Business planning

5 ways leading financial services firms respond in an economic crisis

COVID-19 continues to have significant effects on the world economy. In the financial services industry, companies need to understand the current health of their firms and investments so that they can respond to the constant flow of new information on shutdowns, reopenings, unemployment rates, recession data, and government relief programmes.

When the crisis first started, almost every firm “hunkered” down and focused on how to stabilise their business by improving cash flow, cautiously “feeding” winning investments and selectively “pruning” bad ones. Your instincts may tell you to stay put and wait until the crisis is over before making new investments or taking proactive steps. But that’s not the best way to recover fast. Research and history show that investing before the end of a crisis can significantly impact your business.

An HBR study of 4,700 companies in recessions since 1980 found that you need a “balanced” approach between a mix of defensive moves (such as cost-cutting) and offensive moves (e.g., investments). In a crisis, everyone takes defensive steps and cuts costs. But most people don’t think about offensive, proactive moves until the recovery is well underway, and by then, it’s too late.

The study found that companies that take a balanced approach with proactive steps before the crisis ends have a 76% higher chance of getting ahead of the competition when things get better than if they were focusing on cost-cutting alone.

Here are five things you can do before the crisis ends to help you get back on your feet faster.

1.    Improve your customer experience

Customer experience affects everything you do with your customers, from the depth and range of your products to delivering your services and providing ongoing support. Customers’ needs and feelings change over time, so updating your customer experience is essential. This crisis has undoubtedly affected you and your customers, possibly creating a “new normal” that will persist after the pandemic.

Take the time to talk to customers to understand the short-term impacts. What are their main concerns?  What help do they need? Are they worried about security, reducing risk, or recovering faster? These concerns should give you ideas for changing the way you do business or even lead to new products. Some short-term actions/solutions you could try include:

  • Creating a new investment vehicle that limits the downside effects of severe economic shocks for people who have been impacted by market losses.
  • For companies that have recently experienced significant revenue declines, you could create new business continuity insurance that can effectively mitigate the impact of major shocks.
  • Consider offering services to assist your customers in navigating the crisis, particularly when seeking new funding from the government or other non-traditional sources.

Let your customers be the source of ideas for improving your products and services. Some of these new ideas might not be useful after the recovery, but others could become part of your long-term product or services portfolio.

For other ideas, look at how fintech is driving innovation in all areas of financial services, such as customer service, financial advice, payments and transactions, lending, insurance services, and account management. Whether you are a traditional financial services company or a fintech, you should look at the innovations made by other fintech companies. They can give you ideas for new products or services that you can start working on before the crisis ends.

But you won’t want to invest too early (in an idea that hasn’t been proven) or too late (putting you at a competitive disadvantage). According to the Economist, a “fast-follower” strategy might be the best approach for many companies, as first movers only capture 7% of a market. The key to success may be to keep an eye on what key fintech start-ups are doing with their innovations and consider a “fast-follow” after the start-up finds its product-market fit but before it starts to scale.

Let’s look at a few examples of how fintechs are making a big difference in the customer experience, especially when it comes to convenience and personalisation:

  • Omnichannel experience. An omnichannel experience that meets the needs of consumers includes mobile, social media, and multiple messaging channels, such as email, SMS, and live chat. Companies that want to run their businesses in a customer-centric way need to make it easy for customers to talk to them through any channel. An omnichannel experience in banking means that customers can have consistent and smooth interactions online, no matter what device they use, and offline, with “smart” branches that work well with digital services.
  • Automated financial advice. Robo-advisors, also known as virtual assistants, typically deliver automated messaging via live chat and other communication channels and can be triggered by consumer behaviours – thereby potentially boosting sales and customer engagement. These automated systems can provide basic advisory information, offer data-driven insights for customised services, and streamlined processes for onboarding new customers. For example, with a hybrid approach between human and machine, these automations can help financial advisors and agents in wealth and asset management capture leads, build relationships with customers, and provide a complete service.
  • “Mashup” innovation for new products and services. More and more financial companies are working with fintech innovators to integrate new products and services that meet the needs of a wide range of customers. Banks, for example, can connect to existing finance platforms through an open API to offer a variety of services such as lending, emergency loans, and sending money via Twitter. Customers now have more ways to get their money than ever before.

If fintech follows the same path as other disruptive technologies, a hybrid model will probably be the most popular one. Think about how online shopping affects brick-and-mortar stores. At first, you could either buy something online or in a store. But in the last five years, a mix of online and brick-and-mortar stores has come together to make shopping easier for customers. Even Amazon now has physical stores. And if you buy something online, you can return it at a physical store, which is a unique feature that drives customer delight and satisfaction.

Having an e-commerce website also improves the in-store experience. You can order a product to be shipped to you (traditional e-commerce), sent to the store for pick up in a few days (great for expensive or out-of-stock items), or be ready for pickup at a physical store in a couple of hours (streamlined physical store checkout process). If you decide to pick up an item at the store, the e-commerce website will tell you which aisle and shelf to find the item so that you can get in and out of the store faster. Relating this to financial services, fintech (like e-commerce) was designed to disrupt or eliminate traditional services. But you should also be thinking about how can you potentially use fintech to enhance your traditional face-to-face services.

Based on these improved business models, the winners in the industry will be the ones who can offer a value-driven hybrid model of new and old technologies and services the fastest. For example, by combining robo-investing technology with human advisors, you can provide clients with the best mix of investment performance, service, cost, and convenience. So, if you want to do a “fast-follow” innovation, think about doing a hybrid version that combines the best of fintech and traditional financial services. If you’re lucky, you might be able to develop a breakthrough model like “1+1=3.”

2.    Increase operational efficiency and financial visibility

So, how do you fund the investments in customer experience suggested above? Increased operational efficiency frees up the capital, personnel, and management bandwidth needed for new product and customer experience innovation. Automation through operational applications and technology typically leads to the greatest operational efficiency gains in most financial services businesses. These technologies can also improve business visibility, allowing you to detect changes in customer and market behaviour sooner and respond faster with new products.

Where do you begin? Consider auditing all of your manual processes, particularly those performed in spreadsheets. If you complete the same task in a spreadsheet multiple times (e.g., budgeting and planning, revenue recognition schedules, multi-entity consolidations, intercompany eliminations, and bank reconciliations), it is a candidate for automation.

If the process is already automated, compare it to key metrics such as elapsed time, steps required, cost, errors, etc. Can you cut your DSO (Days Sales Outstanding) by 20%-40% or your close time by 40%-60%? This often reveals additional automation opportunities. List all these potential automations and rank them according to their potential business impact (e.g., cost, revenue, NPS). Then, go through your list methodically, updating and reprioritising as needed. Consider starting one or two automation projects before the crisis ends.

As previously stated, look to fintech and AI for inspiration and ideas on what to automate. Since fintech innovations can significantly improve the customer experience, these same innovations can dramatically reduce or eliminate internal transactional processes. For example, underwriting, claims, and finance processes are clogged with low-value transactional processes and wasted costs. In fact, administrative tasks consume up to 80% of sales time in underwriting. These processes frequently rely on manual workarounds, such as cutting and pasting information into multiple systems. Today’s fintech innovations can eliminate these redundancies.

Artificial intelligence advancements have transformed every aspect of the financial services industry. Firms can better mitigate fraud and money laundering risks by using AI to detect transaction anomalies. Capital market firms can make faster, smarter trade decisions based on sophisticated analyses of past market performance data. Companies can conduct customer sentiment and mood analyses and personalise customer experiences based on individual customer profiles, such as recommending tailored portfolio solutions based on each individual’s risk tolerance.

3.    Make working remotely a competitive advantage

There’s plenty of evidence that shows that committed and engaged employees result in improved performance and higher profits. Investing in your people pays off. It is also the right thing to do.

With your team now working remotely, you are doing your best to respond to the crisis. But what additional investments or changes could you make to boost morale and productivity from good to great once the crisis is over?

Take the time to investigate how remote work affects team processes and toolsHere are some ideas for increasing employee engagement and well-being:

  • Working from home (WFH): Determine how you can be more efficient in a new world with more remote work. If you are going to allow WFH, decide whether it will be on specific days or if it will be flexible. Maybe set aside specific days of the week for everyone to be in the office. If WFH remains a viable option after the crisis, you may be able to reorganise your office layout and possibly reduce office/rent costs.
  • Rethink meetings: Well-run meetings are important, but they are especially important when everyone is not in the same room. Have a detailed agenda with clear next steps and deliverables. Determine which meetings can be shortened or eliminated. Consider making hour-long meetings 55 minutes to allow for breaks before the next meeting. These suggestions may appear obvious, but you might be surprised at how many opportunities for improvement exist in most businesses.
  • Meeting etiquette: It is even easier for a few people to dominate a meeting and disenfranchise the rest of the team in a remote world. Consider the following strategies for involving the entire team:
    • Go round-robin on a group call, so everyone has a chance to contribute.
    • Create the meeting agenda as a team (instead of the boss only) at the beginning of the meeting on a shared virtual document.
    • Have the most senior person speak last.
  • Collaboration: Establish guidelines for communicating via text, chat, email, or phone. Although this may seem obvious to some, it is surprising how frequently it can become an annoyance and a productivity killer. For example, no one wants to be bothered by a phone call about a simple yes/no question that can be quickly answered via text or chat message. Alternatively, most people prefer a quick phone call or virtual meeting to an endless email or chat thread to resolve an issue.
  • Filesharing. Establish clear filesharing guidelines to ensure that key stakeholders can access critical data and collaborate on documents in real-time when working remotely. This should help to avoid making multiple copies or allowing only one person to work on a collaborative spreadsheet or document at a time.

Many of these issues may appear minor on the surface, but when they occur dozens of times per day, per person, they can significantly impact productivity and morale.

Your goal is to manage based on the business results generated by your employees, not on the tasks they have completed or how long they sit at their office desks. Employees who are empowered to contribute on an individual and group level are happier, more engaged, and thus more loyal and emotionally committed to the company.

Companies with happy employees also have healthier bottom lines. That’s because engaged and committed employees:

  • Are up to 20% more productive,
  • Keep customers happy, which could increase sales by up to 37%, and
  • Take 10 times fewer sick days.

4.    Pursue opportunistic M&A

From an investment standpoint, now is an excellent time to buy assets that are likely to appreciate quickly in a recovery at a discount. Banks are foreclosing on other businesses and selling the assets at bargain prices – and you can take advantage of this with little to no financial outlay.

Take the time now (and in the future) to actively cultivate relationships with bankers and other lenders to learn about new assets they are looking to offload. Think about strategic divestitures and revise your metrics and benchmarks. Maintain your deal funnel for various scenarios and keep key stakeholders in the loop. Additionally, investigate where you can restructure debt and how to maximise working capital.

Consider opportunistic M&A from an operational standpoint to:

Enter new markets

While entering a new market (particularly one with high growth potential) may seem appealing, the investment and risk can be daunting if you are starting from scratch. Acquiring a player in a new market can significantly accelerate the process by providing the talent, technology, and customers needed to compete immediately. If a specific market suffers a downturn, expanding into new markets provides diversification, and it can expand your product portfolio, resulting in higher client “share of wallet” and lower churn.
Accelerate an existing business

An acquisition could broaden a company’s geographic reach (for example, by expanding into Nigeria or Kenya), add new features, technology, or products to an existing product line, expand distribution channels, or attract talent or expertise. For example, in 2009, BlackRock acquired Barclays Global Investors (BGI) – during a downturn. BlackRock’s core business of active management was expanded into passive investment management due to the acquisition. BlackRock has since grown to become the world’s largest fund manager.

According to PWC analysis, companies that can leverage available capital and make deals early in a downturn may outperform others in their industry. The key is to focus on best practices and address deal strategy and leadership, capital, customer experience, operations, and workforce. According to PWC, 7% of companies that made acquisitions during the 2001 US recession saw higher shareholder returns than industry peers one year later. Returns were even better for the 10% of companies that announced deals in the first half of the downturn.

5.    Feed your talent pool

You may have to eliminate bonuses or reduce staff in this environment, so looking for new hires is probably the last thing on your mind. However, this downturn may provide a once-in-a-lifetime opportunity to secure top talent that you would not have been able to attract before (or after) the crisis. Consider candidates who have exceptional skills – such as strong customer service and communication skills and the technical skills required for specific jobs.

In software, there is a concept known as the 10x engineer, who is 10x more productive than the average engineer. Can you find 10x hires who can transform your company? Maybe a curve-busting investment professional, a top-tier marketer, or a rainmaker salesperson? Consider also hiring a new leader who can bring a fully functional team and an entire book of business without the cost of formally acquiring an entirely new company to enter a new market. 

Looking forward…

We will adopt new behaviours, have new expectations, implement new processes, and test new business models as we emerge from this crisis.

The key to recovering faster and securing long-term competitive advantages is to balance cost-cutting and proactive measures before the crisis ends. It will entail making “smart” cost cuts while investing in new capabilities and increased productivity to better weather volatility and capitalise on recent trends.

Bain & Company studied over 3,900 companies from the previous recession and discovered that this strategy resulted in long-term performance gains. According to Bain & Company, winners locked in gains to grow at an average 13% CAGR in the years following the downturn, while losers stalled at 1%. This disparity in growth can have a significant impact, with winners doubling revenue in five to six years and losers seeing revenue remain nearly flat over the same timeframe.

[White paper] – The Digital CFO

Tracking financial leadership’s transition from corporate number-cruncher to strategic storyteller


Download the white paper