Spilman Thomas & Battle, PLLC
September 9, 2020 - Charleston, West Virginia
Three Important Ways the COVID-19 Pandemic is Changing the Delivery of Consumer Financial Services
by Nicholas P. Mooney II
The world continues to come to grips with the daily changes brought by the COVID-19 pandemic. Schools contemplate opening. Some do, while others do not. Some professional and college sports teams play games to empty stadiums. Some businesses are open, with restrictions, while others are not. Lawsuits are being filed by businesses that think they should be permitted to reopen like their neighbors who already have. It comes as no surprise that the pandemic also is changing the way consumer financial services are offered. This article looks at three ways those services and the businesses offering them are navigating the “new normal.”
1. Mobile payments and e-commerce
Mobile and digital payments are changing dramatically. Changes already were underway before the pandemic, but commentators offer that technologies in this area that some predicted would be adopted in a matter of years now are being adopted in a matter of months.
Much of this change is being driven by the desire to observe social distancing while engaging in commerce. This desire is felt across all age ranges. One report estimated that nearly 5,000,000 people aged 45 years and older have tried online shopping for the first time since the start of the pandemic. Online purchases of items such as food have increased over 285 percent during this time.
A study conducted by VISA revealed similar information. According to the study, nearly 78 percent of consumers worldwide have changed how they pay for goods in order to reduce contact during shopping. Seventy percent of those responding to the study advised that they have used a new shopping or payment method for the first time since the onset of the pandemic. Twenty-six percent said they have used tap-to-pay when they made in-store purchases.
Cash currently suffers suspect status with many believing that the passage of cash from consumer to merchant and back to consumer in the form of change is too dirty to risk. Interestingly, credit cards are not spared this fate. VISA’s study revealed 67 percent of consumers admitted to taking some measures to keep their credit and debit cards clean, including disinfecting them.
The message here is clear: the future may well belong to digital, contactless payments. This belief is leading to a race to provide the best mobile payment options and online experience for buyers in all age ranges. The prizes are real. One report advised that "42% of U.S. shoppers and 44% of UK shoppers [report abandoning] a purchase if their favorite payment method isn’t available."
2. Mortgage lending and small business lending
The pandemic also is changing the face of mortgage lending and small business lending. Even before the pandemic, there were rumblings that the lending process was plagued by unnecessary, repetitive administrative tasks that slowed the process and added to its costs, both for the lender and borrower. As a result, the industry already was in the process of exploring how digital lending could work.
The pandemic has caused the adoption of those technologies to quicken. Now, borrower interactions have transformed to being conducted by telephone or videoconference. Some mortgage loan lenders and brokers are offering stay-in-your-car loan closings. The majority of states have enacted some form of approval of remote notary public acknowledgements for loan documents.
Not surprisingly, commentators warn that lenders must take advantage of these opportunities and leverage technology to meet customers’ needs. Implementing “a technology solution that proves a seamless experience for the loan customer from application to close,” including the ability “to complete an application, provide documentation and signatures, monitor progress and receive funds” will be key to thriving in mortgage lending during and after the pandemic.
The same is true for small business lending. A survey conducted by the American Bankers Association showed that, pre-COVID, merely 26 percent of banks used any form of digital loan origination for small business lending. The figures are smaller when considering the number of banks that used digital document uploads (12 percent) or e-signing of loan documents (11 percent). This lack of available digital lending left a need unmet as, according to a report from 2015, over 60 percent of small businesses expressed a preference for a digital lending process.
As the pandemic forced bank branches to close and sent employees home to work, digital lending became a focus. However, there are still issues to be addressed. A recent survey conducted by Lightico of slightly over 1,000 U.S. borrowers found that between 32 to 33 percent of them who attempted to complete an entire loan process online were redirected to a brick-and-mortar branch or instructed to print, sign, and mail the loan papers. A more dire statistic from the survey reported that nearly half of those surveyed would forgo taking out a loan if they were required to actually visit a physical bank branch.
3. Staffing and working from home
The pandemic also is changing the delivery of consumer financial services by sending home employees of banks and other financial companies. Commentators report that, even before the pandemic, some lenders were facing staffing issues because low interest rates led to a glut of new loan and refinance applications. They shifted employees to keep loan applications from becoming bottlenecked. A substantial portion of that workforce was then sent home to work as physical branches were forced to close. The good news, though, is that remote working proved to be productive and showed that for many there was no longer a need for employees to fill large office spaces five days per week.
That trend may be here to stay. Several banks and credit unions have indicated a commitment to permitting employees to work remotely in the future. Truist has stated that it intends to permit more than half of its employees to continue to work remotely until at least January 2021. UBS Group, Barclays, and JPMorgan Chase all have said “a large portion of their workforce could continue to work remotely.”
And the employees are fine with that. A recent PwC report revealed that 80 percent of bank employees prefer to work remotely at least one day per week, and 32 percent would prefer to work remotely five days per week. This may mean banks that are unwilling or unable to provide this flexibility may be at a competitive disadvantage in recruiting and retaining talent.
It comes as no surprise that a worldwide pandemic that is changing the way we go about most anything also is changing the ways consumer financial services are delivered. There is no way to predict all of the changes that are in store. However, the commentators, surveys, and reports discussed in this article make a couple things certain. The ability of an institution to deploy technology to provide customers a seamless, pleasant experience and the flexibility of that institution to provide its employees remote working opportunities will give that institution a competitive advantage during the pandemic and for years to come.
Please let us know if you have any questions about this topic.
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