COVID-19’s impact on the financial services industry

Richard Shepherd

Richard Shepherd

Associate Director of Financial Services Research

Mintel

What effect will the pandemic have on the financial services industry? In this new blog, Mintel’s Associate Director of Financial Services research Richard Shepherd analyses the short, medium and long term impact the restrictions are expected to have on the sector and identifies emerging windows of opportunity for brands.

Short Term:
Consumer credit plummets
Consumer confidence has been severely knocked by the sharp rise in unemployment and fall in economic output. Consumer credit will continue to nosedive as people put off big-ticket purchases and longer-term financial commitments, with this fall in consumer appetite already feeding through into the industry. Bank of England data also shows that households repaid £3.8 billion of consumer credit in March – the largest net repayment on record. But even this was dwarfed by the £7.4 billion repaid in April. These are extreme figures, reflecting the unprecedented times, but experience of previous recessions shows that people prioritise debt repayment during tough times.

Medium Term:
The mortgage market will bounce back as savings win out
Following the near freezing of the housing market during lockdown, mortgage sales will start to pick up as social distancing eases and we see a rebound of latent demand. And while potential house-buyers are still likely to adopt a ‘wait-and-see’ approach, we expect to see a sharp recovery in the mortgage market in 2021 and a return to growth over the next five years.
One area where COVID-19 is likely to have a genuinely positive impact is the savings market. While rising unemployment and furloughing has clearly limited people’s ability to save, these have predominantly affected lower earners who were unlikely to save much in the first place. Higher earners who have kept working through the crisis and are able to save will feel a greater incentive to do so. They will want to protect themselves against any financial problems the recession could bring their way.

Long Term:
Insurance will take time to recover
As the recession takes hold, insurers across the board will come under increasing pressure from price sensitivity. This will compound the difficulties faced by business and travel insurers who will have experienced record claims costs. But it is travel insurance that will be hardest hit long term, with travel not expected to reach 2019 levels until 2024, severely impacting linked insurance sales.
Digital offers savvy financial brands a lifeline
COVID-19 has transformed the way we interact with each other and as a result has opened up an opportunity for the financial services market to test a greater reliance on digital channels. The move to a predominantly digital model has been an essential step, with physical locations closed or offering only restricted access and telephone services reserved for those with the greatest needs. But for brands who were ready to embrace the rapid shift, it will prove to be an invaluable chance to find out what customers respond well to and identify areas that need improving if online-first strategies are to be successful going forward. It also offers those brands with superior digital services a real chance to stand out and promote a new way of operating for the future.
Consumers will reward a safe pair of hands
In times of disruption, consumers look for certainty where they can find it. For financial services providers, this means promoting their heritage to highlight that they have been through other difficult periods and can be relied on through this one too. As well as reassuring customers that they will keep their money safe, brands can also boost their public image by providing top-class customer service throughout the outbreak and subsequent recession. Successfully providing meaningful support during this time will produce powerful marketing messages and, more importantly, encourage loyalty in the post-COVID environment.
Self-employed set to change their ways
Behavioural change is rare in financial services and the broad expectation is that people will more or less return to normal activities as the economic recovery takes hold. Self-employed workers however will be among those most likely to make sustained changes to their approach to finances. They are likely to think more carefully about saving and take a greater interest in protection as a result of their personal experience of the downturn. There is a clear opportunity for brands to show a true understanding of their needs and offer genuine support to this growing section of the workforce.

FSF member benefit
FSF members are entitled to an exclusive 10% discount on any purchase of a single copy of Mintel Reports. The discounted price offer is valid only until 31st August 2020. Use the code FSFINSIGHTS10 on store.mintel.com or call Dash Hauzaree from the Mintel team on +44 (0)20 3416 4250.

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