The coronavirus pandemic has unleashed chaos on the world order. Millions across the globe have been infected by the virus and governments are finding it difficult to cope with the rapidly evolving situation. To minimize the spread of community infection, the lockdown has been imposed by powers that be, but it has cost implications. The lockdown has crippled economic activity. Aviation, hospitality, travel, entertainment and food and beverage industry have suffered the most. As a result, millions have suffered job losses.
In the week ending on April 4th, the US Department of Labor registered a whopping 6.6 million unemployment insurance claims. Government intervention, in the event of job loss, has proved to be of little help because the scale and magnitude of devastation by Covid is beyond comprehension. Businesses are resorting to pay cuts to stay afloat in these uncertain times. The US Government came out with a Paycheck Protection Programme, but within days, the loan limit reached its threshold levels. Pay cuts and job loss do have a ripple effect on the continuity and agility of financial markets and institutions. Uncertainty unleashed by Covid has made markets volatile and caused a significant wealth erosion for investors, thereby impacting consumption levels. Liquidity and credit crunch will continue to impact businesses and MSMEs in the days to come.
The Covid crisis has impacted all core sectors of the economy and the banking and financial services industry has been grappling with the dynamic and rapidly evolving situation. As uncertainty around economic activity looms large, businesses and financial entities are treading with caution. Caution has led to reduced banking operations. It has resulted in unpleasant branch closures and has put the digital delivery of banking channels under duress. The resilience of the digital banking system is being tested like never before. Lockdowns have forced customers to embrace digital payments over cash and the transition to online payments has resulted in a massive spike in digital transactions. Even when lockdown rules are relaxed, and a graded exit plan is chalked out, the relationship between banks and their customers would no longer be the same. Branchless banking will be the new normal and banks need to revisit their customer onboarding and engagement models to stay relevant. This begs the question: Are banks and financial institutions prepared for the paradigm shift in the post-pandemic world?
The preparedness of banks in the post-lockdown era can be enhanced by using emerging technologies like blockchain. Blockchain based Video KYC and digital onboarding solutions are necessary to ensure a contact less customer engagement model. Experts and industry veterans have reposed faith in the usage of digital engagement models in the current scenario.
[box type=”note” align=”” class=”” width=””]A recent report by FICCI, titled “Impact of COVID-19 on Indian Economy.” has put forward following suggestions to support the banking sector:
- Since usage of cash can be a source of virus spread, there is a need to give a renewed thrust on promoting digital payments and digital banking. Government must reinstate subsidies for digital payments for transactions below Rs 2000 immediately.
- For fintechs [Regulated entities of RBI], the Aadhar based E-KYC authentication needs to be immediately implemented as this will help them continue with their business and support financial inclusion. The importance of usage of CKYC registry should be highlighted by the RBI in its master circular. Simplification of the usage of video-KYC is also required.
- Banks have been classified as essential services that will continue operations. Similar consideration should be accorded to Fintechs and other allied banking service providers that work with banking partners.
- Relaxation of data privacy norms based on self-declaration is important for maintaining continuity of business especially when work from home is being implemented.
- In the insurance sector, there is a need to make the entire process of issuance and servicing of policies digital including through plugging the KYC gaps. [/box]