash and helping customers with cash flow challenges in the short term. To rebound, brands must respond more strategically, beyond the immediate and the tactical, to develop products and services that will help customers as the crisis eases. They must then reimagine, which involves re-setting their thinking, as the lasting implications of this crisis become clear.

Critical to this is an understanding of customers’ evolving needs and an ability to reshape offerings accordingly. Brands will also need to demonstrate the clear and tangible value they add and re-organise their operations around a real sense of mission and purpose that positively impacts customers and communities.

Top tips for traditional financial service brands

Create a clear digital vision

Traditional financial service brand owners must have a clear strategy to survive and prosper in a digital world. Many products, services, systems and related customer experiences were already digital pre-COVID-19; post, even more will be. This means waking up to the need to be a digital business, rather than a business that does some things digitally.

Understand the customer better

Deeper insight comes from aligning the emotions driving customer behaviour and the experience and data that comes from interacting with customers. Much of this information is already inside the company, but because of internal silos, it can’t be optimised. To improve customer experience, organisations must be fully integrated internally.

Consider your purpose

All brands must understand their purpose and what they stand for. To get a deep understanding of purpose, think like the customer and assess what they need, what you can do for them, and in what way you can best add value. This should be the touchstone for how you operate and behave as a brand.

Build a safe space for experimentation

To encourage experimentation, and therefore innovation, empower people by giving them the tools and license to test, fail and learn. Forget the old, project development approach and put the customer at the centre of new product and service development.

Bridge the divide between technology and human experience

Align invention with design methodologies and principles by securing the right partner. The right partner is one that challenges you and brings something additional to the table. Innovation is a business-critical function – it should not be commoditised.