Tips to help banks and credit unions manage the strain of the coronavirus on their payments businesses
Even in their best contingency planning exercises, banking executives had no reason to anticipate how the world would change under the threat of the coronavirus. Nor had they any inkling of how swiftly – and how deeply – the payments industry would feel the effects of this pandemic. With so many things currently out of their control, I’d like to offer financial institutions five things they can do today to help manage their payments business in the face of this new threat.
1. Treat digital commerce like a now-or-never priority
According to McKinsey, Digital Commerce soared 81% since the end of February, and financial institution leaders must aggressively enable and promote all digital payment capabilities across their customer bases. Whether an institution is using Apple Pay, Google Pay, Samsung Pay, PayPal or Amazon, it needs to be incenting and encouraging customers to put the institution’s payments cards in all of their digital wallets. FIs that don’t have digital wallets need to make this their number one payments project.
2. Respond smartly to the impact on interchange rates
Big things are happening with interchange right now. Visa has already announced delays to its interchange updates, but more importantly, consumer spend mix has been wildly affected by reductions in travel, restaurant dining and other high interchange transactions. An FI needs to look carefully at its transactions data or seek assistance from its vendor to determine which transactions still represent good interchange (e.g., digital commerce, small ticket, specialty retail). This evaluation will help the institution find ways to incent spending in those categories.
3. Counter declining spending with a shift in product marketing
Spending projections show reductions of 35% to 75% in key areas like airlines and hotels. But despite these reductions, people are still shopping in grocery stores and buying essential products online. As a part of a broader pandemic strategy, financial institutions need to loudly market bonus rewards, promotional rates and other offerings that encourage customers to use the institution’s products to buy the things they can’t do without.
4. Show loyalty to customers
Over the next few months, cash flow will be an issue for many customers who are finding it hard to make ends meet. During this difficult time, customers want to hear that their financial institutions are willing to help them – whether it be through payment holidays or waived ODP and account fees. People remember when someone is helpful in a tough time, and now is the time for FIs to quickly develop a media-worthy strategy.
5. Get aggressive on expenses
In a period of declining revenue, sometimes the only option is to look at expenses. Right now, staff is critical to keeping the business running effectively. A close look at expenses can help an institution find opportunities to drive profitability. Financial institutions should look to their partners and vendors to get some relief. A review of all the institution’s current contracts and partnerships could uncover many opportunities for improvement.