By Dr. oec. Kai Roemmelt, Executive Vice President at Udacity
The ripple effects of the pandemic, compounded by the ongoing energy crisis, has caused an economic downturn across the globe. With inflation at a 30-year high, the majority are at risk of the greatest decline in living standards in 70 years. And as consumer spending habits react to cost of living increases, businesses are now also facing the consequences of this economic volatility.
Financial institutions especially are feeling the effects of economic downturns. In the US, the six largest banks are set to collectively provision $4.5 billion in loan-loss reserves in third-quarter earnings. Meanwhile in the UK, banks are set to write off £47 billion of bad loans in the coming years. But, in times of such widespread economic uncertainty, consumers, businesses and governments also turn to banks to help address looming financial hardships. With regulations set in place to ensure that appropriate support is offered to customers, banks now have both a legal and social obligation to step up.
The mass local bank branch closures that have taken place this year means that retail financial institutions must now deliver a digital-first support package to these customers. Digital solutions are imperative for enabling customer support, data security, and internal cost-consolidation measures, and financial institutions must bank on their internal talent to help implement these solutions and ultimately weather the storm.
Banks at the frontline
According to new European-wide research from CRIF, consumers believe that banks have a duty to help people during difficult times, second only to the government. But what does this support look like in practice?
With the shift towards digital banking, consumers expect more tailored digital product offerings. Many banks have already embraced this digital transformation of the industry, implementing money management apps and digital support offerings for their customers. For example, in July, Lloyds Bank launched an online and app-based Cost-of-Living Hub, which allows customers to view their upcoming payments and subscriptions, and gain access to free independent help and advice. Despite these efforts, two-thirds of people say that banks still aren’t doing enough to help with the cost-of-living crisis. Customers expect more.
While banking has long been considered a relationship business, addressing the gap between consumer expectations and available banking offerings requires more digital innovation. Especially with recession on the horizon, it is imperative that banks continue to develop more – and more advanced – support solutions for their customers. And with labour costs also rising, it’s critical that banks look inside their organisations to find the talent to build these offerings – even if that talent isn’t yet digital-ready.
Upskilling employees in critical focus areas like programming, app development, data analysis, and cybersecurity will facilitate this digital transformation of the industry. These skills not only add new dimensions to the support that employees are able to provide, but can also empower them to apply this knowledge to new problems as they arise. For example, upskilling an underwriter in AI and data analytics skills can help them make better, more data-driven credit and lending decisions, combining their extensive industry knowledge with insights from in-house predictive models.
Doing more with less
As well as improving the services they provide, banks are also now under pressure to cut costs. As money becomes tighter across the economy, banks must look internally and implement cost-consolidation solutions wherever they can.
At the intersection of improving services and cutting costs is the reality that digitally transforming talent is vastly more effective than any hiring strategies can be. In a recent economic impact survey with Forrester, Udacity found that financial services organisations could achieve a 20% efficiency gain and a three-year saving of $116.1 million by upskilling 2000 employees per year. Talent transformation can also increase employee engagement and reduce staff turnover, which brings further cost savings.
High stakes
It’s not just consumer-facing services that are under scrutiny as the reality of the economic downturn bites. Increased regulatory pressures mean that banks are at greater risk of penalty charges when they can least afford them. On average, one failed audit per year can cost a financial institution $3 million.
In a world where mistakes can have devastating consequences, for customers as well as the financial institutions themselves, ensuring that staff are properly trained and equipped with the right skills is crucial. Standardising compliance training and implementing digital skills programmes for relevant staff can see a financial services organisation improve its audit record by up to 50%.
With such pressures facing the financial sector, comprehensive digital talent transformation is rapidly becoming a matter of when, not if. The industry understands investment better than any other part of the economy and will know that there has never been a better time to invest in talent.
