Coronavirus and Its Impact on the Financial Sector: Can We Know What Will Follow?
The Coronavirus has swept into the financial
sector and just about crippled the global economy. Global stock market fall,
oil price decline, and disruption in various sectors have been the order of the
day since more than one-third of the world population has been placed on
lockdown.
According to Deloitte, “COVID-19 could affect
the global economy in three main ways: by directly affecting production, by
creating supply chain and market disruption, and by its financial impact on
firms and financial markets. However, a great deal depends on the public’s
reaction to the disease.”
Global stock markets crashed in March 2020 after
the largest single week decline since the 2008 financial crisis. Although the
financial impact of the virus on trade and travel could be difficult to
estimate, it is bound to be running into billions and rapidly increasing.
There have also been reports that the United
States economy might just get worse than was previously predicted.
In light of this catastrophic event that
has literally shut down the world, the financial sector keeps getting massive
blows on a daily basis with almost no respite in sight.
However, the world is hopeful that this would
pass in no time and that life can assume a semblance of normalcy once again.
How is Coronavirus Impacting The Financial Sector?
The financial sector is one of the most
important sectors in the world at any point in time and is one of the most
volatile as well. When the novel coronavirus began its onslaught on the world,
it was already apparent that this sector was going to be one of the worst
hit.
Despite the shelter-in-place order by
governments of various countries, the financial sector is not one that can go
on breaks on a whim. While people are stuck indoors, financial transactions are
still ongoing, else businesses who have found a way to continue their
operations would break down completely.
Banks and other financial institutions still
rely heavily on the physical presence of personnel, making this period a very
tricky one for them to maneuver. Physical branches, while they may be open can
only respond to a very limited number of bank customers daily.
Since most people are unable to get into the
banks, their lines and social media pages are being besieged with questions and
clarifications from frantic bank customers. This period is a pretty dark one
for most and they need help determining exactly what their fate would be at the
end of the virus.
Filing for unemployment has reached a record
high and income sources have dried out. This implies that there would be loan
defaulting and issues with mortgage payment. These and more are reasons why
bank customer care lines have been ringing off the hook.
Companies that were best prepared for the
pandemic were fintech companies. With remote working requirements already in
place, not much changed in their mode of operations. The only problem that some
of them might face would be funding due to inherent instability.
In order to increase their relevance, fi tech
companies have opted to either offer their services free of charge or work on
creating a working essential service for businesses that are still
standing.
In essence, these are tumultuous times for the
financial sector in general and the only glimmer of hope that they are still
holding on to is a measure of digitalization.
The Financial Sector Post Coronavirus
The financial sector is going to see a number of
major changes after the coronavirus pandemic and the blueprints are most definitely
the works already. In the face of the pandemic, financial institutions are
tasked with the nearly impossible task of maintaining normal daily operations.
However, the measures in place all in a bid to
curtail the spread of the virus do not allow for maximum efficiency.
Branches have closed down and personal contact
with bank staff is currently next to impossible. Yet, banks have an obligation
to ensure that transactions are completed.
Certain departments have their entire workforce
working temporarily from home making banks face administrative challenges
previously unplanned for.
The regular guidelines that applied in the
physical no longer seem to do the job. Paper-based processes are no longer
possible and a significant number of external and internal devices would be
available only online.
This brings into the floodlights the importance
of digitally transforming the financial sector, especially financial
institutions.
An interview with Douglas Fritz showed just how much of an essential role fintech companies have
to play the digitization of the financial sector.
As a matter of fact, this is the major thing to
expect post coronavirus, the financial sector would be relying heavily on
the digital and less on physical processes.
Inadequate preparation made financial
institutions very frantic in order to ensure that banking and other services
didn’t break down as a result of the physical absence of workers. This is one
thing that would definitely be avoided in the near future.
Post coronavirus would see financial
institutions evolving to the digital such that a lack of physical personnel
would not cause a disruption in any financial process.
To meet up with this global challenge, banks and
fintech would be collaborating on a large scale. This would enable them to pool
together their respective strengths and take actions that are guaranteed to be
highly effective.
Also, in spite of whatever security requirements
might be present, the need for digital solutions has been growing steadily over
the years and the pandemic is the last straw.
Similarly, Fintechs have a wealth of
experience in this area that they have garnered over the last couple of years.
Coronavirus is going to be the reason why
players in the financial sector would start to team up in order to avoid
services getting crippled.
Seeing that the right strategy is what is
necessary to guarantee sustainability, the financial sector is definitely going
to rise to the challenge and go digital.
And for individuals with huge stakes in the
financial sector, getting top-notch
investment advice is going to be a
necessity in order to keep up with trends.
Finally, these changes would not be without
drastic impacts — impacts that we would see in the days to follow.
