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US bank branches store thousands of paper customer records—but natural disasters are pushing financial institutions toward full branch digitization.
An especially active hurricane season across Florida and the Caribbean this fall is prompting reflection on the impact of natural disasters on the banking industry. Natural disasters not only cause housing damage and fuel shortages, but they can also temporarily cripple the local banking system, leaving residents stranded without access to cash or unable to conduct critical banking transactions. Physical customer records and operational records are at risk of complete destruction due to branch office devastation or extensive water damage. As a long-term business resiliency strategy, banks are investing in digitization to lessen their reliance on paper documents so that they can continue to serve customers when they most need access to financial resources.
We'll explore how digitization can be part of an overall business continuity strategy to ensure banks have greater resiliency levels during future natural disasters.
Research by McKinsey & Company shows that banks in developed markets closed 9% of their branches in 2021—the largest reduction in five years to reevaluate existing approaches to sales and service. According to Computer Weekly, 65% of executives believe the branch-based banking model will be dead in five years' time. Many branch closures were in response to pandemic-fueled changes in consumer behavior—specifically, the accelerated shift to digital channels and the reduced demand for services in physical channels.
Yet, despite recent trends toward branch consolidation and closure, over 72,000 bank branches remain open in the United States and paper-based records are still driving many bank operations. These branches serve as historical storage for critical records: they house decades of customer and operational files used for daily business transactions and customer service. In a natural disaster, these paper-based records are often in jeopardy.
Lack of access: In the short term, natural disasters can put a complete stop to banking operations. When the Kentucky floods hit this past summer, the Office of the Comptroller of the Currency forced US banks to shut retail locations for weeks. Even with the installation of temporary banking facilities by the FDIC, the high demand for banking services overwhelmed the provisional setups.
When Hurricane Maria devastated Puerto Rico, it shuttered bank branches, along with other institutions on the island. As citizens began to leave their homes and ensure they had essentials such as food, fuel, and water, access to their financial institutions proved to be a priority as well.
José Rafael Fernández, CEO of OFG Bancorp, said in an interview, "Customers realized that they had to look for fuel, they had to do other more important things than going to the branch, like going to the supermarket… and, all of a sudden they started utilizing mobile more." In the aftermath of Maria, digital banking enabled citizens to access banking services and account information via mobile device—but only if their bank had already recognized and prioritized having records available digitally.
Permanent loss of regulated customer files: As a result of water damage, customer records may face permanent damage or loss. After Hurricanes Katrina and Harvey, banks contended with the effects of contaminated flood waters and mold. Upwards of 8,000 safety deposit boxes and record storage rooms in 250 banks in the Gulf Coast became waterlogged from Hurricane Katrina, according to the Herald-Tribune. As a result of Hurricane Harvey in Houston, records continued to harbor remnants of water and mold long after the hurricane passed, said The New York Times.
With safety deposit boxes, none of the relevant physical infrastructure—the bank vault, the box, or the metal storage container—is waterproof, according to an article in the American Banker. (For this reason, experts recommend the simple, yet valuable, step of putting items in a zip-top plastic bag before storing them in a safety deposit box and also keeping digital backups of everything in your safety deposit box.) Despite popular misconception, neither banks nor the FDIC are liable for damage to safe deposit boxes caused by storms, flooding, fire, or theft, according to the Herald-Tribune. However, the damage and destruction of important records in the boxes still erode consumer trust and confidence in banks.
Long-term service disruption: Even once power is restored and doors can be opened, branches are forced to contend with ongoing challenges, such as interrupted mail service, for months. According to a JP Morgan Chase report that studied the financial impact of Hurricanes Harvey and Irma, the hurricanes resulted in disruptions of bill and debt payments and inflows not directly deposited. Many families began their recovery path having already missed a bill or debt payment. For those without automatic bill pay or direct deposit, hurricanes may impede or disrupt people's ability to trigger payments or access a paper paycheck. A secure system that allows for routing, searching, and accessing key documents is imperative during these times of crisis. Having a disaster recovery site for an operational back office means that banks can continue to service customers when disaster strikes.
When banks set a digital strategy and meet their digital goals, they establish a foundation for natural disaster preparedness. These steps provide the starting point:
Assess the current branch footprint and the state of the physical records within the branch. As you undertake digital transformation initiatives, determine the current state. The following are critical categories for assessment:
Volume: How many files are there? How does the record footprint vary from branch to branch?
Records Management: What are the current storage conditions? Is there an inventory of which files are stored where or "what's in the box"?
Information Governance: Which regulations apply to these files? For example, are there specific storage requirements for signature cards? Active vs. closed accounts?
Access: How are these files managed today, e.g. if a teller needed access to a customer record?
Digital Repository: Is there an existing digital repository where these files can be stored as images?
Digitize existing relevant files and prevent net-new paper from being created and stored. You can partner with a vendor like Iron Mountain to efficiently digitize your files. As a key player in this market, we digitize over 1.5 billion documents annually using industry-specific best practices. While existing files are being scanned, we can work with your records management staff to create a digital operational plan for newly generated documents to assure they are still accessible in their updated ecosystem. As an example, we recently worked with a retail bank in the US to tackle and digitize relevant paper files rich with client data. This allowed the bank to eliminate legacy files in over 400 branches. By leveraging our intelligent document processing (IDP) platform to auto-index key data fields, relevant bank stakeholders gained visibility and access into customer information that was previously unavailable.
Establish contingency and disaster recovery plans for a "failover" site. As the digitization process helps branch managers prepare for the worst, we also have robust experience in mitigating risk when the worst-case scenarios happen. Our plans for digitization and digital back office are relevant for natural disaster readiness, but we were a key player when clients needed to respond to lockdown restrictions with the COVID-19 pandemic. We created "emergency mailrooms" that allowed for documents being mailed to firms to be re-routed. Physical mail was digitized using Iron Mountain Insight, a document repository that allows for indexing key fields. The success of this digital mailroom can be easily replicated for disaster readiness.
Building and maintaining a digital and paperless infrastructure acts as a contingency during extremely vulnerable times. It enables customers to experience uninterrupted services and mitigates risks and long-term damage from natural disasters without dependence on their physical branches. Banks can also outsource their backend operations to Iron Mountain's supercenters located in areas not as prone to weather calamities. Our infrastructure (which hosts the digital documents) is effectively hurricane-proof.
The reality is that natural disasters are inevitable and increasingly common—from hurricanes to wildfires, tornadoes, and floods. This risk will continue to affect banking as well as all other vital industries. Digitization also supports centralization and accessibility to data, allowing bank employees to access key files in any area of the world to assist customers and keep operations running as smoothly as possible. In a new age of operational resilience—including the requirement to respond to natural disasters—the need for paperless banking is more critical than ever. With the stakes dramatically raised, customer-focused firms can rely on their digitization efforts to emerge from the disaster stronger.
For more information about how to establish a foundation for your continuous operations even after a disaster strikes, reach out to Iron Mountain's Digital Banking expert Olivia Markbreiter at email@example.com.