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For decades, Aura has helped Banks  strategically move, manage and secure assets in markets around the world. We offer sophisticated securities financing tools and global clearing and settlement capabilities to give you proven and reliable operational support.

Our innovative technology-driven capabilities allow us to deliver the operational efficiency and solutions to regulatory complexities that Banks and Broker-Dealers rely on to power their success.

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Remaking banking customer experience in response to coronavirus

The last time there was a global crisis, banks were widely perceived to be a big part of the problem. This time around, banks are central to the solution.

Banks can play an immediate role in slowing the spread of COVID-19 by helping customers make better use of existing digital and remote channels. And banks can help limit the impact of the likely downturn by building new experiences to help their customers manage debt, adjust budgets, and make full use of new government programs.

In normal times, customer experience in banking is about making customers happy—with the result that they are more loyal, use products more, and cost less to serve. In the context of COVID-19, superior customer experience means clarity and transparency, support for digital tools with which many customers are still unfamiliar, and new products and services for customers in distress.

A first-cut action plan

In response to the crisis, most banks need to meaningfully reset their customer agenda to meet urgent needs—and to do so for the uncertain period likely to continue for some time.

1. Help customers go digital and remote right now

In the current crisis, there are immediate actions banks can take to help retail and small-business customers; in particular, they can support the use of digital channels so that customers can bank from home, and they can provide extra support to borrowers in distress. Many banks struggle to increase digital adoption among their customers. In the United States, for example, nearly half of banking customers either never use their mobile app or do so infrequently (Exhibit 1).

In normal times, many customers struggle with the transition to digital. For instance, in the United States, while the most satisfied customers use digital multiple times per week, the second most satisfied customers do not use digital at all. The least satisfied banking customers are those who use digital tools infrequently, less than once per month. This is because customers go through a learning curve as they adopt digital tools, and most banks under-support their customers in the adoption journey. In the current environment, banks should redouble their efforts to smooth customers’ transition to digital.

Effective approaches will include easy-to-find and clear communication, segment-specific campaigns, remote coaching and advice, and coherent experiences across each journey (for example, written and video explanations for how to accomplish specific digital tasks, along with ways to try them out, rather than a one-size-fits-all tutorial disconnected from the tools themselves).

For instance, in China, leading banks set up new online portals to explain available services and the actions they were taking in the context of the coronavirus. These portals provided video servicing and sales capabilities, as well as educational videos for investors who were worried about the impact on their portfolios.

One leading Chinese bank launched an integrated digital coronavirus program: banking services, wealth-management services, tutorials, and timely advisory content, as well as non-banking-related services ranging from help with online shopping to doctor appointments to the delivery of disinfectant. Another launched a digital site that combined information on how to use online tools to bank remotely with information on public-health awareness and a way to support the local Red Cross Society.

For services that require branch interaction, digital tools can still play an important role—they can provide information on adjusted hours, essential services, reduced staff numbers, heightened safety precautions, social-distancing measures, and digitally enabled queuing.

For more on what actions banks can take to drive digital adoption and engagement, see “Leading a consumer bank through the coronavirus pandemic.”

Banks can play an immediate role in slowing the spread of COVID-19 by helping customers make better use of existing digital and remote channels.

2. Introduce new experiences for distressed customers

In times of crisis, customers’ priorities change. Banks can play a significant role in easing financial distress, so that customers can spend more energy on their families’ and their own health and well-being.

In the United States, COVID-19 has made half of banking customers concerned or somewhat concerned about their job security.1 For customers who were already in a financially vulnerable state before the pandemic, these new concerns are alarming. And there are many people in this situation. For example, in 2018, 39 percent of US households said they do not have the resources to cover an unplanned $400 expense.2 And 2016 research found that the average US small business only had enough cash to cover 27 days of operation.

Preexisting financial vulnerability plus new stresses from COVID-19 will make it harder for banking customers to navigate complexity or make the best financial decisions. For example, research suggests that financial scarcity takes a significant psychological toll and leads to more myopic decision making.

The challenge is that even in normal times banks are not well-equipped to help customers discover and apply for new products and services. Our 2020 Banking Journey Pulse Benchmarking, fielded prior to COVID-19, found that “shopping” is the single least satisfying banking journey across products (such as deposits, credit cards, and mortgages), with the application process itself being not far behind (Exhibit 2).

The key design principles for serving distressed customers are awareness, simplicity, transparency, clear expectations, and frequent status updates.

Services and experiences that are likely to be increasingly important to consumers in distress include pausing loan payments; enabling customers to restructure existing loans; refinancing home-equity loans to provide near-term liquidity; resetting budgets to reduce spending; providing relocation services associated with new job opportunities; and, for small businesses, taking advantage of new government programs that have been introduced around the world to increase access to capital (many are likely to be intermediated by banks).

One leading Singaporean bank rapidly introduced a comprehensive solution for small and medium-size enterprises (SMEs), including six-month property-loan principal deferments, temporary bridging loans, fee rebates, new digital account-opening services, and next-day and collateral-free business loans. The bank complemented these initiatives with an online “SME Academy” to help business owners navigate the new context. In China, one leading corporate bank quickly introduced a new online-only short-term corporate loan with a simple application, fast approval time, flexible payment options, and near-instant fulfillment.

3. Improve experience in ways that also address efficiency

The economic consequences of the coronavirus will increase the need for banks to improve efficiency and the customer experience. They can do so by enhancing digital self-service as well as by making operational trade-offs.

Digital servicing and sales are less expensive than branch- and phone-based approaches. The problem for many banks is that too few customers use digital offerings because they find them unfamiliar and intimidating. To address this, banks can, for instance, reframe calls to the contact center to teach customers how to use digital channels in addition to addressing the reason, or pain point, for the call.

Understanding what leads to a superior customer experience also enables banks to make thoughtful and efficient trade-offs. For example, if positive experience for a bank’s customers is grounded in trust, they might double-down on clear communications, achievable timelines, and status updates—and reduce investments in speedy service.

To improve experience and efficiency at the same time, many banks will need to reset their customer-experience priorities in general, and their approach to customer-experience measurement in particular.

Some banks do not know which parts of their digital experience work well or not, have little sense of which actions help customers learn how to use digital tools, or do not know where the opportunities for operational trade-offs are. In other words, they lack an interpretation of what matters to their customers and what drives behavior.

Too often banks track interactions rather than journeys—and thus are unable to make the connection between a single bad interaction and a customer’s future behavior. In addition, they rely on surveys few customers fill out, and they therefore take a one-size-fits-all approach to customer feedback rather than responding to specific customers and business objectives. To achieve simultaneous improvements in experience and efficiency, banks can use the following feedback and measurement approaches:

  • Structure customer-experience measurement around journeys, not single-point interactions.

  • Ask questions relevant to specific business objectives, such as digital self-service.

  • Link measurement results directly to the potential impact on efficiency.

  • Introduce predictive analytics to determine how to be successful with the vast majority of customers who do not fill out surveys.

  • Set goals based on how experience and efficiency move together.

Employee experience shapes customer experience. That is even more true in a crisis.


4. Reframe employee experience around mutual commitment, especially reskilling

Employee experience shapes customer experience. That is even more true in a crisis. In their efforts to provide a meaningful employee experience in the midst of the coronavirus pandemic, banks need to acknowledge and reflect on the sacrifices and struggles their employees face as they juggle their immediate job responsibilities with the concerns they have, that all of us have, about the health of their family and economy.

In normal times, employee experience may be a better predictor of customer experience than more commonly used indicators, such as the ratings of a bank’s mobile app. For example, an analysis of 13 US banks with iOS App Store scores of 4.8 and higher, on a 5-star scale, found that their customer-satisfaction ratings ranged from an average of 47 percent for the bottom three banks, to an average of 69 percent for the top five; in other words, even if a bank has a great app, it does not seem to be determinant of overall customer experience. In comparison, employee experience tracked differences in overall customer experience well (Exhibit 3).

In the near term, banks will need tremendous effort from their employees to navigate the crisis, they must engage with customers empathetically, and they should adjust operations. In this context, banks need to make a credible commitment to their employees and acknowledge the contributions they are making, using both words and policy (for instance, flexible sick leave and compensation).

Greater emphasis on teaching customers how to use existing digital services will also require current staff to engage with customers in new ways and learn new skills. Banks can use this moment to significantly improve the quality and availability of reskilling programs, including introducing externally meaningful credentialing so that the new skills are portable. This will equip employees with the skills they need to support new digital experiences. And in many markets, it will not be appropriate for banks to reduce staff at a time of crisis, making reskilling the only sustainable way to fill existing gaps.

When done well, such reskilling programs are a powerful signal of banks’ positive role in society and commitment to their people.

5. Make doing the right thing a competitive advantage

For banks, investing in customer experience was an imperative before the current crisis, both from a “good business” perspective and a “good bank” perspective. Now, these factors are even more relevant.

Doing right by customers creates long-term shareholder value. Our analysis of 23 publicly traded US banks found that the half with a high customer-satisfaction score delivered 55 percent higher returns to shareholders from 2009 to 2019.

In addition, for banks, downturns are when market positions shift. For example, at the end of 2007, the most valuable of the US universal banks had a market capitalization that was 23 percent greater than the next bank. By 2012, their positions had reversed, and the new leader was 34 percent more valuable. By 2019, the difference in value had hardly moved.

Delivering on customer experience will be an integral part of how banks reassert their positive role in society during the coronavirus crisis. By addressing new customer needs and concerns while improving their own efficiency and effectiveness, banks will be a stabilizing force in a very uncertain environment.

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Reshaping retail banking for the next normal

Retail banks have a prominent role to play in guiding the world toward economic recovery, while preserving the health of their organizations.

The COVID-19 health crisis has reshaped the global economy and society. Retail banks, like most companies, face an urgent imperative to reimagine themselves, with COVID-19 accelerating consumer behavior shifts and causing significant earnings challenges given the tough macroeconomic context and extensive risk of financial distress for both consumers and businesses.

Although overall revenue declines are expected to be in line with those of recent significant downturns (the global financial crisis of 2008- 09 and the European sovereign debt crisis of 2011-12), revenues after risk are expected to experience sharper declines. Aura’s modeling of COVID-19’s impact1 projects a drop of 16 to 44 percent for Western Europe.

Additionally, consumers’ banking preferences are rapidly evolving. In Italy, Spain, and the US, 15 to 20 percent of customers surveyed expect to increase their use of digital channels once the crisis has passed; in other markets that percentage ranged from 5 to 13 percent.3 Notably, preference for handling everyday transactions digitally is as high as about 60 to 85 percent across Western European markets, even for customers 65 years of age or older.

Many banks have yet to see this mindset shift translate into actual user behavior,4 perhaps due to limitations of their digital capabilities. Should these emerging preferences become banking’s post COVID-19 “next normal,” retail banking distribution will experience up to three years of digital preference acceleration in 2020.5 In some markets, this may translate to 25 percent fewer branches, with those remaining performing a different set of activities with more flexible job configurations. Call centers may be transformed to remove up to 30 percent of less customer-centric and lower value-added activities. Digital sales and servicing will accelerate markedly and the remote advisory channel should finally come of age, potentially handling 35 percent of complex needs remotely.

Fast-tracking digital adoption

As revenue growth and customer relationships come under pressure, banks may want to rethink their revenue drivers, looking for new product launch opportunities, as well as reorienting offerings toward an advisory and protection focus. Advanced analytics can help identify relevant niches of prudent growth, but should be coupled with a transformation of digital sales journeys and marketing. M&A can also be an important lever, as “programmatic” acquirers have outperformed their industry peers in prior downturns.6 We anticipate multiple potential plays for inorganic growth, including by full-scale retail banks lacking the scale or balance-sheet mix to succeed independently, and by fintechs offering superior customer experiences but insufficient scale or funding to survive.

Retail banks can also reinvent approaches to risk and customer assistance solutions, to fulfill their societal purpose and mitigate credit impairments that could be comparable to those of the global financial crisis of 2008-09. Forward-looking credit models can be re-engineered for increased accuracy using real-time transaction data, and also to reflect government actions by customer segment, sector, and geography. Mitigating credit impairments requires data-driven triage to differentiate between borrowers likely to grow, those facing temporary liquidity or business model challenges, and those truly structurally impaired. These segments will require bespoke treatment across a broader palette of options, including engagement through a pre-collections multichannel offering.

To position for success in this new environment, speed is of the essence. In recent weeks banks have proven themselves able to move faster than imagined. Those responding to these trends with the same agility they adopted during the crisis will emerge better prepared for the future.

In this context, Western European and US retail banking leaders can reflect on four main questions:

  1. Is your distribution strategy configured for up to three years of digital preference acceleration?

  2. Can you rethink revenue drivers to deliver above-market growth, both organically and inorganically?

  3. Have you transformed your approach to credit risk and customer assistance adequately for the new environment?

  4. Can you maintain and reinforce the rapid pace of decision-making established during the crisis to continue making the right decisions faster?


To enable their success in the next normal, banks can also consider how to rejuvenate their trust-based relationship with society, pioneering a new social contract in the face of COVID-19.

None of these elements are entirely new; instead they reflect accelerations of existing trends, punctuated with some additional factors prompted by unexpected shifts in the operating environment, especially for actions related to credit risk and opportunities to rejuvenate trust-based relationships.

1. Is your distribution strategy configured for up to three years of digital preference acceleration?

COVID-19 has accelerated longstanding consumer and business shifts away from the branch and toward digital channels. Assuming that digital channels become the default sooner than previously expected, the role of the branch will necessarily evolve, although human-centered support will remain essential especially in transitioning to new models.

Interestingly, Aura research reveals the digital preferences of older Western European consumer cohorts (ages 51-64 and 65+) aligning for the first time with those of younger demographics for most banking services (Exhibit 1).

In addition to an uptick in digital intent, there has been a decline across markets in consumers’ desire to visit branches for transactions—shifts that may stick for the long-term. As a result, distribution channels will look very different in the next normal.

If banks are successful in converting these stated customer preferences into actual behavior, digital is expected to become the default channel for most customers and the sole sales and service channel for many. We estimate that 80 percent of simple servicing transactions and two-thirds of simple product sales could be digitally fulfilled, particularly in countries where significant digital inroads have already been made. This is already the reality for some banking leaders—in 2019, the top 10 banks in developed markets had 80 percent of their customers digitally active (60 percent on mobile apps).8

Human-centered remote channels will evolve significantly, but remain essential. In the wake of COVID-19, branch closures led to call volumes spiking by one-third and wait times more than tripling between December 2019 and April 2020.9 This pattern likely reflects lagging digital capabilities, as poorly designed or missing digital features force customers to call their bank; pre-COVID-19 Finalta research indicates a four-fold higher global rate of inbound calls per active customer (1.6 vs. 6.4) for banks with immature digital journeys. The challenge is not only to improve digital service journeys but also to minimize agent time spent on low-value activities suitable for “human-like” interactive voice response (IVR) resolution.


For complex service needs, we expect banks to adopt flexible approaches to deploy distributed talent pools. Remote access, including advisors working from branches, call centers, and home offices, will become a key component of supporting customer needs not easily migrated to digital. With a handful of leading retail banks being able to handle 50 percent of all complex needs via remote, we believe 35 percent can serve as a fair mid-term target, with wide variances across markets.

Branches’ focus will evolve to assisting customers’ complex needs. Although COVID-19 has accelerated the decline in branch preference (10 to 25 percent of customers in Western European markets intend to visit less frequently going forward), 30 to 50 percent still prefer this channel for assistance with complex products and issues, according to our Financial Decision Maker Pulse Survey. Branches will increasingly feature self-service (including intelligent ATMs10 and in-branch kiosks), with limited cash availability at counters given dramatic recent usage declines. In the next normal, the percentage of basic banking needs handled in-branch could be as low as 5 percent.


This will have significant implications for the required mix of branch staff, with much more flexible job configurations. Interestingly, given many banks have successfully redirected front-line staff into urgently needed support roles—often working from the same location—this may change the equation on branch closures, enabling banks to keep more marginal branches open than previously considered, assuming advisors can be productively deployed on critical customer-related tasks.

Banks in different countries entered the COVID19 crisis from varying branch and digital starting points; naturally, not all will proceed to the next normal at the same pace (Exhibit 2). For instance, while banks in Spain, Italy, and the US face greater shifts in digital servicing, those in Sweden are already more digitally advanced and can focus on digital sales tool development.

2. Can you rethink revenue drivers to deliver above-market growth, both organically and inorganically?

Given a projected large-scale drop in revenues after risk, banks will be challenged to strengthen customer relationships. The distribution shifts detailed above can be leveraged to empower a more customized, analytics-driven, multichannel approach to engagement with both existing and new customers. New product offerings should be aligned with emergent customer needs, many of which have been reshaped by COVID-19.


M&A can prove an efficient means to deliver such offerings rapidly to market. We see four primary areas of focus.

Double down on digital marketing not only to acquire new customers, but also to build and strengthen connections with current ones. In 2019, banks in developed markets generated only 28 percent of their sales from digital channels. Top 10 banks in developed markets rapidly grew this channel to 65 percent, up from 36 percent in 2016, according to Finalta. Concerted effort is required to optimize investment within digital channels and across the acquisition funnel to align with customers’ shifting preferences and needs.

Given the analytical nature of digital marketing, required skill sets differ vastly from “old-fashioned” marketing. Its teams more closely resemble Math Men than Mad Men. Banks’ required growth levers include digital traffic generation, existing customer engagement, and conversion. Leading digital banks leverage multiple marketing channels and customize strategies to customer segments, in combination with a sharp focus on developing truly exceptional customer journeys.

Adopt more tailored customer conversations, leveraging advanced analytics and a multichannel approach. Aura research confirms that customers who receive personalized bank offers across multiple channels are more than three times as likely to accept, compared to those receiving offers via a single channel. Successful banks typically apply advanced analytics to identify niches of prudent growth, accurately predicting the best loan offer recipients, whose credit lines to increase, and who needs asset allocation assistance, thereby building stronger relationships while simultaneously helping customers optimize their finances.

Those banks able to create digital interactions approximating a one-on-one dialogue rather than mass communication, offering customized advice to achieve customers’ financial goals, are likely to excel on this front. The same lessons apply to in-person advisory conversations. Before scheduling a customer interaction, leading banks proactively reach out based on analytical engine output highlighting relevant customer needs (e.g., impacts from wage decreases, heightened financial risk, spending patterns, migration opportunities to better suited products). Customers are engaged through their preferred channel and offered flexibility in future interaction, including via convenient remote capabilities. Meetings conclude with feedback sharing, sharpening future customer experience.

New offerings should incorporate emerging customer needs, some of which have shifted due to the COVID-19 crisis. Younger consumers in key Western markets are finding it difficult to obtain credit, while almost half of consumers age 55 or older have unsurprisingly grown more concerned about having adequate retirement income.11 Among UK SMEs, roughly half express greater urgency to provide online payment options, according to a Aura SME Pulse Survey conducted in April 2020.

Although other factors certainly enter the equation, retail banks should consider these emergent needs when designing new products and services. Examples could include lending products for customers with non-standard income profiles or impaired credit histories due to the crisis. Banks can also assist customers in securing insurance, as well as providing longer-term pension planning guidance. With customer shopping behavior increasingly shifting online, helping SMEs scale their online presence, including facilitating digital point-of-sale loans or leasing, could also prove beneficial.

Adapting the talent mix of branch staff

Finally, banks could explore partnerships or strategic M&A with other banks or with fintechs. Targeted proactive investments, including plays that offer scale, talent, and complementary assets, can strengthen retail banks’ position going into the next normal. Given declines in global fintech funding in excess of 50 percent since December 2019, banks should remain alert for acquisition candidates capable of generating new revenue streams at reasonable valuations. Such moves could help fast-track the continuous innovation and data-driven customer engagement necessary for success or enable banks to move into adjacent areas as part of a broader ecosystem play.

3. Have you transformed your approach to credit risk and collections adequately for the new environment?

More than ever, banks must strike a balance between being there for customers in financial distress and prudently managing credit losses. COVID-19’s financial impact on consumers and SMEs is profound—35 to 50 percent of consumers in key Western European markets state they will run out of savings by August 2020 if unemployed, according to our Financial Decision Maker Pulse Survey, and one in three small businesses in the UK believe they will be out of business by the same date absent improvement in conditions, according to our SME Pulse Survey. Concurrently, consumers in some Western European markets express increased willingness to walk away from debt and loans given their current situation.12 Given the unprecedented nature of the current crisis, banks’ existing credit risk models and approaches are too retrospective and do not sufficiently capture sector implications and government initiatives to provide meaningful guidance.

Here we see two sets of suggested actions:

Reinvent credit-decisioning frameworks through sector analysis and high-frequency analytics. As discussed in our May article,13 banks will have to adjust their data and methodologies to reflect the next normal. COVID-19 credit insight is rapidly evolving from the “educated guess” approach deployed at the onset of the crisis based on understanding sector macro-variables, to a data-driven and client-level approach, assessing the resilience of borrowers using real-time transaction data. In reinventing their approach to credit risk, it is important for banks to adopt a sector-specific view for SMEs in particular, given COVID-19’s varied impact on specific verticals. For instance, in Spain the grocery, retail, and pharmaceutical industries are expected to experience relatively low demand shocks in 2020 and to bounce back quickly, whereas industries like leisure, hotels, and transportation will undergo high demand shocks and endure slow recoveries.

Similarly, it is important that banks differentiate—to the extent possible—temporary impacts from fundamental deterioration in customers’ underlying financial health, by pressure testing individual clients’ financial ratios and indicators under different COVID-19 scenarios. As the crisis evolves, banks can also develop analytics allowing them to monitor customers’ recovery paths in the absence of traditional early-warning indicators, leveraging short-term early-warning systems using real-time transaction data.

Collections operating models will likely need to be rethought. Consistent with the importance of leading the collective recovery effort, banks can approach loan workouts with the mindset of helping customers regain financial health.15 Banks can update segmentation models for delinquency, using data to inform proactive outreach to financially vulnerable customers, and tailoring risk-mitigation actions and client engagement. As an example, contacting digital-first customers through their preferred channel has been shown to boost installment payment upticks by more than 10 percent, according to a 2018 Aura survey. A digital approach is also likely to yield positive results with customers whose financial troubles are solely due to the crisis and who are highly motivated to avoid going into default. Through these actions, banks can also anticipate peaks in monitoring and collections activity projected for the second half of 2020. Resources can be reoriented and upskilled from other areas (e.g., underwriting and credit monitoring) to manage these spikes.

4. Can you reinforce the rapid pace of decision-making established during the crisis to continue making the right decisions faster?

In the period since COVID-19’s emergence, banks have executed major initiatives (migration of tens of thousands of employees to remote settings, disbursement of new stimulus program funds) at speeds previously thought impossible for the sector. As one powerful example, a European bank acted on 104 key decisions in a single week, which would normally have required four months. Moreover, as risk/compliance teams audited the actions immediately after, they did not identify a single error.

Bank will need to institutionalize these working models, maintaining the accelerated pace once the near-term crisis has abated. Early evidence suggests that companies that were already embarked on an operating model transformation for speed responded more swiftly to COVID-19 and that there is a strong correlation between the level of agile maturity and rapid response in launching COVID-19-relevant products and services.

In order to build speed, flexibility, and resilience into their operating model, banks can take action across three main dimensions:

Consider pursuing flatter organizations, leveraging this unique opportunity to measure value-added productivity across the workforce and establish organizational baselines centered on roles that truly matter. This baseline can aid the transition to smaller, cross-functional teams comprised of what we characterize as “decision makers” and “doers”—a model that has proven to be effective for banks. Once roles have been rationalized there is a further opportunity to rethink the location of work, benefiting from remote options (Exhibit 4).

Explore options to re-architect decisions for speed by simplifying processes; for example, shifting from sequential consultations with multiple stakeholders to fewer, parallel consultations involving only required leaders. The calculated risk attached to this approach empowers leaders with judgment and character to make decisions at a sustainable speed.

Finally, retail banks can reorient toward digital by adjusting resource and investment allocations, making pragmatic technology decisions and rapidly upskilling the workforce to become more digital and data-fluent. Banks may also consider new organization structures that place digital at the heart of the bank.

Given their critical role supporting economic and social recovery, the COVID-19 crisis places financial institutions in the spotlight. This creates a rare, mutually beneficial opportunity for banks to rejuvenate their trust-based relationship with society.

Arguably, they face an urgent imperative to do so. According to a Aura survey, trust in banks has declined compared to pre-COVID-19 levels in several markets. Further, most customers in Western markets perceive their bank relationships as merely meeting expectations at best, with banks in a majority of markets falling short of customer expectations (Exhibit 5). Exceptions exist in the UK and US, where a net positive perception may stem from banks’ proactive outreach and speedy delivery of relief.

As banks navigate the crisis they can consider taking on a broader role in guiding customers as well. Examples of economic and social stewardship include helping customers understand their financial situation, rethinking credit strategies to ensure appropriate lending, creating dedicated financing lines to help business solvency, and remaining thoughtful about collections. In the longer term, banks could consider how best to extend these societal commitments and reflect them in their values, business models, and offerings. This becomes a matter of finding new ways to help, rather than taking unnecessary risks—no one is served by losing access to financially stable banks.

Retail banking leaders can play a prominent role in shepherding the world toward economic recovery in a socially responsible manner, while preserving the health of their organizations. Their role in reacting to immediate needs—as more countries emerge from lockdown—makes it more challenging to prepare their organizations to respond and adapt to the next normal.

A recent Aura article16 set forth a five-stage call to action applicable across industries emerging from the COVID-19 battle: Resolve, Resilience, Return, Reimagine, and Reform. Juggling a shift to digital and reinforcing client relationships while making major operating model adjustments and rethinking end-to-end credit risk portfolios is no mean feat. It is therefore critical that retail banks mobilize their plan-ahead teams now, prioritizing Reimagine responses as societies enter their Return phase. Hopefully our four questions can serve as a foundation for this essential undertaking.

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Banking imperatives for managing climate risk

More than regulatory pressure is driving banks to manage climate risk. Financing a green agenda is also a commercial imperative—but specialized skills are needed to protect balance sheets.

The surface temperature of the Earth has risen at a record pace in recent decades, creating risks to life, ecosystems, and economies. Climate science tells us that further warming is unavoidable over the next decade, and probably after that as well. In this uncertain environment, banks must act on two fronts: they need both to manage their own financial exposures and to help finance a green agenda, which will be critical to mitigate the impact of global warming. An imperative in both cases is excellent climate-risk management.

The physical risks of climate change are powerful and pervasive. Warming caused by greenhouse gases could damage livability and workability—for example, through a higher probability of lethal heat waves. Global warming will undermine food systems, physical assets, infrastructure, and natural habitats. The risk of a significant drop in grain yields—of 15 percent or more—and damage to capital stock from flooding will double by 2030. In aggregate, we expect that around a third of the planet’s land area will be affected in some way.

Disruptive physical impacts will give rise to transition risks and opportunities in the economy, including shifts in demand, the development of new energy resources, and innovations arising from the need to tackle emissions and manage carbon, as well as necessary reforms in food systems. Sectors that will bear the brunt include oil and gas, real estate, automotive and transport, power generation, and agriculture. In oil and gas, for example, demand could fall by 35 percent over the next decade. The good news is that these changes should also precipitate a sharp decline in emissions.

January 2020 was the warmest January on record. As temperatures rise in this way, it is incumbent on banks to manage the relevant risks and opportunities effectively (Exhibit 1).

Furthermore, regulation increasingly requires banks to manage climate risk. Some have made a start, but many must still formulate strategies, build their capabilities, and create risk-management frameworks. The imperative now is to act decisively and with conviction, so effective climate-risk management will be an essential skill set in the years ahead.

Regulatory and commercial pressures are increasing

Banks are under rising regulatory and commercial pressure to protect themselves from the impact of climate change and to align with the global sustainability agenda. Banking regulators around the world, now formalizing new rules for climate-risk management, intend to roll out demanding stress tests in the months ahead (see sidebar “The regulatory agenda”). Many investors, responding to their clients’ shifting attitudes, already consider environmental, sustainability, and governance (ESG) factors in their investment decisions and are channeling funds to “green” companies.

The regulatory agenda

Regulatory initiatives that require banks to manage climate risks have gathered pace over the recent period (exhibit).

The United Kingdom’s Prudential Regulation Authority was among the first to set out detailed expectations for governance, processes, and risk management. These require banks to identify, measure, quantify, and monitor exposure to climate risk and to ensure that the necessary technology and talent are in place. Germany’s BaFin1 has followed with similar requirements.

Among upcoming initiatives, the Bank of England plans to devote its 2021 Biennial Exploratory Scenario (BES) to the financial risks of climate change. The BES imposes requirements that will probably force many institutions to ramp up their capabilities, including the collection of data about physical and transition risks, modeling methodologies, risk sizing, understanding challenges to business models, and improvements to risk management.


The European Banking Authority (EBA) is establishing regulatory and supervisory standards for environmental, social, and governance (ESG) risks and has published a multiyear sustainable-finance action plan. The EBA may provide a blueprint for authorities in geographies including the United States, Canada, and Hong Kong, which are also considering incorporating climate risk into their supervisory regimes.

The commercial imperatives for better climate-risk management are also increasing. In a competitive environment in which banks are often judged on their green credentials, it makes sense to develop sustainable-finance offerings and to incorporate climate factors into capital allocations, loan approvals, portfolio monitoring, and reporting. Some banks have already made significant strategic decisions, ramping up sustainable finance, offering discounts for green lending, and mobilizing new capital for environmental initiatives.

This increased engagement reflects the fact that climate-risk timelines closely align with bank risk profiles. There are material risks on a ten-year horizon (not far beyond the average maturity of loan books), and transition risks are already becoming real, forcing banks, for example, to write off stranded assets. Ratings agencies, meanwhile, are incorporating climate factors into their assessments. Standard & Poor’s saw the ratings impact of environmental and climate factors increase by 140 percent over two years amid a high volume of activity in the energy sector.

As climate risk seeps into almost every commercial context, two challenges stand out as drivers of engagement in the short and medium terms.

Protecting the balance sheet from uncertainty

As physical and transition risks materialize, corporates will become increasingly vulnerable to value erosion that could undermine their credit status. Risks may be manifested in such effects as coastal real-estate losses, land redundancy, and forced adaptation of sites or closure. These, in turn, may have direct and indirect negative impact on banks, including an increase in stranded assets, uncertain residual values, and the potential loss of reputation if banks, for example, are not seen to support their customers effectively. Our analysis of portfolios at 46 European banks showed that, at any one time, around 15 percent of them carry increased risk from climate change. The relevant exposure is mostly toward industries (including electricity, gas, mining, water and sewerage, transportation, and construction) with high transition risks.

When we looked at the potential impact of floods on mortgage delinquencies in Florida, for example, we gathered flood-depth forecasts for specific locations and translated them into dollar-value damage levels. The analysis in Exhibit 2 is based on geographic levels associated with specific climate scenarios and probabilities. We then used these factors to generate numbers for depreciation and the probability of default and loss-given default.


Based on the analysis, we calculated that more frequent and severe flooding in the Miami–Dade region may lead to an increase in mortgage defaults and loss rates close to those seen at the peak of the financial crisis and higher than those in extreme stress-test projections. Our severe-flooding scenario for 2030 predicts a 2.53 percent loss rate, just a bit lower than the 2.95 percent rate at the peak of the financial crisis. However, in the event of an economic slowdown, the rate could go as high as 7.25 percent.


Financing a green agenda

Renewable energy, refurbishing plants, and adaptive technologies all require significant levels of financing. These improvements will cut carbon emissions, capture and store atmospheric carbon, and accelerate the transition away from fossil fuels. Some banks have already acted by redefining their goals to align their loan portfolios with the aims of the Paris Agreement.

Oil and gas, power generation, real estate, automotive, and agriculture present significant green-investment opportunities. In the United Kingdom, for example, 30 million homes will require sizable expenditure if they are to become low-carbon, low-energy dwellings.3 In energy, opportunities are present in alternatives, refining, carbon capture, aviation, petrochemicals, and transport. As some clients exit oil and coal, banks have a role in helping them reduce their level of risk in supply contracts or in creating structured finance solutions for power-purchase agreements. In renewables, significant capital investment is needed in energy storage, mobility, and recycling.

A sharper lens: Five principles for climate-risk management

As they seek to become effective managers of climate risk, banks need to quantify climate factors across the business and put in place the tools and processes needed to take advantage of them effectively. At the same time, they must ensure that their operations are aligned with the demands of external stakeholders. Five principles will support this transformation. They should be applied flexibly as the regulatory landscape changes.

Formulate climate-risk governance. It will be of crucial importance for top management to set the tone on climate-risk governance. Banks should nominate a leader responsible for climate risk; chief risk officers (CROs) are often preferred candidates. To ensure that the board can keep an eye on exposures and respond swiftly, banks should institute comprehensive internal-reporting workflows. There is also a cultural imperative: responsibility for climate-risk management must be cascaded throughout the organization.

Tailor business and credit strategy. Climate considerations should be deeply embedded in risk frameworks and capital-allocation processes. Many institutions have decided not to serve certain companies or sectors or have imposed emissions thresholds for financing in some sectors. Boards should regularly identify potential threats to strategic plans and business models.

Align risk processes. To align climate-risk exposure with risk appetite and the business and credit strategy, risk managers should inject climate-risk considerations into all risk-management processes, including capital allocations, loan approvals, portfolio monitoring, and reporting. Some institutions have started to develop methodologies for assessing climate risk at the level of individual counterparties (see sidebar “A leading bank incorporates climate risk into its counterparty ratings”).

A leading bank incorporates climate risk into its counterparty ratings

A leading international bank aimed to increase its share of climate markets. To get there, it needed to incorporate climate factors into the risk-management function and to develop tools for assessing climate risks, on the counterparty level, for its entire portfolio.

The bank aimed to assess climate risk for each of its 2,500 counterparties on an annual basis, and its solution had to be sufficiently simple and scalable for individual loan officers to use on counterparties of all sizes. The eventual solution was based on the production of scorecards for physical and transition risks (exhibit).

The bank’s calculations were predicated on anchor scores that reflected the counterparty’s industry and geographical footprint. These were adjusted for idiosyncratic effects to reflect transition risk arising from a company’s greenhouse-gas emissions or the reliance of its business model on fossil fuels and related products. Additional parameters helped assess the potential for mitigation and adaptation—including a qualitative assessment of the company’s climate-risk management, actions to protect physical assets from future physical hazards, and initiatives to adopt a more sustainable business and operating model. The final output of the calculations was a counterparty rating that incorporated inputs from physical and transition-risk scorecards.

The counterparty model was useful to differentiate the climate risk among companies within sectors. Testing for the bank’s utilities subportfolio, for example, showed that electricity providers and multi-utilities fared worse than regulated networks. Companies with a higher proportion of renewables generally fared better.

One concern during model development was the shortage of available climate data and climate-related corporate information. The bank had to strike a balance between model accuracy and feasibility. Finally, it decided to work largely with publicly available data selectively augmented with climate-hazard data. As the bank developed, tested, and rolled out the methodology, cross-functional teams emerged as a success factor. These teams consisted of model developers, analysts, economists, and climate experts.

Counterparty credit scoring requires detailed sectoral and geographic metrics to interpret physical and transition risks as a view of financial vulnerability, taking into account mitigation measures. The resulting risk score can be used to inform credit decisions and to create a portfolio overview. The score can also be embedded in internal and external climate-risk reporting, such as responses to the disclosure recommendations of the Financial Stability Board (Task Force on Climate-Related Financial Disclosures) or the European Banking Authority (Non-Financial Risk Disclosure Framework).

Get up to speed on stress testing. Scenario analyses and stress tests, which are high on business and regulatory agendas, will be critical levers in helping banks assess their resilience. In preparing for tests, they should first identify important climate hazards and primary risk drivers by industry, an analysis they can use to generate physical and transition-risk scenarios.


These in turn can help banks estimate the extent of the damage caused by events such as droughts and heat waves. Finally, banks have to quantify the impact by counterparty and in aggregate on a portfolio basis. Risk-management teams should also prepare a range of potential mitigants and put in place systems to translate test results into an overview of the bank’s position. Since regulators are prioritizing stress testing for the coming period, acquiring the necessary climate-modeling expertise and climate-hazard and asset-level data is an urgent task.

Focus on enablers. Banks often lack the technical skills required to manage climate risk. They will need to focus on acquiring them and on developing a strategic understanding of how physical and transition risks may affect their activities in certain locations or industry sectors. Banks usually need “quants,” for example—the experts required to build climate-focused counterparty- or portfolio-level models. They should therefore budget for increased investment in technology, data, and talent.

Reaching for risk maturity: Three steps

As banks ponder how to incorporate climate-change considerations into their risk-management activities, they will find that it is important to remain pragmatic. The climate issue is emotive. Stakeholders want robust action, and banks feel pressure to respond. Those that make haste, however, increase the risk of missteps. The best strategy is adequate, comprehensive preparation: a bank can create a value-focused road map setting out an agenda fitted to its circumstances and taking into account both the physical and regulatory status quo. Once the road map is in place, banks should adopt a modular approach to implementation, ensuring that investments are tied to areas of business value by facilitating finance, offering downside protection, and meeting external expectations.

For developing a comprehensive approach to risk management, we see three key steps, which should be attainable in four to six months.

1. Define and articulate your strategic ambition

Effective climate-risk management should be based on a dedicated strategy. Individual banks must be sure about the role they want to play and identify the client segments and industry sectors where they can add the most value. They should also establish and implement governance frameworks for climate risk—frameworks that include the use of specialized senior personnel, as well as a minimum standard for reporting up and down the business.


Some are already taking action. One financial institution made its CRO the executive accountable for climate change and head of the climate-change working group. Another institution divided these responsibilities among the board of directors, executive management, business areas, group functions, and the sustainable-finance unit. Banks should also factor in adjacencies because lending to some clients in riskier geographies and industries—even to finance climate-related initiatives—is still riskier. This will ensure that banks formulate a structured approach to these dilemmas.

2. Build the foundations

Banks should urgently identify the processes, methodologies, and tools they will need to manage climate risk effectively. This entails embedding climate factors into risk and credit frameworks—for example, through the counterparty-scoring method described above. Scenario analyses and stress tests will be pillars of supervisory frameworks and should be considered essential capabilities. Outcomes should be hardwired into reporting and disclosure frameworks. Finally, banking, like most sectors, does not yet have the climate-risk resources it needs. The industry must therefore accumulate skills and build or buy relevant IT, data, and analytics.

3. Construct a climate-risk-management framework

Banks must aim to embed climate-risk factors into decision making across their front- and back-office activities and for both financial and nonfinancial risks (including operational, legal, compliance, and reputational risks). Data will be a significant hurdle. Data are needed to understand the fundamentals of climate change as well as the impact it will have on activities such as pricing, credit risk, and client-relationship management. However, a paucity of data should not become an impediment to action. As far as possible, banks should measure climate exposures at a number of levels, including by portfolio, subportfolio, and even transaction.


This will enable the creation of heat maps and detailed reports of specific situations where necessary. In corporate banking, this kind of measurement and reporting might support a climate-adjusted credit scorecard (covering cash flows, capital, liquidity diversification, and management experience) for individual companies. Banks may then choose to assign specific risk limits. Indeed, some banks have already moved to integrate these types of approaches into their loan books.

As intermediaries and providers of capital, banks play a crucial role in economic development that now includes managing the physical and transition risks of climate change. The task is complex, and the models and assumptions needed to align the business with climate priorities will inevitably be revised and refined over time. However, as temperatures rise, speed is of the essence in managing the transition to a more sustainable global economy.

Image by Osman Köycü

The state of North American retail wealth management

Nothing will pay more dividends in the long run than serving as trusted advisors and guiding clients through the months ahead. Financial advice has never been more important.

As the COVID-19 pandemic plays out, the human tragedy is clear, but the end-state impact on populations, governments, and financial markets remains unknown.


The crisis is also presenting unprecedented challenges to North America’s wealth managers. The relationships between advisors and clients will be tested in the months ahead, as advisors are called upon to bring strength, stability, and perspective to their clients when they need it most.

The positive news is that advisors entered this difficult period from a position of strength. A prolonged period of growth followed the last bear market, as advisors reached record levels of assets and revenues in 2019. Over the course of the last decade, many advisors changed how they work with clients. With digital entrants and lower-cost service offerings challenging the value of portfolio construction and monitoring, advisors responded by recentering their propositions on more comprehensive planning for more complex clients. They’ve also transformed how they get paid, with more than two-thirds of revenues coming from asset-based fees, compared to one-third just ten years ago. Relationships are deeper, client retention rates have peaked, and advisors are more resilient than ever.

In the latest edition of our annual State of Retail Wealth Management, available for download below, we look at how the decisions made by financial advisors over the past decade have prepared them to endure the path ahead. We’ll also reflect on some lessons learned from the 2008 financial crisis that can help advisors succeed in a less than certain future.

This report is based on the PriceMetrix proprietary database collected from more than 25 wealth-management firms in North America. Our data is built from detailed client holdings and transaction information from 65,000 financial advisors .


Because data is refreshed continuously, PriceMetrix offers an unmatched view into the behaviors and characteristics of wealth-management clients, and insights into how advisor decisions affect growth and client outcomes. Unless otherwise noted, all data is reported as of December 31, 2019.

Image by Lukas Juhas

How insurance can prepare for the next distribution model

As the COVID-19 crisis evolves, it will continue to affect insurance distribution around the world. Insurers can prepare by building a strategy focused on near- and long-term implications.

The COVID-19 pandemic is profoundly affecting how people engage with one another across industries and geographies. Physical distancing and other quarantine measures have shifted activities once considered critical to have in person to digital and remote channels. This change will affect insurance distribution—both in the near term, as physical distancing measures continue, and in the longer term. Indeed, society’s relationship with technology and remote interactions is continuously evolving and accelerating as we move toward the “next normal.”

Many insurance companies have likely already taken steps to address short-term or immediate impacts of COVID-19—moving employees to a remote setup and expanding online customer service channels. Now, insurers are focused on the next set of challenges, including how to reimagine distribution in a more remote world. An April 2020 survey of German insurance agents (conducted four weeks into lockdown) found that about half of the agents saw a more than 40 percent decrease in new business.1 And a May 2020 survey of US agents found a similar effect: almost 50 percent of agents cited remotely building new customer relationships as the biggest challenge during COVID-19.2 Meanwhile, online insurance aggregators and direct channels are reporting similar, if not greater, volume.

To address these challenges, insurers will need to rethink their distribution model across three dimensions: customers, sales force, and enablers (such as investment in data and digital tools). Doing so will empower them to prepare for the unpredictable.

How distribution is changing

Physical sales forces and intermediaries are responsible for the majority of insurance distribution across geographies and lines of business. While the share of business conducted via these channels has been shifting during the past decade as some customers migrate online, they remain the primary channels across life, commercial, and personal lines property and casualty.

But continued physical distancing is having dramatic and immediate impacts on insurance distribution.

Shifting to digital tools. Agents accustomed to in-person interactions are rapidly recalibrating to provide uninterrupted service to clients who may be facing severe health or economic challenges. These agents are also rethinking how they build relationships with prospective clients as most rely on in-person meetings. In our January 2020 US agent survey, about 90 percent of life insurance agents’ sales conversations and nearly 70 percent of their ongoing client conversations were conducted in person.3 In a follow-up survey in May, less than 5 percent of agents had any in-person conversations. A late-April 2020 survey of European insurance executives found that some 89 percent of respondents expect significant acceleration in digitization, and most also anticipate further shift in channel mix. The COVID-19 pandemic has increased customers’, agents’, and insurers’ desire for comfort around digital- and remote-interaction models and tools.

Moving toward self-service. Client demand for self-service in the current environment has only accelerated the importance of digital. A recent consumer survey in Spain found digital access in insurance has increased almost 30 percent since the pandemic began. But the same survey also found the level of customer satisfaction with digital delivery in insurance was the lowest compared with all other sectors. The number one reason for dissatisfaction was “hard-to-use tools.”4 Thus, insurers will need to invest in expanding and improving self-service tools to better support customer and agent satisfaction.

The goal is to return the business to scale fast, especially as knock-on effects of the virus become clear.

Transitioning offline processes online. Agents are currently navigating legacy products that sometimes require offline execution, such as physical signatures and medical underwriting. Our January 2020 US agent survey results show that almost 50 percent of agents were dissatisfied with the level and function of signature capabilities at their primary carrier. Many customers, meanwhile, currently do not want to engage in a physical medical-underwriting process for fear of contagion. Insurers must then rapidly find ways of digitally underwriting the business—such as making better use of external data, relying on statements of good health, and adjusting fluidless thresholds to expand the number of customers who can forgo a physical medical exam—or risk losing it.

Changing distribution strategy in the near term

By now most insurance companies are thinking about how they should prepare during the near term to be ready for the next normal; many of these steps toward digital distribution are unprecedented. Their focus is mostly on digitally enabling sales forces and enhancing the use of data and analytics—especially for lead generation—to support customers.

Insurers can differentiate themselves in the evolving distribution landscape during the next several months by moving quickly to pilot, test, and learn rather than focus on multimonth strategy efforts; getting started is better than waiting for perfection. The goal is to return the business to scale fast, especially as knock-on effects of the virus become clear. Insurers should focus actions across three areas: customers, sales force, and enablers.

Take care of your customers

To understand how customer preferences have changed, insurers can use zero-based design to rethink existing processes, experiences, and products to be more appropriate for the next normal.5 This may mean simplifying products for remote sales; for example, our research has found that many traditional insurance products are too complex for digital sales (even with instructions). More broadly, understanding how to re-create the effectiveness of an in-person, advice-based relationship between successful agents and their customers in a virtual environment will be key. Insurers can look to advances in telemedicine—which have seen a dramatic uptick in recent weeks—with roughly half of their customers intending to continue using the service after the crisis subsides.6 Telemedicine tools (such as video for conducting appointments and photo- or screen-sharing) can help re-create complex, advice-based conversations virtually while also protecting consumer privacy and security.

To prepare the sales force for the next phase, insurers can focus on three imperatives.

Launch a remote-only distribution force. Interest in remote distribution forces has increased in recent years and is even more relevant now. Remote sales forces have economic advantages from an insurance perspective: they generally allow agents to serve significantly more customers than traditional agents, resulting in lower commission costs per sale. Further, remote forces also allow insurance companies to own their sales messages more directly, enhancing their ability to respond cohesively in a crisis. Indeed, insurers can quickly update relevant scripts and talking points and more closely manage performance to ensure compliance. Insurance companies that have effective hybrid distribution forces may not need to worry about investing in a stand-alone remote sales force in the long term.


By using internal sales desks and hybrid agents (that use both in-person and digital channels) or wholesalers, insurers that do not yet have remote or hybrid sales forces can transition remote capabilities to their skilled field sales teams that are likely more experienced in closing deals and building relationships.

Emphasize joining a team. While there is much discussion about teaming between insurers and agents, our January 2020 US agent survey found about 20 percent of life agents have never worked with any team, despite evidence that agents in teams are significantly more productive. COVID-19 has showed the value of some system redundancy (that is, multiple agents able to access information on one client) to ensure continued operations should agents become sick. Furthermore, teaming brings together agents with different product expertise, which helps sales forces better serve diverse customer needs.

Insurance companies should ensure their commission system supports teaming by allowing split-commission payment or other incentives for joint work. Insurers also need to make sure different agents can access the same customer data and collaborate through customer-information-sharing tools. Finally, investing in virtual training on teaming best practices, sharing the findings with agents, or asking top agents who already work in teams to share their insights with others in their network can also help support this endeavor.

Expand distribution partnerships. As the current environment places an even greater pressure on making sales, now could be a good time to think about insurance marketing organizations or affinity relationships. Expanding distribution partnerships could help the sales force provide products to more customers in need while maintaining sales volume in a time of crisis. This approach becomes increasingly important as a virtual-agent model increases the pressure on agents to add value.

Invest in enablers

Investing in digital distribution now will have several important benefits for insurers, including increasing resilience through a potentially prolonged or multiwave crisis, responding quickly to current and future customer and agent demand, and increasing agent productivity. Agent appetite for digital tools has never been greater; our May survey on US agents during the crisis found that 44 percent of agents rated either agent digital tools or customer tools as the number one capability insurers can invest in to support them right now. Insurance companies can support agents in this area.

Before investing in digital, insurers should assess and identify gaps in the ideal customer and agent journey for their specific business. The findings will help them develop an agile road map tailored to their strengths and vulnerabilities so they can begin closing those gaps.

Another important enabler in distribution is data. Insurance companies typically have massive amounts of data locked in legacy systems or in paper file cabinets. The faster insurers build out capabilities to mine data so that they can identify and respond to customer trends, the more resilient their distribution mechanism will become. The value of data-driven lead generation has become increasingly clear in recent weeks as the typical in-person lead generation approaches (including in-person networking events and community events) of many agents are no longer an option. To tap into the value of their data, insurers can build advanced analytics models to identify lifetime value-based customer segments within their current portfolio.


They can then build additional models for each segment to identify customers at risk of churning or lapsing as well as customers who might be candidates for cross-selling or upselling opportunities. The data can then be integrated into call lists to help agents (local or remote) focus their attention on the highest value leads. Insurers should also build a feedback mechanism to further refine the model building via qualitative input from agents as well as conversion data.

Our January 2020 survey also revealed almost 30 percent of agents said their biggest challenge right now was lead generation, with just under 60 percent of agents willing to pay between 0.5 and 2.0 percent of their gross income for quality leads. Only 20 percent of agents have seen an increase in leads coming from their insurance companies in April, suggesting an opportunity for insurers to invest in data and proactively fill that need for agents.


Planning for the longer term

Beyond the shorter term, insurance companies must consider three actions as they reevaluate their longer-term distribution strategy and lock in distribution shifts toward digital.

Decide on the optimal go-forward channel mix. In-person agent forces will remain an important part of the distribution landscape in the years to come, especially in life and large commercial. But insurance companies need a setup that includes digital- and remote-sales-force options to serve customers who prefer digital or remote interactions. Having this flexible workforce increases resilience in the face of an unknown future. Setting up a remote agency can be done quickly through a pilot-test-and-learn approach, getting remote agents to interact with customers, and refining process based on feedback.

Identify required modifications and new technologies to support the next normal. Leading captive-distribution insurers that see tech and digital as core differentiators or the essence of their value proposition should clarify their desired adjustments to their existing tech setup. These modifications are especially important when enabling the agent channel to operate in a more digital postpandemic world. Tools to increase digital prospecting and build trust in initial conversations are key to helping agents replace their typical offline interactions. To develop the tech road map to the next normal, insurers should work with agents to identify the biggest obstacles that currently impede productivity and rapidly develop the most viable product solutions to close those gaps.


Our agent survey identified signatures, application and submission forms, and client onboarding as processes that agents most want to see digitized.

Be ready to make strategic M&A decisions to augment distribution. Fintechs and insurtechs are likely to be more open to conversations with insurers with large balance sheets because of the financial impact of the crisis. Insurance companies should proactively identify gaps in their distribution ecosystem as well as potential partnerships and acquisitions that could offer avenues to new customer types (such as digital natives), new product types (such as broader protection products), or new geographies.

Changing the distribution operating model will take time to implement, since it not only means employing new tools and assets but also requires substantial capability building that affects other parts of the value chain, such as products and claims. The distribution leaders that will lead in the next normal will be the ones beginning work on the longer-term imperatives today.



winds of change in

global payments

The COVID-19 crisis is having a significant and widespread effect on global payments across sectors. The most striking and potentially lasting impact is an accelerating pace of change in the industry.

The COVID-19 crisis is having a significant and widespread effect on global payments across sectors. The most striking and potentially lasting impact is an accelerating pace of change in the industry.


For the global payments sector, the events of 2020 have reset expectations and significantly accelerated several existing trends. The COVID-19 public- health crisis and its many repercussions—among them, government measures to protect citizens and rapid changes in consumer behavior—changed the operating environment for businesses, large and small, around the world. For the payments sector, global revenues declined by an estimated 22 percent in the first six months of the year compared with the same period in 2019. We expect revenues to recover (only to a degree) in the second half of 2020, ending 7 percent lower than full-year 2019. Over the past several years, payments revenues had grown by roughly 7 percent annually, which means this crisis leaves revenues 11 to 13 percent below our prepandemic revenue projection for 2020.

Given the impact of the COVID-19 crisis on the operating environment, we are diverging from our usual approach of delivering perspectives on the current year’s global payments landscape relative to the prior year. Instead, we focus primarily on the state of the payments ecosystem in 2020 and explore the actions payments providers need to take to compete effectively in the “next normal.”

The insights provided in the full report are informed by Aura’s proprietary Global Payments Map, which has provided a granular, data-based view of the industry landscape for more than 20 years.

A half decade of change in a few months

For global payments, 2020 stands in dramatic contrast to the year before, which was a relatively stable year. Global revenues grew at nearly 5 percent in 2019, bringing total global payments revenue to just under $2 trillion (Exhibit 1). Payments also continued to grow faster than overall banking revenues, increasing its share to just under 40 percent, compared with roughly one-third only five years earlier.


Any stability was quickly disrupted in early 2020 by changing geopolitics coupled with reactions to the COVID-19 pandemic, both public (physical-distancing measures and limits on business activity) and private (anticipatory and causal shifts in consumer and commercial behaviors). As a result of the public-health crisis, payments revenues in the first six months of 2020 contracted by an estimated 22 percent (roughly $220 billion) relative to the first six months of 2019. We expect full-year 2020 global payments revenue to be roughly $140 billion lower than in 2019—a decline of about 7 percent from 2019—a change equal in size to prior years’ annual gains, which leaves revenues 11 to 13 percent below our prepandemic revenue projection for 2020.

Once the classification of COVID-19 moved from a local outbreak to a global pandemic, many governments moved to protect their citizens, leading to lockdowns with various degrees of limitation. The immediate consequence was, of course, a steep reduction in discretionary spending and a severe demand-side shock, along with reductions in cash usage. Discretionary spending initially sank by 40 percent globally. The impact was especially great in the travel and entertainment category, which was off 80 to 90 percent. While some categories of spending rebounded, consumers’ well-documented shift from the point of sale (POS) to digital commerce accounts for the reduced use of cash.

Overall, in retail, the impact was not a decline but a shift in buying behavior. In the first six months of the year, consumers spent $347 billion online with US retailers, up 30 percent from the same period in 2019—corresponding to six times the annualized 2019 growth rate of online retail.1 Amazon’s second-quarter 2020 numbers recorded 40 percent year-over-year growth, boosted in particular by the tripling of grocery sales. In Europe, differences in shopping behavior among geographies were strongly reduced and differences among age groups eroded as many consumers (in particular, older shoppers) turned to online shopping for the first time.

Consequently, all forms of electronic peer-to-peer and consumer-to-business payments have been boosted. In many regions, this has mostly benefited debit cards, which typically align with lower-value transactions and are a logical cash substitute for contact-averse consumers. Switzerland reported an increase in share of debit-card spending to 72 percent, from 65 percent, between January and May 2020,2 mostly at the expense of cash. Higher limits for contactless payments also triggered rising adoption rates across the globe, making inroads beyond debit’s typical domain of smaller-value transactions. For credit cards, the picture is more nuanced; consumers in certain geographies seem to be paying off credit-card balances in preparation for challenging times ahead. In Australia, for example, credit-card share among total card spending fell by five percentage points between February and June 2020, in favor of debit cards.3 In Asia, however, alternative payments, such as instant and mobile payments, grew, while credit cards retained their strong incumbent position supporting e-commerce and POS transactions.

Logically, given the steep reduction of in-person purchases, cash transactions and ATM usage declined—the latter after an initial wave of withdrawals by anxious consumers. Germany and the United States each saw spikes in cash withdrawals in the days leading up to lockdowns. The fear of contracting COVID-19 through high-traffic ATMs and, in some cases, the refusal of merchants to accept cash (often despite legal obligations) nudged consumers toward electronic payment options to complete purchases. ATM usage fell by 47 percent in April 2020 in India, while the United Kingdom experienced 46 percent declines in ATM usage per month on average from March to July 2020. By the end of 2020, we expect a shift of four to five percentage points in the share of global payment transactions executed via cash—down from 69 percent in 2019—propelled by evolving behavior in both mature and emerging markets (Exhibit 2). This is equivalent to four to five times the annual decrease in cash usage observed over the past few years. The reduced use of cash benefits banks overall: the cost of cash handling exceeds cash-related revenue inflows, and electronic payments generate incremental revenue.


The pandemic has accelerated the move from physical to virtual banking. Banks in multiple geographies are closing branches (or in some cases, will not reopen branches they closed as a result of the pandemic), as well as ATMs. In Australia, the top four banks have removed 2,150 ATM terminals and closed 175 bank branches since June.

These accelerated behavior changes in response to the COVID-19 crisis caused a fundamental shift in adoption of technologies, such as real-time account-to-account payment infrastructures, that had been developed over recent years. Investments in instant payments have begun to reap greater benefits, both in POS and e-commerce usage of instant solutions. The trend comes in response to customer expectations for speed, price differences, and greater adoption of customer-facing applications, such as specialist GrabPay in Singapore or bank solution MobilePay in Denmark. In the United Kingdom, as payment speed becomes more important, consumers and businesses have increasingly opted to settle bills online. For example, the average daily value of transactions processed by the Faster Payments service rose by more than 10 percent from the fourth quarter of 2019 to the end of March 2020. In India, banks stepped up their digital propositions, integrating bill payment, e-commerce links, and Unified Payments Interface (UPI)—the nation’s local real-time payment system—into mobile banking apps to present three digital options in a single customer interface. UPI spending increased by roughly 70 percent over the first seven months of 2020.

At the same time, governments have tried to protect the economy as a whole and the well-being of companies as well as citizens. Additional easing of monetary policies led to lower interest rates, further deteriorating interest margins. Monetary authorities reduced benchmark rates in Europe and the United States and then in emerging markets, including Brazil, India, and South Africa, to limit the impact of pandemic-related recession, making net-interest-margin (NIM) compression a global phenomenon. Large and small markets alike are experiencing rate cuts of 100 to 300 basis points. Overall, we expect global interest margins to contract by approximately one-quarter percent, on average, in 2020, compared with a six-basis-point reduction in 2019, shrinking payments revenues globally by approximately $82 billion. Digitization benefits must first fill this gap before generating growth.

Cross-border payments flows also have been severely affected by the pandemic, as well as by geopolitical dynamics. In 2019, cross-border payments totaled $130 trillion, generating payments revenues of $224 billion (up 4 percent from the previous year). In the first half of 2020, many cross-border fundamentals radically changed:

  • International travel all but ground to a halt, with more than 90 percent of countries imposing restrictions. Transaction-fee margins on remaining volume also declined, because of waivers offered to stimulate demand to offset the impact of a reduction in leisure and business travel flows, which fell by more than 70 percent.

  • During the pandemic, interregional trade saw greater impact than intraregional. Drops in interregional flows for Asia (−13 percent), Europe (−20 percent), and the United States (−23 percent) directly cut into cross-border payments volumes, while the prices of oil and other commodities fell sharply.

  • Business-to-consumer payouts (often salary disbursements) and remittance payments slowed, because of restrictions on the movement of cross-country workers and growing unemployment.

  • Cross-border e-commerce volumes provided a notable exception to the gloomy news: the second quarter of 2020 brought double-digit growth as initial logistic challenges were resolved. UPS and PayPal, for example, reported double-digit growth on cross-border shipment volumes and the value of merchandise sold.

  • Increased volatility and uncertainty have enabled growth in foreign-exchange-related revenues and pushed up treasury-related transactions as companies scramble to mobilize surplus cash.


In addition to the impacts of the COVID-19 crisis, certain geopolitical forces that began to materialize in 2019 have grown stronger since. Many companies are realizing the strategic weaknesses in their existing global supply chains, given trade frictions and potentially recurring public-health disruptions, leading to the exploration of nearshoring and other rebalancing. Aura analysis reveals potential shifts of as much as $4.6 trillion of global trade flows over the next five years. The value-chain shifts that began before the crisis have yet to take full effect—because of the complexity of moving such supply chains and the challenge of building new ones—so this is a longer-term trend.


The rest of 2020 and beyond

The second half of 2020 presents a quite different outlook. Broadly, we see some pressures from the first half continuing but with pronounced geographic variations.

Our forecast uses Aura’s nine macroeconomic scenarios for the impact of the COVID-19 crisis. According to a survey of more than 2,000 executives around the world, the most likely outcome is the muted-recovery scenario (A1), a combination of virus recurrence and a muted economic recovery, with regional differences.

A regional overview of the year in payments

Applying the A1 scenario to global payments, we forecast that most categories of payment transactions are poised for sharp and rapid rebounds as lockdowns are lifted and behavioral shifts from cash to electronic payments are largely sustained. On the downside, interest-dependent revenue components are likely to remain suppressed for an extended period, mostly affecting banks that provide payment services. For specialists and fee-based revenues, much will depend on differences in spend patterns (for both businesses and consumers) before and after the crisis. For instance, dining, travel, and entertainment expenditures, which often carry higher transaction fees, are unlikely to rebound in the near term.

As we indicated, not all players, countries, and products will arrive at the same end state (see sidebar “A regional overview of the year in payments”). At a regional level, the following differences are notable:

  • Asia–Pacific (excluding China) could suffer larger declines, as its revenue model is more affected by NIM contraction, faces increasing government pressures on mass-market transaction fees, and has greater exposure to long-term affected industries, such as travel, tourism, and international remittance payments.

  • Europe may be poised for a swifter rebound, for two reasons. First, NIMs were already so compressed before the COVID-19 crisis that there was little room for further squeezing. Second, volume growth is being fueled by the acceleration of digital migration in Southern and Eastern Europe, and by government stimulus measures.

  • In North America, the revenue benefit from an accelerated shift to digital channels has been more than offset by credit-card economics—outstanding balances are down roughly 29 percent from 2019 levels, and increased delinquencies are a possibility. Considering credit cards are the largest source of the region’s payments revenue, at roughly 44 percent, the decline in outstanding balances alone will outweigh the benefits of increased use of digital channels.

  • In Latin America, which is characterized by a significant unbanked population, cash usage will likely remain resilient. Among the banked, Visa-supported mobile wallets such as PLIN and Yape have gained more than a million users since December 2019, with the pandemic accelerating this trend.

  • Overall, the greatest recovery opportunities reside in countries with low electronic penetration (such as Brazil, India, Indonesia, and Thailand), as the next normal provides impetus for electronification. However, countries starting from a high level of digitization (such as France, Germany, and the United Kingdom) are also seeing pandemic-induced behavior push cash usage to the minimum—fueling payments-revenue growth.


The relationship between GDP and payments revenue

Overall, while the global health crisis leaves banks and specialists with meaningful revenue concerns, the real challenge—as well as the real opportunity—lies in embracing the acceleration of change. If that issue is addressed properly, the global impact on payments could be significantly more positive than the outlook for GDP (see sidebar “The relationship between GDP and payments revenue”).


Looking forward: New rules for engagement

Long-term forecasting is unusually difficult in the current global environment, given the looming uncertainty on multiple fronts: economic recovery, interest rates, global trade, and a murky time frame for public-health breakthroughs. One thing seems clear, however. The imperative to accelerate transformations to digital-first and more agile organizations has never been greater, and it exists globally.

Still, the current global context removes many of the long-standing impediments to embracing transformation. As financial institutions enter this period of change, we propose five major themes to which payments and bank executives should be particularly attentive:

  • Choose where you play wisely. The composition of your customer portfolio matters more than ever, as restructuring of consumer and commercial commerce reshapes where value is captured in payments. Growth is notably accelerating in the small and medium-size enterprise segment, B2B–to consumer (B2B2C) business models, and new customer arenas, such as cross-border e-commerce. The role of platforms is also growing fast, with ecosystems as a new growth segment. The shift to digital makes it possible for providers to create far more tailored solutions, and customers have shown a willingness to pay for these if sellers demonstrate value.

  • Services and solutions, not financial products. Commercial customers expect bank and payments partners to enable greater sales by improving end-customer experience and the adoption of new business models—for instance, marketplace onboarding, B2B2C credit, and loyalty services—that do more than move money and manage cash flow. For consumers, the payment step is moving into the background of the shopping journey, and they expect support with conducting commerce and avoiding negative consequences, not merely a means to pay.

  • Sales excellence. Transaction banking and acquiring are nearly a decade behind the technology and telecom sectors in sales and customer-management practices. These other industries have an entirely different skill set and language for sales and service—for example, sales motions, agile sales, inside sales, and customer success—all made possible by data and algorithms delivering the best adapted solutions for the market. Closing this decade-wide gap over the next two years will deliver significant value.

  • Transaction-banking client experience. New challenges in supply chains and growing trade pressures are accelerating what has been a slow disruption in international payments and trade. Delivering the long-promised step-change improvement to corporate clients will require fundamental organizational change, particularly for siloed banks.

  • Change in focus from the time value of money to the money value of time. Becoming digital by default requires significantly redefining the institution’s operations through the lens of customer journeys. To plan that digital transformation, most players have built road maps spanning the next five to six years. But given the modified revenue context, continued investment requirements, and market expectations spurred by the new environment, winners will find a way to deliver on this transformation within 18 to 24 months.


The events and trends of 2020 have undeniably created a changed global context for payments. What is most significant about this change is not so much the importance of the payments business or the kinds of trends transforming the market, but the speed at which the change is occurring. Change in 2020 takes place four or five times faster than before. This puts all actors on the payments landscape under pressure to transform and adapt in order to preserve their positions and results.


in the time of coronavirus: COVID-19 response and implications for banks

Image by Brooke Lark

As the effects of the COVID-19 pandemic continue to reverberate, banks have a role to play as systemic stabilizers.

The profound humanitarian fallout of the COVID-19 crisis carries with it the potential equally disruptive economic fallout. The path ahead is hence a precarious one, driven by epidemiological uncertainty, the unique blend of resulting shocks to both supply and demand, and “preexisting conditions” in the global macroeconomy.

At this writing, Europe has become the prime epicenter of the crisis, with nearly 75 percent of new cases reported globally on March 18th (Exhibit 1). In Italy, years of low growth and high government debt are colliding with the rapid spread of the disease in an elderly population. Spain and France, face similar prospects, as do many countries in Asia. Thailand, for example, is similarly reliant on exports and tourism receipts and already has one of the highest debt burdens in the region at around 75 percent GDP. The particular characteristics of the US economy may make it susceptible to the impacts of COVID-19, despite its general strength before the virus’ arrival. A high number of households and businesses are vulnerable to the impact of disease-containment measures, because of their high-debt burden.

At the same time, yield chasing over the past several years may exacerbate the potential for market illiquidity. The Fed and the European Central Bank (ECB) have already cut rates to zero; historically low rates limit the tool kit of other central banks, and several global regions are probably already in recession as many economists and the latest data from China suggests. Addressing the situation will require further global action and public–private coordination. Banks around the globe will play a critical role in this as systemic stabilizers for their customers, their employees, and for their economies at large. Cash and deposit services, credit extension, payment facilitation, and market making are all essential services.

This memo lays out our initial recommendations for actions that banks should take now, beyond what common business continuity plans or crisis response checklists suggest. In their immediate response, we believe institutions should plan for an acute period of multiple months, spanning their entire footprint, and with a view of all stakeholders—not the more constrained circumstances that business continuity plans typically address. At the same time, banks may begin to stress test their capabilities and financials, laying the groundwork for identifying long-term strategic implications and ensuring a smooth bridge between the present and future.

Immediate response

Banks have already taken a series of actions in reaction to the spread of COVID-19. Common steps we’ve seen include establishing a central task force, curtailing travel, suspending large-scale gatherings, segregating teams, making arrangements for teleworking, and refreshing external-vendor-interaction policies.

Beyond these immediate and basic actions, banks should prioritize three measures tailored to the particular combination of biological and market stresses and how they affect the global market. These points draw on the experience of China, Italy, and several other countries, acknowledging that differences exist in economic and political structures, healthcare systems, and social and cultural norms among these countries.

1. Normalize workforce measures for multimonth sustainability

As a top priority, nearly all firms have already taken proactive measures to protect their people and to contain the spread of COVID-19. These include restricting travel and taking other prevention-oriented policies, emphasizing workplace hygiene, offering alternative ways of working, and initiating proactive communication.

Measures include restricting travel and taking other prevention-oriented policies, emphasizing workplace hygiene, offering alternative ways of working, and initiating proactive communication.

However, health measures to contain propagation may take months, not days or weeks, as we’ve seen in China. Therefore, banks will need to make sure the measures they have put in place are sustainable—and designed to get the best out of their people, while preserving their mental and financial well-being over such a period. Further, specific consideration will be required for contingent and contract workers, who might be most immediately impacted.

Because banks are providers of essential services to customers and communities, and the markets more broadly, they will need to adopt a carefully segmented approach to workforce management, informed by service criticality and exposure risk (Exhibit 2). Particularly careful attention is required for those in the workforce who provide critical services that are either customer facing or that require infrastructure only available at work premises. These include, for example, branch employees, some call-center support, sales and trading personnel, employees in the Treasury function, as well as some facilities and custodial staff. Korea’s Shinhan bank directed 150 of its call-center staff to work remotely, to handle activities that do not require access to customer information, such as queries on financial products. More detailed requests they forward to colleagues who continued working in the office.

One case in point: trading activities are central for market functioning but cannot easily be executed remotely because of technology and compliance requirements. Most banks have already taken a number of actions including segregating team members and activating business continuity plan (BCP) sites for parts of the sales team. Furthermore, BCP sites may have insufficient capacity to support a split-team model, requiring banks to consider alternatives in the event of a prolonged crisis. Since the virus reaches across all major financial centers, the potential for simultaneous infection across sites rises as the disease spreads. Institutions should maintain and test backup plans in case this occurs and establish clear triggers for putting such plans in place, such as a case of infection at or in the vicinity of one site. Backup plans might include the potential to move immediately to a work-from-home model, for which regulatory clearance and robust technical testing should occur preemptively.

For those segments of employees for whom remote work is possible (a group that may well have to be larger than initially envisaged), banks should review policies, practices, and controls and tailor them to the new working environment. “Work-at-home” organizations and routines, output-based performance management, and technological capabilities should be a particular focus. In parallel, banks should make sure both employee relations and internal technical support are sufficiently staffed and trained to accommodate potentially new and elevated levels of requests. Critically, institutions will need to ensure that appropriate controls are in place in all altered workplace settings and that trade-offs between contingency measures and risk appetite are well-considered. Key considerations include data security, fraud, cybersecurity, and privacy, especially safeguarding personally identifiable information. Bank managers should also pressure test and update business-continuity and disaster-recovery plans as needed for these new working conditions.


2. Provide essential banking services to retail consumers

People will continue to need essential banking services through these trying times. Banks should continue branch and ATM operations with the appropriate safeguards, while encouraging widespread use of remote services. This approach will account for needs and preferences across all consumer segments, including the older part of the population that is both more vulnerable to COVID-19 and less likely to adopt digital channels.

Institutions can continually monitor and assess consumer demand for in-person services to adjust capacity and minimize risks. For example, in some areas of China, banks observed limited demand for services other than ATM access and so were able to close most of their branch locations without disrupting customer service. Banks in several regions, including Hong Kong, Italy, and Germany, have also closed (some) branches to restrict staffing and hours when the risk to the public and employees was deemed to outweigh the need to maintain the branch. In Korea, which has adopted aggressive virus testing, branches have tended to remain open unless active cases are detected.

Physical locations that adopt rigorous yet consumer friendly approaches to disease containment both safeguard health and inspire confidence in the system. Examples borne from experience include evident deep cleaning of all branches and ATMs, alternatives to in-person sign-offs, and further leveraging branches with remote advisory capabilities.

Digital shift in China: Digital offerings can provide necessary services while supporting employee and community safety

At the same time, banks should encourage and support customers to use digital and other virtual channels, wherever possible. To encourage customers to use existing remote channels and digital products, institutions can launch positive and safety-oriented messaging aimed at reducing reliance on branches for services that are digitally available—while also providing tutorials online and by phone and increasing remote support options. Banks can also enhance their current digital offerings, identifying key functionalities that can be improved quickly; for example, they can increase the limit for online activities, and they can simplify the procedure to reset passwords. Institutions in both Italy and China have found that many people readily used remote channels and digital offerings (see sidebar “Client response in Italy: Segmenting the client base can maximize the effectiveness of bank support”).

Regrettably, increased fraud and information security risk are likely. Opportunists and threat actors may exploit confusion and vulnerabilities stemming from changes in ways of working and serving customers. Banks should include risk professionals on agile-product-development teams and run controls tests in parallel. However, they may also need adjust their risk appetite upward and should make this explicit. Recent regulatory communications seem to indicate that such an adjustment, if well-examined and well-communicated, would be positively received (Exhibit 3).

3. Fulfill social mission to support households and businesses with credit

A majority of households and businesses will be negatively affected by the unprecedented nature and extent of the current health and safety measures. For example, in the United States, 74 percent of workers say they are living from paycheck to paycheck, while 58 percent are paid by the hour. For them, financial impact of quarantine measures and lack of employment—due to reduced sector activity, such as travel—will be particularly difficult. The stress will be especially acute for those who are already in debt. These individuals will likely need further support from banks to support day-to-day liquidity needs through credit. Even in places where household savings rates are high, such as in some Asian countries, a greater connection to global markets means more households and businesses are likely to be affected.

Among businesses, the impact will vary significantly by sector and by company. It seems quite likely at this point that travel and tourism, entertainment, automotive, oil and gas, and healthcare industries will be most affected due to disruptions in supply and demand. Within these sectors, smaller businesses, such as those that cannot shift to remote work and online delivery and those catering to the most vulnerable segments, are likely to be more affected.

From a credit perspective, banks should rapidly identify most affected sectors and customers to understand how they can be most supportive to their clients and community. Some are already considering relaxed payment schedules and availability of credit, and the media is already monitoring hardship requests. In doing so, banks might draw on lessons learned in Italy and elsewhere (see sidebar “Client response in Italy: Segmentation of the client base to maximize the effectiveness of the support”). This will include proactively engaging with clients to understand their situation, segmenting portfolios based on expected needs, developing an internal view of where support measures will be the most effective, and adjusting risk-mitigation actions for early delinquencies and for nonperforming exposures.


While banks have taken some of these relief measures as part of natural-disaster response in the past, this situation will require a much broader geographical scope. Supporting clients in these critical times will deepen customer relationships and reaffirm the role of banks as key enablers of the economy.


Regulators around the globe understand the challenge and are already relaxing rules for banks. For example, the ECB announced on March 12 that banks can fully use their capital and liquidity buffers.


Banks will be allowed to operate temporarily below the level of capital defined by the Pillar 2 Guidance, the capital conservation buffer, and the liquidity coverage ratio. The ECB also suggested that national authorities relax their required countercyclical capital buffers. In Asia, the Bank of Japan has loosened the monetary policy through conducting various operations including purchases of Japanese government bonds, US dollar funds-supplying operations, exchange-traded funds, and real estate investment trusts. In the United States, regulators have expressed support for firms that choose to use their capital and liquidity buffers to lend and undertake other supportive actions in a safe and sound manner, saying that these buffers were designed to support the economy in an adverse situation; this will also allow banks to continue to serve households and businesses.

From a liquidity perspective, the simultaneous supply and demand shock has stressed companies across industries, pushing them to draw on credit lines to support working capital and stockpile cash. Additional drawdowns in commercial as well as retail lines of credit are also to be expected, in combination “with a flight to quality” toward deposits of certain customer segments, such as wealth-management clients. Strong internal liquidity-management practices will be required for banks to be maximally effective in supporting market liquidity and changing customer borrowing needs. The severity of the crisis is likely to lead to larger-than-expected drawings on credit lines. High market volatility will also elevate margin calls for derivatives. The liquidity coverage ratio as a measure of outflows over a one-month period may not be enough to capture all the risks to liquidity from a longer period contagion. Banks will need to upgrade their risk models and mobilize collateral for refinancing at central banks.

Banks should remain vigilant about liquidity measures to support their customers and confirm that telling indicators, such as corporate-deposit rates and interbank lending, are monitored with the right level of attention and escalation. Select leaders should ensure proactive communication and clear, deliberate signaling. It is even possible that US banks may be faced with the question of whether to pass on negative interest rates as banks have done in many European countries in recent years.


Despite central-bank interventions, firms should remain vigilant about liquidity measures to support their customers and confirm that telling indicators, such as corporate-deposit rates and interbank lending, are monitored with the right level of attention and escalation.

Stress testing financials to plan for the future

We anticipate that financial-institution performance will be hit across all dimensions—fees, interest revenue, losses, and expenses. However, variances will be substantial by sector and customer segment, with details depending significantly on the scenario that ultimately unfolds. While the exact financial impact of the COVID-19 crisis remains highly uncertain and will be bank dependent, we anticipate the following:

  • Fee income likely will fall, driven by lower consumer spending in retail businesses, decreased assets under management in asset-management divisions, as well as slowdown in investment-banking activity. Some sales and trading businesses may be an exception: fixed-income flow volumes may increase, and high volatility will translate to elevated bid–ask spreads and potential mark-to-market gains.

  • Net interest margins will remain compressed, as rates remain low or fall slightly further. Any increase in borrowing volumes, for example, from drawdowns on lines of credit, may be offset by losses in credit portfolios.

  • Credit losses will be elevated across most sectors, across small businesses and in certain retail segments (for example, self-employed workers, hourly-wage earners, uncollateralized products). Within commercial banking, travel, tourism, and entertainment segments will be the hardest hit. Oil and gas lending may also be challenged, with ultimate outcomes depending heavily on geopolitical factors affecting oil production and price. Across all industries, smaller and less efficient businesses will be hit disproportionally.

  • Remote work may increase costs for setup, and may cascade to lost wages normally paid to hourly workers and contingent staff. Operational losses due to fraud are also likely to increase.


To understand the impact on their own portfolio under rapidly evolving scenarios, banks need to apply testing tools, complemented by close continued monitoring. To do so, they can leverage their existing stress testing frameworks, such as the capital adequacy infrastructure developed as part of Comprehensive Capital Analysis and Review (CCAR) in the United States. To maintain safety and soundness and limit impact on financials, banks should maintain an up-to-date and scenario-based view of expected financial impact across businesses. In doing so, however, we believe five key imperatives should be borne in mind:

To understand the impact on their own portfolio under rapidly evolving scenarios, banks need to apply testing tools, complemented by close continued monitoring.

  1. Prioritize and iterate. Unlike regulatory stress testing, this is not a hypothetical exercise. Stress-test results have direct implications for decisions banks are making in real time. Banks will need to identify which industries and segments are in most imminent danger and quickly analyze and monitor data for early warning signals. That base will allow them to build a fuller view of the economic landscape iteratively, as the pandemic evolves.

  2. Reverse stress test to identify worst-impact scenarios. Regulatory stress testing, as well as most banks’ supplemental stress testing, lay out specific hypothetical scenarios to assess their potential impact. In today’s world, banks should look immediately to understand the outer limits of possible actions to support borrowers and markets during the trough.

  3. Build scenarios based around potential virus spread and human reaction. Building mere macroeconomic scenarios will not be helpful as these would be divorced from the underlying drivers of the crisis. Instead, scenarios should be built around the spread of the virus. This will require developing a range of expectations for the progression of the disease, government response, and supply and demand shifts, and only then looking at macroeconomic changes. Analyzing the interaction between supply and demand and associated impact on macroeconomic factors will be particularly complex, as there is no direct historical precedent. Historically linked variables, such as income and employment, may decouple. Typically decoupled variables may become more correlated, such as when multiple business-continuity-plan scenarios occur simultaneously across the globe. Also consider “knock-on” operational risk-like scenarios, for example, the impacts of food shortages.

  4. Examine performance assumptions built into existing models. Because the situation is unprecedented, assumptions built into models may not hold. For example, assumptions common in some treasury models have already been broken in this past week’s US Treasury price movements. As another example, collections-efficiency assumptions are unlikely to hold because of situation-dependent decisions on when and whether to collect at all.

  5. Incorporate implications of near-term actions, including on expenses. Most institutions have appropriately acted quickly to try and contain virus spread and protect their employees’ and customers’ health. If these measures remain in place for several months—consistent with China’s experience—their implications may be nontrivial and will need to be better understood.


As deposit gatherers, credit grantors, and payment facilitators, banks play a vital role in the functioning of the economy. They are not simply commercial enterprises but provide important services to individuals and communities. Their health, and that of their workforce, the continuity of their operations, and their safety and soundness are therefore critical. The last financial crisis led to much emphasis on the systemic risks posed by banks; the current one, which has entirely originated from outside the banking system, provides the opportunity for banks to prove their role as systemic stabilizers, delivering services at least in part for social good. Needless to say, this will require very careful thinking and trade-offs among various short- and medium-term options.

In doing so, bank leaders should bear in mind that this crisis is likely to reinforce, in direct proportion to its extent and duration and maybe even more, a number of existing trends. Workplace dynamics and talent management, already evolving in a digitizing world, may be durably changed after an extended period of remote working. As they settle into their new routines over the next weeks or months, banks should consider this as a testing ground for what does and does not work and draw implications for their HR, organizational, governance and culture transformations. Likewise, customer routines and expectations may also shift further in meaningful proportions, both in terms of digital adaptation and the expectation for proactive communication and care. Operational resiliency is also bound to remain critical with mounting risks of pandemics, societal and geopolitical tensions, and climate change. Banks should carefully draw on the lessons that the current situation offers and use them to inform their digital transformation, while building a much higher degree of both operational and financial resiliency.

Image by Jon Tyson
Image by Priscilla Du Preez

Reshaping retail banking

Image by Karsten Würth

Banking imperatives

Image by Lerone Pieters

Retail wealth management

Image by Craig  Whitehead

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