July 2020 | Point of View

The digital innovation opportunity for banks in times of crisis

Banks that stay aggressive with their investments in technology and innovation have the best opportunity to thrive in a post-COVID economy

The digital innovation opportunity for banks in times of crisis

In a matter of weeks, the COVID-19 pandemic simultaneously ushered in a once-in-a-millennium public health crisis and upended the American economy at an unprecedented pace.

The financial services industry quickly pivoted to help stem immediate challenges, but as organizations and industries become increasingly settled into life mid-pandemic, banks must plan for new economic realities brought on by COVID-19. 

Predictions around the state of the post-COVID-19 economy remain uncertain. More dismal outlooks in the earliest weeks of the crisis gave way to brighter predictions following a rally in the markets and better-than-expected recent jobs reports. And though it’s unknown how deep a recession will take hold in the U.S., we can look to past crises and significant historical events to better predict how the financial services industry will respond to COVID-19. 

Apart from lessons learned to help us better anticipate systemic impacts to the industry, there is also reason to believe the current crisis presents the industry with the opportunity to rapidly innovate. 

In fact, we believe banks should lean into the shaky financial outlook and accelerate investments in technology and innovation that will equip them to compete in the post-COVID-19 economy.

Times of crisis historically have created both challenges and opportunities for banks

Times of crisis tend to reveal real vulnerabilities and entrenched challenges in systems, organizations, and entire industries. The current pandemic is no different, having already revealed the vulnerability of organizations unprepared to operate in digital environments when work-from-home capabilities became a necessity almost overnight. 

But coupled with these challenges are very real opportunities to solve what were long held as intractable problems. We posit that the shaky economic outlook actually provides banks with the right circumstances to accelerate investments in innovation. What’s more, we believe banks that take advantage of these circumstances will be better positioned to outpace competitors in the post-COVID-19 economy.  

Response to these crises have created permanent solutions

Looking back as far as the Great Depression, the financial services industry historically responded to times of crisis by leveraging some combination of regulation and government intervention. From the regulatory perspective, the major financial crises of the 20th and 21st centuries resulted in significant regulatory reform in addition to the use of fiscal and monetary policy to stem each crisis and strengthen the economy.

We still live with regulations born from the Great Depression and the Great Recession like the 1933 Banking Act (which resulted in the creation of the FDIC) and the Dodd-Frank Act of 2010 (which created the CFPB). In both cases, regulation was used to mitigate systemic risk going forward and boost confidence in the system. 

Apart from boosting consumer confidence, regulation and government intervention in the form of stimulus injections are another tool typically wielded to prop up the economy in the face of global events. We’ve already seen this come into play in the early economic fallout from the COVID-19 pandemic. In the first quarter of 2020, the federal government slashed interest rates and injected historic amounts of cash into the economy.

The historical view is no different, particularly when we look to major global events or external shocks to the financial system. Examples abound—from government spending programs leveraged in World War II to balance tax increases used to fund the war effort to huge injections of cash in the days following 9/11, adding almost $100 billion per day.

A need for innovation arises, and banks respond

Beyond the stopgaps or emergency levers the financial industry has historically employed in times of crisis, we also see evidence of significant innovations emerging from major world events and global crises. Many of the technologies and innovations embedded in our daily financial lives were born out of more recent global events.

For example, remote deposit capture was born in the weeks following 9/11 when all flights in the U.S. were grounded. Prior to remote capture, checks had to be flown between bank locations for verification, but the disruption to flight schedules revealed an urgent need for remote capabilities. Similarly, Bitcoin came online in 2009 as a direct response to consumer distrust in the government’s ability to prevent another crisis. Square and Venmo also popped up in 2009, revolutionizing the P2P payments space and outpacing more cumbersome processes available within formal financial institutions. 

The common thread among these historical crises are the conditions that uniquely positioned individuals and organizations to solve seemingly intractable problems. Moments of crises tend to reveal real vulnerabilities and entrenched ways of operating. 

Crises succeed in not only shining a light on these problems but also focusing intense attention to finding solutions. Banks have opportunity to provide intense focus to long-held challenges and obstacles as a result of COVID-19. 

As we move into the next few months, uncertainty around the economic outlook looms large. But if we take cues from the lessons of history, we believe it is not in banks’ interest to decelerate their planned investments around technology and innovation. Balance sheets in 2020 will likely not meet projections, but there will still be “winners” and “losers” on the other side of the pandemic and anticipated recession. In fact, we urge banks to leverage the opportunity present in a weak financial outlook to focus investment in positioning your organization for the post-COVID-19 economy and customer.

Expectations around 2020 financials will be softened universally across the industry. Banks would be well served to accelerate longer-term investments that will position them to win, engage, and retain customers in the new COVID-19 economy. 

Why banks should accelerate innovation investments

Digital transformation has been an industry buzzword for years. Yet, the real value of digital organizations was never made clearer than in the early weeks of the COVID-19 pandemic and the onset of stay-at-home orders. In the mid-market particularly, the transition to digital and data-driven environments has felt like an almost insurmountable challenge and journey that would take any organization years to achieve. We’re now playing catch-up in our new reality. 

In a matter of weeks, the industry shifted its workforce from entrenched branch-based settings to their homes. Like other historical instances, the pandemic revealed a real vulnerability for banks that weren’t prepared to operate in digital environments. 

We’ve also seen the industry pivot to rapidly stand up new digital tools and automation capabilities to help service small business loans under the CARES Act Payroll Protection Program. In a mere matter of weeks in March and April 2020, banks across the United States mobilized to accept small business loan applications from their customers under the Paycheck Protection Program (PPP).

The short timelines and national pressures of the CARES Act and PPP allowed no margin for delay and forced banks to respond with a degree of agility and speed that many only aspired to previously. Banks that acted decisively were able to deliver value via digital channels to their clients and communities at a time of great need. Those that took the more traditional path to technology innovation – trying to “perfect” their solutions – often found their clients at the back of the line for critical funding. 

Having helped more than 25 banks stand up PPP loan origination capabilities in only a week, West Monroe had a unique view into this effort. Prior to COVID-19, the thinking was it would take months to stand up new tech-equipped lending groups, but our own team helped clients stand up new automated lending solutions in a matter of days—allowing our clients to process 46,000 loans in the first few weeks of the program. We saw firsthand banks shift to an agile mindset where sound solutions with an emphasis on creating meaningful interactions with customers were prioritized over “perfection.” Banks can move fast when they need to.  

It is reasonable to expect that demand for digital interaction will only increase, especially coming out of the COVID-19 pandemic.  Apart from industry “wins” in moving workforces offsite and responding to the PPP, social distancing has also already overturned what we “knew” about customer interactions as we’ve moved to almost exclusively digital interactions.

How will desired interactions change going forward? The customer journey and experience will be forever different. While we expect to regain some in-person interaction in the future, it is unreasonable think we will one day simply return to “normal.” Banks would be wise to leverage the intense focus provided by COVID-19 and invest in the technology and experiences the post-pandemic economy—and the customer—demands. 


Experts expect the public health crisis to subside sometime in the next 12-18 months and it is reasonable to assume that the economy will eventually stabilize and ultimately recover, yet more permanent change is already in motion. COVID-19 has forced our hand in changing the way businesses operate, but also in how they interact with customers.

Banks would be prudent to leverage 2020 with a vision of longer-term impacts in mind. When we look back 3-5 years from now, there will undoubtedly be winners and losers. We’re placing a bet that the “winners” will be those who doubled down and invested in tools, technology, and processes that enabled their bank to compete in the new post-COVID-19 economy.

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