Biology lessons for Financial Services: from stasis to rapid COVID-19 evolution

Summary: Biological theories propose that periods of incremental change are often followed by phases of rapid change, in which only the adaptable survive and thrive.

Financial services, with its high-rise glass offices and sharp suits, is usually worlds apart from the neon-lit research centres and laboratory coats of biological sciences. Yet we in the financial services (FS) industry have been borrowing from the bio sciences world for many years: Just think about all the discussions of ecosystems or how we talk about neural nets in artificial intelligence. And how many times have we used the phrase “evolution, not revolution” when talking about transformation projects?

Since COVID-19, the worlds of FS and bio sciences have come closer, and terms like “herd immunity” and “viral load” are now a common part of our vocabulary. This got me thinking about what else we can learn that may be applicable to the world of FS today.

I fondly remember my time as an undergrad studying bio sciences, including a whole term spent on evolution. While that feels like a lifetime ago, a couple of theories stuck in my mind which are relevant to our world today:

1)   the Red Queen hypothesis (1), suggests that organisms must constantly adapt, evolve, and successfully reproduce in order to survive, in a competitive and constantly changing environment. It was named after the Red Queen in Lewis Carroll's Through the Looking-Glass, who comments to Alice that “it takes all the running you can do, to keep in the same place”. If we look at the FS industry today, you can see that most firms are running to stand still given their peers are doing the same; it is very hard to differentiate when products & services, channels and even customer experience are often similar. Yes, we have the fintechs, big techs and challenger banks but there has not been that much real change beyond apps and improving personalization. We still have branches, use faxes and rely on wet-ink signatures…

2)   the theory of Punctuated Equilibrium (2) highlighted that the fossil record of many species suggests long periods of stasis, followed by rapid periods of change leading to the splitting of a parent species into two distinct species. For the FS industry, the crux of this theory means that the pace of change is not always incremental. COVID-19 could signal the end of the period of stasis. In fact, it’s clear the current pandemic is creating a lot of change rapidly. Where some FS firms have been trying to achieve an agile workforce for years, COVID-19 has achieved that in just ten days!  

Personally, I believe that our new normal FS world will be quite different. Firms may still be thinking that the last few months were an anomaly, an evolutionary dead-end, and that they can flip back to a pre-COVID world. But what does the future look like when your peers have learned and evolved from their pandemic experiences?

For those who believe that businesses will evolve, let’s consider some of the pillars that will be foundations to the new norm...

·        #Digitalization: people are now used to online and cashless transactions. Many of the problems experienced in the sudden work-from-home era have been caused by manual steps in processes, and the on-going digitalization of our industry has been accelerated. In the last month or so, relationship managers and banking counterparts have been hard to reach, so many clients have resorted to self-service portals and apps, and the results have often been very positive. Many workers have learned to use digital tools out of necessity and have adapted to a new working model.

·        #Value: the definition of value has been changing from that of ‘shareholders first’ to the wider stakeholder ecosystem including employees, customers and the environment. ESG, Sustainability and purpose will become increasingly important and value & performance will mean more than purely the financial return. The sudden shutdown has led people to reconsider what they value and has confronted us with our intrinsic human needs of food, safety, health and belonging. We have also seen a demarcation of “critical services” which is not necessarily aligned with some of the high paying jobs today, for example medical workers, delivery services and food providers. Companies that have visibly focused on the well-being of their employees and customers, and that have maintained a sense of “being in this together”, will be better positioned than those that have been noticeably quiet. The COVID-19 crisis promises to produce a rapid reorientation of FS to include sustainable, responsible investing in business as usual. It could be the end of ESG as we know it, going from specialist investing to baseline requirement.  

·        #FutureOfWork: the biggest work-from-home experiment in history has largely been a success. Even business functions which have long stressed that they are different and must have face-to-face contact (“it’s in our DNA”) have adapted to the remote/distributed working environment. Companies are now considering what this means for business travel (heavily reduced), staff working from work going forward (if 95% works in stress what about 50% normally), and real estate costs in prime locations (likely to be reduced at the next opportunity). Of course, the tools, controls & governance need to be in place, but this opens up many opportunities for flexible working and talent acquisition. 

If this pandemic is an example of unprecedented shock after a period of stasis, then we need to prepare for rapid evolution to the new norm. Whilst Charles Darwin (3) never actually said the famous quote that is attributed to him, “it is not the strongest of the species that survives, nor the most intelligent; it is the one most adaptable to change”, he clearly recognized that those who survive are the ones who most accurately perceive their environment and successfully adapt to it. This is directly applicable to the FS industry today.

We are entering a period of rapid change and we will undoubtedly see an increase in M&A and disposals. Firms will look hard at their businesses, and review markets, services, channels and segments with a refreshed perspective to focus on the biggest opportunities.

A key biology lesson for financial services firms is that change isn’t always incremental. It remains to be seen if COVID-19 will alter the DNA of our industry, or if it will just create opportunities to grow & thrive for a few firms who are ready to adapt and accelerate their transformations. 

1. Van Valen, Leigh (1973). "A new evolutionary law"(PDF). Evolutionary Theory. 1: 1–30.

2. Eldredge, Niles and S. J. Gould (1972). "Punctuated equilibria: an alternative to phyletic gradualism" In T.J.M. Schopf, ed., Models in Paleobiology. San Francisco: Freeman Cooper. pp. 82-115. Reprinted in N. Eldredge Time frames. Princeton: Princeton Univ. Press, 1985, pp. 193-223.

3. Darwin, Charles (1859), On the Origin of Species by Means of Natural Selection, or the Preservation of Favoured Races in the Struggle for Life

The views reflected in this article are my own and do not necessarily reflect the views of the global EY organization or its member firms.