Damage control: Recession means many companies and businesses going bankrupt at the same time, that is many clients failing to pay their credit obligations. Banks must seek mechanisms to mitigate the damage to their portfolios, and although much of the damage mitigation will come from national policies and the regulatory agenda of each country, banks must seek innovative mechanisms to ensure that their surviving clients do not go bankrupt in the medium term. Fintech and open banking are good options to generate mechanisms that strengthen the client and go beyond the simple renewal of credits. An example? Fintech’s support in the control and management of budgets and expenses related to the use of credit/debit cards helps improve the control of a small business’s cash flow.
The client will have changed: The COVID-19 health crisis will leave no one the same. And the profile of the financial client will change radically too. Many scenarios can be inferred at this point, but it is important to focus on two for the moment:
- The lower saving’s propensity of customer segments that usually provided the bulk of total savings, due to near-death or illness experience. Companies, on the other hand, after passing the recessionary phase, and entering into expansion, will have to create financial cushions for unexpected times of crisis such as these.
- The greater saving’s propensity of segments that previously did not wish to save, due to the experience of the quarantine that forced them to think about the “bad days” (the so-called Millennial, for example)
- More clients will use digital channels to interact with the bank and its services as long they will be reluctant to visit branches. This is a huge opportunity for banks to consolidate digital channels as the main way of interacting with clients, nevertheless, they shall consider having sound strategies to provide a digital experience similar in quality to that offered by bigtech platforms.
In all these cases, Fintech firms together with open banking are configured as a key answer to face both new scenarios and turn them into an opportunity.
Financial inclusion to ensure bank survival: The economic crisis caused by the COVID-19 will leave the world re-stated. We do not know the magnitude of the change, but it is clear that there are structural trends in the economy that will be accelerated; one of them is the emergence of a growing mass of independent professionals (consolidation of the gig -economy), the growth of the urban-marginal segments whose inhabitants will not have mostly dependency relationships, greater variability of corporate income, and in general a significant reduction in the mass of salaried employees.
Banks will have to make a major exercise in reconfiguring the customer base, looking for customer segments that were usually unattractive, uninsurable, and unprofitable. The only way to expand the financial frontier will be to keep marginal customer acquisition costs very low so that the operation could become successful.
Acquiring customers in previously unexplored segments under this constraint requires a fundamental alliance between banks and emerging fintech firms that can (and already do) acquire financial customers at costs per customer that are fractions of the costs that financial institutions currently have.
