There has been news lingering of a possible advent of an economic recession and the Investors have already started fretting on the possible impact and consequences. It may feel as though the financial system hasn’t changed much in the decade since the downturn, but it has. The recession transformed investment banks and created a deep divide between banks that quickly remodelled their business and those that failed to move rapidly.

Financial Institutions are required to have a stable funding base, with enough liquid assets to survive longer periods of stress. They are subject to more rigorous stress testing by regulators and must develop plans aimed at ensuring that they can recover from a crisis.

An extended downturn or recession could disrupt all sectors, including traditional banks, fintech firms, payment players and even big tech competitors. When the economy faced headwinds in the past, the response across all industries was often to improve productivity, primarily by reducing costs. The question is whether this remains the best strategy at a time when the banking industry is in the middle of extensive digital banking transformation efforts.

During uncertain times, executives often make short-term decisions that negatively impact long-term strategy. This includes broad-based reductions in investments in technology, innovation, talent, back-office modernization, and customer experiences. With many financial institutions in the midst of major business model changes, cost cutting must be much more strategic – with some savings reinvested in areas of greatest long-term value.

The ability to build digital transformation value will require financial institutions to move at a heightened speed or scale required to deliver the results companies need to see during an economic downturn. Institutions that are successful will need to identify the digital banking transformation opportunities with the highest value and put the plans in place to implement change when other organizations are scaling back.

Technology tends to be less expensive during an economic downturn as many solution providers are being impacted by organizations that are scaling back tech investments. Now may be a great time to lock in lower technology costs with improved terms for important hardware and software purchases.

Beyond technology investments, financial institutions should consider maintaining or increasing investments in R&D during this economic downturn. This may be the best route to ensure that the organization is ready when consumer and business confidence rebounds.

Improving operational efficiency is one of the best ways for Financial Institutions to invest now and see a payoff down the road. This is a great time to eliminate waste, use technology to automate the manual tasks that humans would typically perform, and free up capital.

Investments in modern technology may seem risky for financial institutions at a time when it’s unclear what the future economic conditions may be. But when the economic downturn reverses (and even during the downturn), customers expect your organization to be ready with innovative products and services and engaging experiences that they see from competitors and from non-financial businesses.

Financial institutions that make strategic investments during this economic downturn will emerge in a stronger position when markets normalize again. Banking leadership must determine what is needed to transform the core of the business for the future. Organizations must consider the cost of any investment, the difficulty of implementation, the potential level and timing of return on investment, the internal ability to advance the investment and the likelihood of success.

The value of any investment during a time of economic downturn is enhanced when the competition is standing still or retreating and herein lies the mantra where a Financial Institution can differentiate from its peers.