The lockdown measures implemented during the Covid-19 crisis have provided an extended proof of concept for a remote living and working model. This has accelerated digitalisation, with some commentators predicting that, in the next 18 months, we may see digital transformation that would otherwise have taken five to seven years.
Rethinking the business model
To keep businesses going during lockdown, organisations have had to consider and adopt remote working rapidly and at huge scale. Some of these challenges will be ongoing post lockdown. Organisations with business models that have previously involved lots of people working in close proximity have been forced to move to a digital model.
Many believe that this rapid switch to digital processes has "sparked a new mindset," giving business the enthusiasm and energy to overcome cultural resistance to change. Many organisations have realised, when forced to change, they can very quickly and successfully adapt to technology supported remote working.
We expect continued adoption of digital technologies including, for example, business processes automation, albeit with careful management and remote human oversight. As we spend more time online, the lines between home and work life are blurring. The impacts of this on both employees and employers may be positive and/or negative and remain to be seen.
Impact on financial services
This digital acceleration is being felt keenly in the financial services sector. During lockdown, as banks have closed branches and moved their face-to-face personnel to overloaded telephone support services, reliance on digital banking and digital payments has become fundamental in day to day life. Hygiene issues associated with handling of cash, cards and contact pads has also encouraged a move to contactless payments where available.
Traditional banks are under customer pressure to implement digital solutions for the full range of financial services and are competing with each other and Fintechs in doing so. Artificial intelligence will continue to be a key technology and a pre-requisite for digital services such as call centre bots, account opening procedures and loan automation. Digital identity technologies will also be important as KYC processes increasingly move online.
Rapid digital transformation is also relevant not just for the retail side but also from an institutional perspective. Operating in a highly regulated sector, pre-lockdown, banks would normally only allow trading from a monitored desk or trading floor. To allow traders to work from home, a whole new model has had to be adopted, with significant relaxation of systems and controls. Securities exchanges have also been overcoming the challenges of going paperless and digital workarounds have been achieved to deal with mass virtual signings.
Read more: Covid -19 - FAQs on e-signing and virtual signings (March 2020)
For digital asset native payments companies, the 'new normal' arguably is just the norm for them. These kinds of start-ups have an ingrained level of comfort and familiarity with remote working and teaming. Rather than stifle innovation, the pandemic's increased demand for digital solutions has invigorated these companies and stimulated investors' interest in them.
The risk is real
New digital models can lead to a weakening of usual systems and controls, creating heightened compliance, operational and cyber risks - a problem both for financial firms and their regulators.
Examples include increased opportunity for fraud and cyber attacks (especially phishing), as criminals and state actors exploit the vulnerabilities of large numbers of people working remotely and anxious for information about Covid-19.
In financial services, we have seen a relaxation of some compliance requirements as regulators grant forbearance measures to financial firms in crisis. It's a mixed bag in terms of how long these measures will apply - some of these have a deadline (which could still be extended), while others are more open-ended. Read more on Digitalisation as a key priority area for the EU's new legislative cycle in Section 9 of our Issues for Boards 2020 publication.
The role of fintech
With the acceleration of the trend towards digital payments, the pandemic could also help spur the development of Central Bank digital currencies (with particular interest being shown by the UK, France and China). Regulators are acknowledging that Covid-19 "highlights the value of having access to diverse means of payments, and the need for any means of payments to be resilient against a broad range of threats" (Bank of International Settlement).
Fintechs are emerging as the natural solution to the demand for rapid digitalisation. The fintech revolution emerged from the previous global financial crisis, with fintech companies built on a model of agility, flexibility and innovation in the face of uncertainty. Some Fintechs will be facing their own challenges - those without funding or dealing in FX markets, for example. However, for those that can survive the short term and continue to innovate, there will be longer-term opportunities, as digital-only financial services becomes the new norm and a bigger pool of digital customers come online.
Read more about the international regulatory response to stablecoins: The FSB outlines recommendations for regulating global stablecoins as Libra issues revised whitepaper
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Fintech solutions, from digital payments and AI enabled services to potential new forms of digital currency, are key components of the 'new normal' in finance. - Joshua Ashley Klayman Tech Sector Leader, U.S. Head of Fintech and Head of Blockchain and Digital Assets, Senior Counsel
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