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Economic Crises Point to Accelerated Innovation for Banks, Covid-19 is no Different

No-one could have expected the unprecedented year that we have had, and the coronavirus pandemic has taken its toll on industries all over the world, including banking and financial services. Though the outlook on the economy is still uncertain as we navigate through this period, looking back shows that innovation is always rife during crises, with Covid-19 being no different. 

Neil Hartman has his thoughts on this. As senior director of financial services for West Monroe, a biz/tech consulting firm, Neil is focused on the intersection of technology and business issues in Financial Services. With over 20 years of experience in the industry, here he explains his view on innovation history in banking, as well as the opportunities brought about by the Covid-19 pandemic. 

Historically, innovation in banking has accelerated in times of crises—and what we’re living through with Covid-19 is no exception. As the pandemic crisis rages on and the economic outlook remains uncertain, understanding the historical relationship between economic crisis and the trajectory of innovation in banking has never been more relevant.

Given the current landscape, financial services institutions are looking for predictive signals for how to plan for the coming year. Looking at both past economic crises and recent performance can provide clues.

There are numerous historical examples of economic crises revealing vulnerabilities and prompting innovation in financial services. Responses to these crises have often resulted in policy and technology changes that settled into permanent market conditions. Financial institutions that adapt quickly and double down on innovation are the ones that will thrive.

It is encouraging that many banks responded quickly and effectively over the past several months—by upgrading security protocols on the fly for universal work from home and rapidly working with the government to distribute Paycheck Protection Program (PPP) funds. But as the industry attempts to keep its footing amid a treacherous economic terrain, it’s wise to keep an eye on old patterns and remain committed to further technology adoption.

 Historical crises drive innovation, permanent changes

Banks poised to accelerate their digital transformation will be set up to embrace a pandemic-altered world. That much is clear when we look at how financial innovation developed over the past several decades.

We live with many regulations, market conditions, and technologies that took hold during periods of economic upheaval. Major policy changes like the FDIC and the Dodd-Frank Act upended the way banks operated. Other tools of monetary policy like government spending programs leveraged in World War II to balance tax increases for the war effort and the huge injections of cash in the days following 9/11 created powerful new market dynamics. All of these profound changes required speedy, decisive action from banks to adapt.

Many of the technologies and innovations embedded in our daily financial lives were born out of more recent global events. After 9/11, remote deposit capture was born when flights were grounded, making it impossible to fly checks between banks for verification. Bitcoin first surfaced in 2009 as a direct response to distrust in government. And Square and Venmo also first established in 2009 as a more consumer-direct, efficient processing platform.

In a business landscape in which only the nimblest survive, the more effectively financial institutions can adapt to a changing world in the wake of crises, the better equipped they will be to meet the demands of the future.

Covid crisis reveals vulnerabilities and opportunities

Digital transformation has been an industry buzzword for years. Yet, the real value of digital organisations was never made clearer than in the early weeks of the Covid-19 pandemic and the onset of stay-at-home orders. The pandemic changed what is possible. Many banks, especially those of the mid-market variety, were forced out of their comfort zones almost overnight. In a matter of weeks, the industry shifted its workforce from entrenched branch-based settings to their homes. We’ve also seen the industry pivot to rapidly stand up new digital tools and automation capabilities to help service small business loans under the CARES Act Payroll Protection Program.

That so many banks demonstrated the capacity to move rapidly in developing and deploying technology over the past several months is extremely encouraging. The short timelines and national pressures of the CARES Act and PPP in March and April allowed no margin for delay and forced banks to respond with a degree of agility and speed that many only aspired to previously. Banks that acted decisively delivered value via digital channels to their clients and communities at a time of great need. Those that took the more traditional path to technology innovation—trying to “perfect” their solutions—left their clients disappointed.

Like other historical instances, the pandemic revealed real vulnerabilities for banks that weren’t prepared to operate in digital environments. But many did rise to the occasion, moving with unprecedented speed to address the new reality. Now, banks must use newfound confidence with technology deployment to maintain their momentum.  Crises represent times of momentous change, which means they provide an opportunity to depart from the old way of doing things. Expectations around financials are softening across the industry, but banks can use this to their advantage – and they would be smart to accelerate longer-term investments that will position them to win, engage, and retain customers.


  • Polly is a journalist, content creator and general opinion holder from North Wales. She has written for a number of publications, usually hovering around the topics of fintech, tech, lifestyle and body positivity.

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