We Are Not Going Back
The rubber band has been pulled too far, so when you finally let go, it won’t return to it’s original shape. The popcorn can’t be unpopped. You can’t put the toothpaste back in the tube. Choose your favorite metaphor, but whichever one it is, the answer is the same: The world is not going back to the way it was before COVID. Even if a vaccine becomes available tomorrow, COVID will have left an indelible mark on how our economy functions. The description of “essential worker” probably looks different than it might have 6 months ago. Social distancing has transformed the true definition of “work-from-home” eligible employees. Companies that invested heavily in digital and automation have recognized benefits through this transitional time.
As Managing Partner of AQN Strategies, a strategy consulting firm serving banks, FinTechs and other lending related institutions, I’ve been spending quite a bit of time considering with our clients the many changes that will be forever altered in the banking industry. Thoughtful institutions that are able to see around the next corner and understand the vast extent of the COVID impacts on the economy and our industry are the ones that will lead us out of this impending recession. My hope is to share some of that thinking that we’re doing here at AQN and spark a conversation that helps advance all of our thinking.
Here are a few things that, in my view, will never go back to the previous status quo. I hope that we can engage with smart people across the industry to share additional opinions on the impacts and outcomes from them:
Commercial Real Estate – Will employees, who quickly became accustomed to Zoom, be willing to take on the increased health risk of a busy office? Will companies be willing to pay for the same amount of office space once they have learned how productive employees can be at home? My dad always said that NYC is designed to feed 13mm people lunch every day, and restaurants can’t snap back if offices aren’t full. Commercial real estate owners are already suffering, considering “84% of US small firms are paying less than 50% of rent due in May, and 40% are skipping rent altogether this month”[1]. And the banks that fund both these industries will be significantly impacted.
Education – When will our children go back to school? Work productivity is suffering as parents moonlight as teachers. Students are impacted as well. K-12 schools are attempting to digitize in-person curriculums while the first round of colleges and universities have announced they will not be re-opening their doors this fall[2]. Digital learning will likely accelerate rapidly for higher education, but parents can’t go back to work until there is a solution for children to be cared for when they do. Banks could compound this issue by reducing access to funding for students seeking to learn new skills or schools looking to innovate towards digital learning platforms.
Digital Everything – Logins are doubling. Those that have moved to the cloud are advantaged. For example, Bank of America enrolled 65% of accounts in COVID forbearance programs using digital channels[3]. Banks that are not functioning at the same digital capacity are forced to meet higher demand using inefficient channels. I spent 80-minutes on the phone waiting for Chase to pick up my call for a 1-minute issue that couldn’t be solved online. Driving towards automation will not only reduce costs but increase efficiencies. Banks that delayed digital investments should be considering how the “new normal” will impact future customer needs.
The underlying patterns of our current system of capitalism are getting redefined. It is not to say that this should be the end of our system, or a threat to our future, although many think it will be. I believe strongly that we have to reimagine and adjust decades of existing structure across the economy to get ourselves back to full employment and a healthy economy, and this will not happen overnight. Which other segments of financial services have been impacted and changed forever by COVID?
[2] https://www.wsj.com/articles/coronavirus-pushes-colleges-to-the-breaking-point-forcing-hard-choices-about-education-11588256157?mod=trending_now_pos1
[3] http://investor.bankofamerica.com/static-files/7d5ff286-e5d0-4464-b2d4-4f0fa8055980