Partnerships to drive industry forward in post-COVID world

Written by Alex Hamilton
13th May 2020

The coronavirus pandemic has caused immediate changes to the financial services industry. Dramatic long-term effects in the world of finance are afoot, and firms need to think about how they operate in a post-COVID 19 world.

FinTech Futures sat down with Nicholas Botha, who heads up the banking and payments portfolio at AutoRek, to chat about the future the industry faces in recovery from the pandemic, and why interoperability and finding the right partner will be critical.

Nick Botha, AutoRek

FF: COVID-19 has had an immediate impact on the financial services industry, but which sectors do you think have been the hardest hit?

Nicholas Botha: Firstly, I think we need to acknowledge that majority of industries across the globe in all sectors have been severely affected by COVID-19. Retrenchments, salary cuts, businesses shutting their doors and the restrictions on economic activity have all led to impacting financial services firms – some more than others.

Having spoken to a few fintechs and challenger banks it seems to be business as usual for them, though reducing costs is paramount moving forward. This may be because their internal systems were quickly adaptable and flexible to the changing work environment that the crisis created, as well as the fact that they provide their customers with an entirely electronic user experience.

FF: How do you see customer expectations changing as a result of this crisis?

Botha: I believe customer expectations have already changed. So much so, that as a result of this I believe that the end customer will regain the role as the leading driver for change ahead of regulation. We have seen a massive number of regulations passed as a result of the 2008 financial crisis. Financial services firms have been put under scrutiny in the past few years with many fines being dished out to some of the world’s leading organisations.

This has led to the development of regtech solutions driven mostly by compliance. I don’t see this changing much to be honest, and I believe this will continue to grow in the next few years. What I do see is client expectations for speed, transparency, security, data quality, information and open banking shooting up as the number one driver for transformation in firms in the next decade.

FF: Would it be remiss of firms to assume that they can recover from the crisis and have business go back to pre-COVID norms?

Botha: Most definitely. I’d say the understanding of the general public is that life as we knew it pre-COVID 19 is a thing of the past. Although people in general are feeling the pinch and are missing being able to go to the pub with friends or going to the cinema, I believe the perception of day to day living is going to be severely different. We have seen that firms who have adapted quickly to the government’s suggestions for employees to work from home, have most certainly been less affected.

Firms – such as mine, I must just say – who have already implemented systems and procedures to accommodate a work from home environment and do not rely heavily on ‘bums in seats’ in order for their daily business operations to continue and run smoothly have seen a very small effect from the restrictions laid out. What does this mean for firms in a post crisis world? Well there are several things.

A definite need to migrate to a cloud environments is first. Demands for efficiency will put pressure on firms to ensure internal systems are flexible and don’t rely on heavy manual intervention. Limited resources will pave the way for firms – especially in the financial services sector – to rely on outsourcing platforms to achieve a high level of operational efficiency. There will no doubt be a demand for automation, and I think we will see APIs become the new norm.

FF: Has the need to go digital, and support digital, now become an imperative for financial services firms?

Botha: If you had asked me this six months ago, my answer would probably have been the same. Yes. I have attended far too many banking conferences where digitisation is the leading topic. However, when it comes down to actually making the decision to invest in either development or outsourcing of these projects there has been a lack of buy in from decision makers.

Although it isn’t a nice concept to think of, I believe that the financial and economic crisis the world is experiencing may be a catalyst for firms to really start understanding the need for automation and digitisation.

FF: What would be the key steps a financial services firm should make to ensure they thrive in recovery?

Botha: Firstly, firms should establish processes to allow flexibility for employees in the workplace. As the government is doing with a phased approach back into economic interaction, financial services firms should implement a similar strategy. Although I believe that the end goal should be to have a permanent process to allow for flexibility in the workplace.

Additionally, the sharing of data across financial institution will become prominent. Establishing transparency and fluidity for the transfer of this data will be very important.

Unfortunately, many firms will have to deal with redundancies. I think a strategic focus on establishing what can be done to avoid the need for headcount for some of these roles that might be able to be covered with automation going forward is key.

Firms should be ready for competition, which will explode. New fintechs are coming and they will be coming in numbers across the whole sector. I would say keeping up to date with new technologies will be even more important than establishing stability right away. Firms should shift focus from a short-term view to a medium one, they shouldn’t let the effects of this crisis result in them falling behind the curve.

Dealing with data during digitisation will be a crucial success factor for firms post-COVID

FF: Developing a digitisation strategy to counter the effects of a crisis like this could involve the movement and control of reams of data, how can firms cope?

Botha: I think in order to cope the solutions that firms decide to go with to handle their data requirements, whether in-house or outsourced, need to be flexible and scalable. Flexibility in particular ensures that firms do not need to dramatically change their proven processes in order to facilitate new and improved processes.

Ongoing changes in the regulatory environment within financial services require that a data management solution needs to accommodate these ever-changing obligations.

FF: What about scalability?

When it comes to scalability, firms should not underestimate the scale to which financial data for transactions, clients, messaging will grow. With API technology and open banking strategy the continuous flow of data will significantly increase as we move through the next few years.

Ensuring you have the right cloud facility as well as a platform that can scale alongside your business should provide firms with the confidence that their data is secure, transparent and accurate.

FF: How do you expect regulators to react to the crisis? We have seen rumblings of deadlines being moved; leeway being given…

Botha: Yes, there is leeway been given and deadlines being pushed back. However, the result of a financial crisis will always be regulation. Unlike 2008, the reasons for this crisis did not stem from lack of regulation in financial services. It was an unforeseen phenomenon – although I’m sure Bill Gates would disagree that it was unforeseen. I still believe that having the security of regulation moving forward will drive confidence in the industry. This means more regulations and stricter measures on existing regulation.

FF: Should firms see this as an opportunity to really evolve how they operate, and not a reprieve from an onerous compliance regime?

Botha: Firms will start to realise that in order to keep up with competition, new technologies and fintechs, they will need to select partners that specialise in certain operations rather than containing these in house. As mentioned earlier in the interview, firms may experience a limited number of resources stemming from the crisis, and as a result, should look to outsource to trusted partners in the industry.

Firms can save time and costs as well as reduce mundane activities by bringing in partners who have experience and expertise performing certain operations such as regulatory reporting, data management and managing end-to-end reconciliation processes. Interoperability is going to be a key theme for the 2020s.

Nicholas Botha is business development manager at AutoRek, to get in touch about this article or about the future of the financial services industry as AutoRek sees it, you can contact him here.