And how will their communications strategy adapt?
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With the outbreak of the COVID-19 pandemic and Brexit, 2020 was a whirlwind of a year. In this post, we take a look at the huge changes seen in the financial services sector as it adapts to a whole new world.
Banking as the new digital frontier
As the pandemic raged across the world, businesses stopped accepting cash payments to reduce contact. Digital payments were no longer an additional alternative, but the only method of payment at several shops. This rapid usage generated 10 years’ worth of growth in just four months (Lucas, 2020). In the UK, less than one in four payments were being made in cash. This is fifty per cent of pre-Covid levels. Apart from traditional card payment companies like Visa and Mastercard, mobile based payment systems (PayM, Google Pay, Venmo etc) saw a sharp increase in the volume of transactions on their platforms.
This resulted in more non-bank companies offering financial services such as e-wallets and payment solutions. Usually these brands would need time to build a reputation, but the pandemic altered all that and challenger brands have benefited. What they might find is that they now need to work harder on building a reputation for the long-term once the immediate need has passed.
More traditional banks found themselves working together with such companies to offer co-branded services to better reach out to their customers. However, we wait to see if there is any fallout and if risk and compliance management has been strict enough to prevent data breaches.
Cambridge Judge Business School and the World Bank published the results of their Global Covid-19 FinTech Regulatory Rapid Assessment Study, which collected responses from 118 central banks and financial regulatory companies. Their studies show that 72% of respondents have either introduced or accelerated initiatives on digital infrastructure. Again this feels like a reputation management problem waiting to happen. Nonetheless there are some great fintech companies like Gretel (www.gretel.co.uk) solving financial services old data legacy issues and many consumers will want this to continue.
Overall, the UK’s fintech sector has seen meteoric growth with nearly £2.5billion of funding announced last year. Research in 2019 noted that fintech adoption among digitally active consumers had already reached 71 per cent (EY Research). This number can only have increased upwards in the last year with the likes of Revolut now having more than eight million customers worldwide and Monzo gaining 55,000 new users each week.
Despite concerns, COVID-19 seems to have accelerated the shift towards digital services for many customers, and investors are still putting significant amounts of money behind challenger banks, seeing long-term potential in the sector.
In addition to the growth in digital payment and banking platforms, there has also been increased activity towards online trading platforms. eToro saw a 420 per cent increase in the number of opened stock trades from January to June 2020, compared to the same period in 2019. Interactive Investor had a 119 per cent year-on-year increase during 1 April and 31 August 2020. This large uptake is likely due to people working from home and having slightly more free time without the commute to work.
Workers who had been furloughed or unable to work have also been getting involved. Stock market trading in the UK had traditionally been skewed towards the older generation. But the recent rise in online trading has attracted more younger investors. 40 per cent of all new UK customers that joined eToro in 2020, and currently hold real stocks, were under 29 years old. The stratospheric rises in popular tech companies like Apple, Tesla and Amazon have been identified as a key part of younger investors taking to online trading. However, doubts still remain whether these young investors are keen on long-term investing or simply trading to create speculation.
The pandemic has also changed the way equity investors perceive return. High market volatility is certain as investors weigh the effect of coronavirus against measures taken to ease the economic impact. The Prudential Regulatory Authority (PRA) had requested banks to suspend share buybacks and dividends till the end of 2020.After which major banks announced that they wouldn’t be returning any dividends to shareholders and cancel all outstanding dividend payments from 2019. Apart from banks, other firms too scrapped plans of dividend payments. Analysis from Granite Shares shows that between 1 January and 23 November 2020, 493 companies listed on the London stock Exchange had either cancelled or cut their dividend payments. This means that investors will have to rely strongly on capital gains in share prices for returns, whilst dividend payments remain scarce.
The final piece of the puzzle is the rise of ethical, social and governance (ESG) issues, never before have consumers, investors and corporate begun to evaluate their impact on the world and are looking for corporates for answers.
The pensions industry is one area driving innovation, including the Task Force on Climate-related Financial Disclosures (TCFD) which has placed new climate reporting and disclosure duties on pension schemes. Overall there have been record inflows to ESG funds taking their assets under management above $1tn. In addition Morningstar figures shows that the rising demand for “sustainable” investment saw 505 new ESG fund launches in Europe in 2020 and it also prompted managers to change the investment strategy of a further 235 European funds to make them more ESG friendly.
For those of us working in communications for financial services companies it is exciting times and it will be interesting to see which companies get the attention and credit they deserve.
[Image by <a href="https://pixabay.com/users/blickpixel-52945/?utm_source=link-attribution&utm_medium=referral&utm_campaign=image&utm_content=463928">Michael Schwarzenberger</a> from <a href="https://pixabay.com/?utm_source=link-attribution&utm_medium=referral&utm_campaign=image&utm_content=463928">Pixabay</a> ]
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