2020 so far has not been quite what anyone expected. There are no flying cars, no hoverboards, no teleportation – and thankfully we haven’t been forced to survive on fried insects just yet. Instead, we are living through a previously unimaginable global lockdown: no school, working from home for many; no work for many others, no pubs or restaurants, no conferences, no holidays – no loo roll, sometimes.

Alongside grief and fear, 2020 has also brought cleaner air, cleaner waters, recognition that working from home really can work, that commuting may be unnecessary in many cases, that face-to-face doesn’t have to mean in-person. New systems are being introduced: new ways of working, new solutions and more streamlined practices.

Life is changing. The economy is changing. Payments are changing. And many of these changes could be here to stay.

As banks and payments providers alike are forced to work in new ways, the importance, the value and the benefits of digital are becoming plain for all to see. Traditionally, banks have struggled to adapt to the digital landscape as their legacy systems slow them down and resources must be focused elsewhere, but in a world adapting to COVID-19 change is not a distant dream or a target way down on the to-do list: it is a necessity for survival.

McKinsey and Company recently predicted that “GDP in the second quarter of 2020 could decline by as much as 35 to 40 percent”. Payments revenue will also see a significant reduction: “Instead of growing by 6 percent, as projected by our 2019 global payments report, activity could drop by as much as 8 to 10 percent of total revenues.”

The firm also predicts a profound and permanent change to the entire economy, and “no return to the norms of 2019”.

What do Banks and Payments businesses say?

As we saw change accelerate across the financial industry, we commissioned MagnaCarta Communications to find out how financial institutions are responding, and the changes they expect to see in the industry. Without exception, interviewees shared a common response of focusing on delivering new, digital first services quickly, even if they are not quite perfect. As the oft-now paraphrased quote goes: ‘don’t let perfect be the enemy of good’.

As long as they are secure, solutions can be released to the market now and tweaked and improved later. And it is exciting to see that the incumbent banks are in this race to digital just as much as other providers.

Juan Jimenez Zaballos, Head of Financial Industry Transformation at Santander in Spain commented that delivering digital solutions is no longer just a new norm, but an imperative. He said: “We have seen high increases in digital transactions and app downloads. Everything that deals with connectivity is key now and is a priority, to be accessible for our customers digitally in these tough times. Innovation will be more about delivering digital customer solutions – we need to make these solutions available fast”.

Panagiotis Kriaris, Head of Business Development, Paysafe Pay Later – Paysafe Group, believes the crisis has accelerated what banks are doing to catch up with digitisation. “They’ve realised it’s better to go with a state-of-the-art product rather than something that takes a long time to build and could be outdated when it is released… and it doesn’t necessarily have to be their own product.”

For a challenger bank point of view, MagnaCarta spoke to Starling Bank. Jason Maude, the bank’s Technology Advocate, confirmed there has been an increase in business bank account opening. “Our model of being branchless, with online-only applications is working and nothing we’ve come across so far has said our model needs changing. We continually manage, maintain and upgrade our systems in a way that traditional banks cannot: where incumbent banks are running software built with a ‘write once then done’ view, like building a building, we take a gardening approach, constantly de-weeding and occasionally adding new plants or flowerbeds.”

Internal changes

The financial institutions interviewed by MagnaCarta have all made some changes to how they operate, even if the service they deliver to customers has not needed to change. New technology has been introduced to facilitate seamless homeworking, daily committee meetings to assess the market are becoming commonplace, salaries have had to be cut.

Governments around the world are extending help to businesses, with SMEs a key focus. Our interviewees, too, expressed a new commitment to delivering better credit lines for SMEs as well as focusing on sustainability and ethical banking. These changes are expected to outlast the pandemic, a positive legacy for future generations.

Is 2020 a write-off?

In our research, the sentiment was generally that recovery will be ‘U-shaped’ and will not pick up significantly until 2021. As McKinsey stated, a return to what was the norm in 2019 is unlikely, as the impact has already been too great. McKinsey also points out that “it is critical not only for the payments ecosystem but also for the economy as a whole to develop, today, the payments solutions that will allow economies to emerge from the current crisis efficiently and define the post-COVID-19 future.”

We have for a long time believed that co-operation and collaboration between financial institutions – rather than outright competition – is the future for banking and payments, and this view is now rapidly gaining buy-in. Providers are being forced to work together to deliver solutions quickly and are realising that this presents unique and highly valuable opportunities they may not have been willing to explore otherwise.

2020 will not be an easy year for any business, but it is already fast-tracking much needed and overdue changes. As such, by this time in 2021, if not before, as a global community we will not only have a better appreciation of our personal freedom and essential workers, but we will also have a better understanding of the needs of SMEs and how best to deliver solutions to meet their needs.