As Kierkegaard professed: “Life can only be understood backward; but it must be lived forwards.” This sentiment has never been more appropriate as you approach your strategic planning for 2022. The COVID-19 pandemic has had an impact on so many facets of the way we live and work and should provide a significant backdrop to your planning for the year ahead.
Faced with Uncertainty
We’ve been moving through “unprecedented times” since March 2020, and so to say that during the pandemic people have been faced with uncertainty feels like an understatement. Nonetheless, it has been a time of great uncertainty, and that has generated ripple effects in many spheres.
The extended time at home – no matter the circumstances – offered people time and space to truly take stock of their lives and evaluate their priorities. For some, the forced shift to remote work allowed for an epiphany on work-life balance. Since Spring 2021, 7.3 million people so far have changed careers or retired early, and a less positive trend that has been dubbed the “She-cession” has seen 2.3 million female workers drop out of the labor force, often as a result of juggling the high demands of work and family during these chaotic and ever-changing times.
During these times, people sought out their banks and found that their banks were there for them with support. Sixty-three percent said their banks supported them during the pandemic and expressed satisfaction with that level of care. Small businesses found support in terms of Paycheck Protection Program (PPP) loans – 11.8 million PPP loans were approved. And two million mortgages were in forbearance.
We Changed How We Thought About Money
This was a time for people to put their financial house in order and many were more deliberate about their money matters. We planned more, we saved more, we paid down debt. During this time…
63% established an emergency fund
42% increased retirement contributions
53% saved more
83% revisited their investment plans (Ameriprise, 4/2021)
Credit card (-9%), store card (-11%) and home equity debt (-11%) was paid down. (Experian, Q3, 2020)
And some people just tried to hang on. Over nine million businesses closed (Harvard/Brown Universities). Nearly nine million people lost their jobs. Twenty-six percent of Americans deferred loan payments (Northwestern Mutual). And 72% of student loans went into forbearance (Experian).
We Banked Differently
Circumstances alone had the biggest impact on the change in the way we bank. Stay-at-home orders in the first half of 2020 led to many branches closing their lobbies to customer traffic. Branch visits fell 30% in 2020. And while restrictions have loosened, and lobbies have reopened, teller transactions remain more than 20% below 2019 levels (Novantas, June 2021). In part, this can be attributed to operational challenges many FIs are facing, particularly relating to staffing issues that are exacerbated by illness or exposure. Adoption of online and mobile channels for day-to-day banking transactions has also contributed to the decline in-branch visits. Customers embraced the convenience and ease of digital banking, and usage was up 55% by March 2021 (JD Power).
And while digital tools have become more important, customers still need their financial institutions – in some ways now more than ever. In a recent Galapagos study, respondents were asked to identify the single most important thing their bank/credit union could do for them:
Provide the products, tools, and advice to help me make the most of my money (26%)
Make day-to-day money management easier/more convenient (24%)
Help me feel financially secure and less stressed about money (16%)
Be more available to me when I need help (13%)
These needs demonstrate a desire for banks to take on more of a consultative role as a financial partner, rather than merely offering transactional services. The pandemic has opened our eyes to the way things can change so quickly, and people are seeking expertise, solutions, and comfort from their trusted FI.
Will these changes be permanent?
Not everything that has changed as a result of Covid has been negative and in fact, some of the renewed focus on finances has been quite positive. There are indications that the desire to put the financial house in order will remain a priority. Seventy-two percent made money matters their #1 priority for 2021 (CNN, 2/2021), 45% plan to reduce discretionary spending, 34% will continue to pay down debt, 29% plan to monitor their finances more closely, and 25% will increase their retirement contributions.
In spite of this more conservative approach to money management, consumer spending is on the rise and is up 4.7% over pre-pandemic levels (McKinsey, 6/2021). This increase was largely driven by the purchase of recreational vehicles, household furnishings and equipment, and food and beverage. And housing starts in July of this year were the highest they’ve been since 2007. Not surprisingly, credit demand has increased and is near pre-pandemic levels. The first quarter of 2021 saw 15.5 million new credit card activations, as well as a surge in Buy Now Pay Later (BNPL) platforms such as AfterPay and Klarna. Mortgage debt is also on the rise, fueled by rising home prices and new home purchases by Gen Z and Millennials.
On the business side, we’re seeing recovery as well, with 80% of small businesses back at pre-pandemic sales levels. Increasingly more businesses are able to operate fully opened, and many businesses established an online presence during the pandemic in order to keep serving their customers.
The first quarter also saw strong commercial lending, up 13%, with delinquencies and charge offs lower than in 2020 (St. Louis FSB, 6/2021). Small business borrowing has increased 34% from July 2020 (SBA).
And the rallying cry for the past several years remains: Digital convenience remains a priority, as 28% plan to increase their use of digital tools to manage their money.
Looking Ahead…
It’s safe to say that the pandemic has been a time full of shifts. What does that mean for planning? Over the next few weeks, we’ll be sharing with you our strategic priority recommendations for 2022.
Numerous changes have emerged as a result of the COVID-19 pandemic and Galapagos has been monitoring the challenges and opportunities our clients face in the years ahead. We’d love to share this insight with your team. Fill out the form below to request a meeting.