A look ahead 19 January 2021
The turn of the calendar has changed little about the short-term course of the virus. Everyone – governments, businesses, people - is still muddling their way through this pandemic. The incredible news of a vaccine developed in record time and its rollout in December is contrasted with the explosion of cases and hospitalizations across the west. Governments are reinstating second or third or fourth lockdowns of varying severity. Businesses and their owners are beholden to often inconsistent mandates regarding what is “essential” and what is not. People are still (largely) at home, working remotely, possibly managing virtual school for their kids, and battling fatigue. It is not an easy time.
Resilience is an oft-used term in business lexicon. It can be hard to define in tangible terms but is typically used in reference to market competition and the ability to withstand threats to your business. Those businesses that are the most resilient will handle whatever is thrown their way, outlast their competitors, and ultimately succeed. 2020 is a year when that amorphous trait was truly put to the test. For financial institutions and insurers, the challenges were numerous. The bank branch, even with its diminishing role in preceding years, still formed an integral part of any bank’s strategy. With branches sidelined, digital tools took center stage. No longer supplemental, mobile apps were fundamental to delivering basic banking services. Bank employees, with a considerable burden on IT teams, had to maintain service while working entirely remotely. SME bankers rapidly developed new ways to deliver critical support to their clients.
An old adage states that necessity is the mother of invention. All of the trends that exploded this past nine months – online banking and shopping, remote working, tailored insurance - were percolating pre-Covid. The pandemic has sent them into overdrive; not out of choice but out of necessity.
Financial institutions have discovered new ways to engage with their customers. Credit card companies that normally deliver travel-based rewards have pivoted toward streaming and delivery perks. Similarly, neobanks, who have been so reliant on card interchange fees from international travel as a revenue stream, have had to freshen their offerings to keep people using their apps. One method, preferred by Revolut, has been pushing their customers to invest in cryptocurrencies. Others are offering discounts to various apps and services geared towards stay-at-home activities.
Insurers have had to tweak their business models. Traditional insurance products, based around sole ownership of possessions by individuals, are becoming outdated. Digital distribution and new products are driving the industry. Lemonade, the insurtech from the U.S., with its 100% digital offering on a wide range of policies, has capitalized on this moment. It crossed the 1 million customer mark last year and went public, reaching a record high valuation in recent weeks. Car companies such as Tesla have decided to eliminate the need for a separate insurer and instead use all of their data to create their own insurance offerings. IoT and wearable technology are being connected to insurance ecosystems to enhance the way companies engage with customers.
All of this incredible work was executed under a cloud of unpredictability. If there is one thing businesses don’t like, it is uncertainty. Uncertainty ruins even the best-laid plans. Businesses had to close. Others were deemed essential and remained open throughout. People have lost their jobs and their livelihoods. Throughout, everyone is making halted attempts to find some sense of normalcy amidst the confusion wrought by the virus.
There are, however, reasons to be optimistic about some certainty coming into focus. The good news is banks came into this pandemic with healthy balance sheets. This crisis was not triggered by a bank run or lack of liquidity. There is capital ready to be deployed in support of an economic rebound. Furthermore, household balance sheets are broadly healthy and many people have been able to stash money away. When the health crisis finally begins to abate, a resumption of normal life and movement should bring an accompanying boost in spending. With both people and the financial system still in solid shape, once we reach a serviceable level of vaccination, the economy should be ready to take off. Most reputable sources are predicting ~5% GDP growth in 2021.
With the other side in sight, those companies that used 2020 to upgrade and digitize their existing offers will benefit from the anticipated restoration of activity. Others that have not used this past year wisely to invest in the next generation of services won’t reap the same rewards. It will be fascinating to track which trends from 2020 become entrenched and the areas where people revert quickly to old paradigms.
Getting to the lift off point, though, is still some way off. After a long and trying year, a few more months of that enigmatic quality – resilience – are required. The French Minister of Culture, Roselyne Bachelot, put it best at a recent press conference: “I ask you to remember that spring always comes.”