COVID-19 and the Future of Banking
It is apparent that 2021 and the future going forward is not going to be the same. But what does this really mean for banking? I would like to provide some considerations and thoughts (general and technical) on a few topics related to the future of banking and being prepared for crisis situations.
Internal controls are critical to any organization, especially banks. To jump right into an example, file maintenance changes. When a change is made to a customer’s account, an employee independent of the process is usually tasked with reviewing or verifying the change for accuracy to prevent inaccurate data from being inputted or fraudulent transactions from being committed. If an employee who would be tasked with reviewing these changes is out for an extended time, is there a backup properly cross-trained? What if that employee who is authorized to make the file maintenance changes is out as well, and someone not usually tasked with that has to step up? Is that backup properly cross-trained as well? If certain employees are out for an extended period and backups are not properly cross-trained, then the internal controls’ front and back end have potential weaknesses. If the borrower calls and says, “my loan payment was applied incorrectly because my interest rate was not updated correctly” or “my loan due date was pushed back, but my loan is still showing as past due,” is the control operating effectively?
File maintenance changes are just one example. This applies to every control at your bank; are backups properly cross-trained to effectively handle controls and processes at the drop of a hat or for an extended time? Will these controls and processes still stand up to an audit or an exam without criticism? COVID-19 has made us think about every possible possibility. Are the proper controls in place, including the effective cross-training and the proper hierarchy to handle employee absences without jeopardizing the overall control while still preventing the possibility of errors, fraud, and compliance issues?
Remote banking and e-banking are certain to expand in the future, and many banks already have a head start. While some of these types of products may have been previously discussed, COVID-19 has certainly accelerated our thinking. I think I am like most people and had never heard of Zoom until about April of last year. So what is e-banking to your bank? Some questions to consider:
- What services are to be offered to a customer who does not want to go inside a bank building or even handle a deposit or withdrawal slip through a drive-thru?
- Is remote deposit capture the future for all businesses and consumers?
- Is your bank ready to offer these products from a financial perspective, from an IT/security perspective, and an internal control and policy perspective?
- What is the impact on the bank’s disaster recovery plan and management succession plans? Are these plans updated to account for the times we are living in now and how business interactions and banking will differ going forward? Now is a good time to dive deep during the review of these plans and ensure they are adequate for the future.
What do your customers and borrowers really want? Not every online product or app feature has to be offered, but what are the main products your customers really want? E-signing for loans is another example. And once these products are established, who is to say your bank cannot open up your market and grow?
The need to go remote or work from home has not just changed the way we work or think about work, but it has changed hiring, too. This is not a consideration solely for banks but for all businesses. How can banks benefit from this? While not all positions can be done remotely full time, many positions can be done effectively remotely if the proper controls are in place and the technology and security at your financial institution allows it. What does this really mean? Before, hiring outside your market or state was not even a consideration or a remote possibility, but now hiring strong potential employees from outside your market or state may become commonplace for certain positions. Why cannot someone living in Virginia be a credit analysis employee at your bank in West Virginia? Loan files are electronic, right? If not, scanning loan files should be a top priority, now more than ever. They are likely independent and have no relation to the customers and businesses they are analyzing. While they may not live locally, management does still have the final say on approval and terms.
Employee Retention Credit (ERC)
To stay on the topic of employees, consider Employee Retention Credit (ERC). While the ERC does not necessarily apply to banks per se, it is certainly something that you should be aware of, as it can help your borrowers and customers. Providing your borrowers and customers with knowledge, one or more potential tax credits (more cash in their pockets) or any business advice is just a way to add another layer of value to the services you provide, building on that long-term relationship and trust. ERC is available to most businesses and nonprofits if they received PPP/PPP2 funds, had full or partial shutdowns due to a government order during 2020, and reduced gross receipts in 2020 compared to the same quarter in 2019. While there is more to this credit and eligibility, just having the conversation with your customers and borrowers and putting them in touch with the right professionals to help them is further adding to the value of relationship banking.
Where to Start?
These few topics are only the tip of the iceberg. Topics like these should be discussed by bank management and the board of directors on an ongoing basis, now more than ever. Does your bank have weekly meetings (or even a designation committee) that brainstorms these ideas, the future outlook of banking, and puts them into action or develops plans to address them? Now it is more important than before the pandemic to have a proactive approach.