It is an understatement to say that our lives changed in 2020. The COVID-19 pandemic altered the way we interact with our families, friends, neighbors and communities almost literally overnight. It caused the US economy to collapse and consumer confidence to decline rapidly as a result. While our initial concerns were for our health, we soon came to realize that our financial welfare could potentially be impacted as well. With these two basic human needs on our minds in an uncertain and rapidly changing world, we began to change our behaviors and our perspectives.
None of this is news. You’ve lived it and continue to live through it. The more pressing topic is what do we do next, and how should we plan for the future when the past may no longer be a relevant baseline?
As a market research firm specializing in financial services, we recognized our clients’ need for better information to help them pivot in the short term, and redesign everything from products, services, and experiences to overarching business objectives for the long term.
As a result, we initiated a number of pandemic-related studies, including one called Impact of COVID-19 on Consumer Financial Services. In this July 2020 study of 2,000+ North American consumers (half of respondents US and half of respondents Canadian), we identified which behaviors related to personal finances had changed, to what degree, and why. But perhaps more importantly, we got a sense of which behavior changes were most likely to continue, and how attitudes may have changed permanently. The findings shared in this article represent the combined population unless otherwise noted. (More details about the specific differences between US and Canadian consumers are available through Phase 5).
Savings are up and spending is down. One of the most notable changes we found was a new tendency towards saving and thriftiness. Over half of households reported a moderate or substantial spending reduction, and half of those don’t expect their spend levels to bounce back, post-pandemic. Even those whose wealth and income had not been negatively impacted by the pandemic reported spending less and having concerns about future financial stability. These results suggest that the sudden economic uncertainty made consumers hit pause to reconsider their typical spending, and also triggered an increased need to save.
What does this mean for Financial Services organizations? We see an opportunity to encourage this thrifty behavior and promote further saving. This could entail a variety of tactics from creating new savings products targeted at long term savers, to developing a customer journey of touchpoints and communications that shepherds consumers from micro savings opportunities through to wealth management. Digital tools could facilitate the shift, personalize offers, and help build stickiness through rewards and gamification.
One example of such an application is RBC’s NOMI, a new intelligence driven tool for customers that generates alerts, reminders, and tailored insights based on an individual’s banking habits, enabling them to make more informed personal financial decisions. One of NOMI’s features called Find & Save is able to track cash flow patterns and then automatically shift some available dollars from checking into savings, helping customers to take advantage of more savings opportunities.
Acceleration to digital-first banking (for most). Speaking of digital tools, online, remote, and contactless interactions have rapidly overtaken face-to-face customer service in many areas. The pandemic obviously drove a decline in branch and ATM transactions (only a quarter said they would be comfortable visiting a branch), and as a result, it also accelerated the adoption of online banking services by a segment of otherwise unlikely customers. However not everyone is comfortable with this push to digital, and not every transaction type is created equal in this regard.
The study found that up to 30% of customers aged 55+ are less comfortable in general with the shift to online banking when compared to all other age groups. However, across the board, customers reported lower levels of comfort doing such things as showing/proving identification online, and higher levels of comfort transitioning rote paperwork such as mortgage renewals to the online channel.
Further differences can be found when dissecting the data by banking engagement level, as defined by the number of the bank’s products and services held by a single customer. Many customers with fewer products and services indicated that electronic banking services were new to them, and that they were ramping up. While this low engagement group skews younger, it crosses wealth and income levels.
It is useful to note that many investors (between one-third and half) said they would consider or in some cases prefer to engage in digital investment advice. This holds true more often for younger vs. older consumers, but suggests an opportunity to re-imagine consultations and planning tools with respect to wealth management. Further leveraging digital capabilities could help deliver highly personalized services, and research could help businesses to understand when a human touch point would be most effective.
As an example, Wells Fargo offers Intuitive Investor®, which offers “the efficiencies of digital investing and the benefit of talking with a Financial Advisor when you have questions.” Explanation of the service includes answers to several Frequently Asked Questions, and the account-opening experience begins with a questionnaire so the investor can see the portfolio of investments that would be recommended before deciding if the service is a fit for him/her.
Communications with retail banking customers need improvement. One last key finding to highlight from the study relates to outbound communication. While organizations have thankfully become much more conscious of their practices with regard to consumer rights and privacy, it is important to know that many customers feel that their banks could improve on proactive communication. While consumer ratings of banking performance during the pandemic were strong in terms of digital tools and convenience-related items, some of the lowest marks were issued for elements like “offering useful advice” and “keeping me informed of offers”.
The right combination of customer insights and digital tools can help address this gap. Real people armed with a better understanding of their customers’ circumstances and needs can effectively leverage AI and automation to ensure key messages are delivered at the right time and in the right channel to the right customer at scale. During these uncertain times and as we navigate the future, customers want to hear from their banks, about in-person service protocols, special offers, or special products created to address their needs, for example.
In summary, although spending levels may have decreased and the financial future seems more uncertain than ever, we see many opportunities for banks to adapt and offer new products, services, and experiences to their customers. For example, lean into new behaviors such as thriftiness with new products that make it easier for consumers to generate savings (and reduce household stress). Look for opportunities to leverage technology to provide personalized service at a distance (e.g. automated investing tools), but don’t lose sight of where a personal interaction is expected by staying in touch with your consumers through research.
We encourage Financial Services organizations to remain customer-focused in their current decision making and in their long-term planning, because we know that this is a path to sustainable competitive advantage, and ultimately to success.
This is the first in a series of articles on the impacts of the pandemic on financial services. In the coming weeks and months we will be partnering with other industry experts to deliver richer, data-driven insights, including our next couple of articles regarding (i) a comparison of the impact on consumers vs. small business owners, and (ii) a perspective on digital transformation (how to optimally evolve your UX within a holistic CX perspective).