“It’s never been more important to stay alert, skeptical, and objective.”Steve Williams, President, Cornerstone Advisors
The numbers being thrown around regarding the Coronavirus are scary—but often wrong, and worse, used out of context.
Fed Chair Jerome Powell said in a recent conference call that there will be no Summary of Economic Projections because the forecast is “unknowable.”
In response, JPMorgan Chase Chief Economist Michael Feroli noted, “the current environment is one of pervasive Knightian uncertainty—an unknown for which we cannot even quantify the odds of outcomes.”
How Banks Are Responding
Today In: Fintech
As I tweeted recently, I can’t wait for someone to claim that banks aren’t doing anything to help so I can hit him upside the head (figuratively, of course) with the following tweet from Jill Castilla, CEO of Citizens Bank of Edmond (OK):
Ally Bank is allowing customers to defer auto loan and mortgage payments for 120 days, and will waive fees related to expedited checks and debit cards, overdrafts and excessive transactions on payment accounts.
Discover said it would not report missed payments to credit-reporting firms for some borrowers for at least two months.
Banks are taking operational action as well. A survey of banks from Fintech Forge found that:
- Just 15% report that employees are operating as usual. Thirty-one percent said that back office employees are working from home, and 18% have contact center employees working remotely.
- More than a third (39%) are providing drive-thru/ATM access only in all areas. An additional 11% have reduced the number of branches open and/or their operating hours.
These are great tactical responses to the current situation. But, according to Steve Williams, President of consulting firm Cornerstone Advisors, banks need to recast their strategy and budgets in response to the crisis.
A Playbook For Getting Through the Crisis
Williams recommends that banks follow a three-point plan for dealing with (and through) the crisis:
1) Stabilize. Banks should establish a centralized “command center”’ operation to manage the pipeline of issues that arise. This operation should take control of and execute the institution’s business continuity plan and adhere to real-time guidance from federal, state and local government.
Stabilization also involves establishing a communication plan, balancing the temptation to over-communicate with the risk of not providing timely-enough details and updates.
This applies to both customers and employees.
In an interview with The Financial Brand, Laura Ziemer, Director of Insights at Comperemedia, advised banks to:
Turn off the ‘robots’ that run many aspects of marketing, [like] pre-loaded social media posting software, programmatic ads that pick up on bad cues, and automated emails driven by website registrations or pre-scheduled software.”
From an employee perspective, stabilization means clearly establishing and reinforcing roles and authority for business continuity and external communications.
A recent tweet from Albert Pang, President of San Francisco-based Apps Run The World, suggested that companies “rethink job titles, tasks, descriptions—firms with the most flexible tasks, job descriptions and processes will prevail from a business continuity standpoint.”
That’s bad advice. With so many people stressed out because of the current situation, people need comfort in the stability and consistency of as many things as possible. People don’t need added stress because of changing job titles and responsibilities.
Stabilize first, change and improve later.
2) Situate. Williams suggests that banks: 1) Model and re-forecast financials and capital plans given rate declines and business disruption; 2) Illuminate and enhance early warning credit risk indicators; and 3) Develop plan of action with vendors and partners to align with new realities.
Another important component of this point in the playbook, however, is “situating” bank personnel as remote employees.
As reported in Bank Director, Utah-based TAB Bank identified technology needs to enable staff to effectively work from home. The bank determined that it needed more VPN licenses and identified which employee lacked effective internet access.
Effective is the key word. The bank discovered that some younger employees relied on smartphones to access the internet. In response, the bank “ordered $400 laptops to distribute to select employees and granted stipends so staff could access the internet at home.”
3) Execute. Cornerstone’s Williams is also advising banks to expand their strategic planning horizons to a 21-month window through December 2021 and operating through a hierarchy of monitoring and objective/key result dashboards to ensure rapid execution.
In addition, he’s advocating for accelerated enhancement of digital delivery capabilities. He’s not alone.
Jim Marous, publisher of the Digital Banking Report wrote, “In these situations, it becomes clear the importance of digital banking solutions, from opening accounts and applying for loans to disbursement of funds.”
MX CEO Ryan Caldwell argues that “now is the time to prioritize digital initiatives.”
That might sound self-serving coming from the CEO of a tech vendor, but Caldwell’s rationale is spot on. As banks exhort—or require—customers to use self-service tools, those digital features and functions must perform or they risk operational- and reputation-related headaches.
Although this is no time to make new tech vendor decisions, a growing number of vendors are offering free access and accelerated deployment windows to their tools.
One, for example, is waiving campaign fees and offering rapid 48-hour deployment to institutions wishing to leverage the firm’s technology for emergency relief lending.
The Fourth Component: Scenario Planning
I’d add a fourth point to the playbook: Scenarioize (keeping with one word verbs).
Thirty years ago, scenario planning was a hot management technique. A 2000 study from the Corporate Strategy Board found, however, that just 35% of companies utilized scenario planning. By 2017, that percentage declined to 19%.
With better scenario planning capabilities, banks might: 1) Have better anticipated (and therefore responded to) current events, and 2) Be better positioned to evaluate what’s coming down the road.
The list of known unknowns is daunting, and includes:
- When the virus peak will occur.
- The gravity and length of the economic downturn.
- The level of debt service strain on countries, local government, corporations, small businesses, and consumers.
- The impact from delinquencies and charge-offs related to the crisis.
- What support will be provided to modify/forbear loan terms for borrowers.
- The margin compression impact from prolonged low rates.
Banks’ coronavirus crisis playbooks must address these (and other) unknowns.
Going forward, it’s time to reintroduce scenario planning into strategic planning efforts. For too many banks, strategic planning has become little more than a glorified budgeting process.
The Last Word
As Cornerstone’s Williams says, “It’s never been more important to stay alert, skeptical, and objective.”
Two out of three isn’t good enough.