How COVID-19 is Impacting the Financial Services Industry

1. How COVID-19 is Impacting the Financial Services Industry COVID-19 is impacting banking operations and, as a consequence, related business process services (BPS). Banks are already restructuring operations to deal with the emerging challenges from COVID-19 (see below for those challenges). The changes are just beginning and can still evolve over a minimum of subsequent four months. While the worldwide adaptation to COVID-19 will take for much longer , perhaps several years, each country’s banking system will got to make sizable adaptations to their operations during a four-month timeframe so as to survive without permanent impairment to their business. The four-month timeframe for adaptation within each country assumes two months for COVID-19 to stabilize in each market and two additional months to implement measures to mitigate any future pandemic risks. Across all markets, operational adaptation will take one to 2 years to completely implement. Operational impacts so far So far, the operational impacts have manifested across customer access and employee access. Access for both customers and employees has been impaired due to: •The inability of consumers to enter brick-and-mortar locations, often thanks to the imposition of lock-downs by governments •Volume spikes in transactions creating online access and processing delays, often thanks to market reactions (e.g. stock exchange declines and liquidity demands) •Alternative demands on time (e.g. from children at home) •Inability to conduct standard sales and customer in-person interaction. Actions being taken to mitigate these impacts have included: Increasing remote access options by:

2. Increasing capacity for online access, typically via increasing cloud access to core systems •Sending omnichannel access apps to customers for his or her use •Outbound messaging on what options are available for remote access Scaling processing capacity by increasing: •Access to remote temporary labor •Use of RPA •Cloud capacity of core systems (especially transaction systems) •Processing capacity to match diurnal demand spikes Operational hygiene reviews, including: •BC/DR plan updates •Liquidity planning (including drawdowns of credit by BFS clients) •Reviews of in-branch operations changes, including increased availability of money in branches and customer interaction SOPs Bank Product line impacts The impact of COVID-19 within the banking system has varied by product line, as follows: •Commercial loans: increased drawdowns of committed loan lines by customers to assure liquidity. Also, certain consumer-focused industries like restaurants have pack up operations, isolating revenue-generating capabilities. These activities have increased risk exposure, tracking efforts, and funding requirements. Operational impacts include increased data gathering and reporting requirements •Payments: retail customers withdrawing physical cash from branches to assure liquidity if banks are shut for a period. This temporarily increases operational loads on the branch system. Operational impacts include increased staffing and a shifting product mix for daily operations at branches •Mortgages: anticipated loss of income will reduce loan origination demand while increasing the necessity for default management. Operational impacts include changing skill sets required for bank workforces and increased loan loss reserves. Increased loan loss reserves directly require reductions within the record . Shrinking the record requires significant senior executive effort. •Student loans: temporary closure of schools seems likely to scale back demand for brand spanking new student loans but is probably going to elongate the repayment period for existing loans. Reduced job prospects increase default management requirements. Operational impacts include changing skillsets from loan origination to default management. Additional impacts by line will emerge over time. Trade finance will likely be very heavily impacted by the pandemic.

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