Our second vignette paints a future with mixed outcomes. Our virtual panel shifts its focus to how the industry will be impacted if not everything in the response goes well.
Even though the economy has been in an expansion for over a decade, the lessons of the 2008 financial crisis were hard-learned and so credit is priced much more carefully, and some of the risks of securitization are better understood. That said, I am confident that no banks had epidemiologists on their pricing desk.
Given the mass layoffs that have ensued, and the precipitous drop in demand, previously creditworthy businesses and individuals will default or become less creditworthy. This means that from the vantage point of today, all loans are mispriced.
Sylvan C. Coleman Chair of Finance and Accounting at University of California-Berkeley’s Haas School of Business
Low-income people and people of color are more likely to have jobs that are considered essential and that require them to take public transit, increasing the chance of exposure to the virus. In addition, these groups make less money and are less likely to have health insurance. Access to COVID-19 aid, information and support is largely conditioned on access to technology and finance that millions lack.
President and CEO, Financial Health Network
The ongoing lockdown continues to push more people into economic uncertainty. Customers fortunate enough to not be highly impacted continue to bank through digital channels and do not require visits to branches or even ATMs. The increasing number of affected customers will fall behind on credit card payments, mortgages and other loans. Unable to connect with a live customer service professional on the phone and unable to find answers through digital channels, they begin visiting branches that are still open and considered an essential service to seek resolutions to their unique situations.
Bank managers seeing this dynamic begin increasing staffing levels at branches and even re-open branches that were closed in the early weeks of the pandemic to meet demand. Additionally, banks begin to understand the shifting profiles of staffing required. Credit specialists and personal finance professionals become more in demand as are professionals who display higher degrees of emotional intelligence. Banks even bring in psychologists to provide additional support for highly distressed customers.
Affected customers get issues resolved quickly and efficiently and therefore, report unprecedented levels of confidence and satisfaction with their financial services providers. Additionally, with more foot traffic, sanitation teams are on site frequently, providing even more confidence to customers.
As restrictions begin to slowly lift, the reassurances and support provided by employees at banks will imprint physical local bank branches as proxies of trust onto customers. Bank branches become destinations not only for financial services but also other ancillary services that require high levels of trust.
Vice president, client officer at Ipsos
The use of physical cash diminishes during and after the pandemic and digital channels dominate. Contactless payments also see a boost from the decrease in cash usage and social distancing. Retail stores and locations create procedures to re-open and encourage contactless payments over cash and card. Overall spend is low due to the recession and lingering unemployment, but it doesn’t impact innovation and evolution of payment technologies. More small businesses begin to use digital payments and tools to move away from “cash only” but the rate of failure of small business impacts overall adoption.
Senior vice president, senior client officer at Ipsos
Traditional financial institutions will be challenged to a degree never seen before. Commercial real estate will be deeply impacted, especially in urban areas. Some financial companies that are not too big to fail will not survive. Small cities and towns with major employers will see home construction and population increases, and these will be the areas where some amount of bricks and mortar may make sense. Consumers will decentralize their accounts to emerging digital services and with tech companies and retailers.
For retail bankers, credit-worthiness will have to be re-evaluated. Fee revenues will become less tenable. New customer acquisition will become paramount and small banks without a highly protectable niche will grow extinct. Those that anticipate best migratory shifts from urban areas and beyond the remaining wealthy.
Winners will be: Those that create new fee streams that are based on value and not punishment. Those that anticipate sustainable consumer niches and entrench themselves in the now. Investment advice will become less valued.
The persistent uncertainty, counterintuitive market responses to new information, and sheer amount of free information available to everyone will stress investor trust in advice about the longer term.
There will be more emphasis on short term returns which will add to market volatility. The winners will be: Those who have strong 1:1 connections with important clients. Those who can credibly anticipate the impacts of government stimulus and public/private hybrid programs and paint a clear future picture to investors.
President, chief client officer at Ipsos