Personal Finance In The Post COVID-19 World

By Saroni Chakravarti | May 14, 2020

The world as we know it will no longer be the same in the aftermath of the COVID-19 crisis. Nationwide lockdowns across the globe have crippled the economy that has led to massive layoffs and pay cuts. What does it hold for our personal finance? Let’s take a look. 

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A few years ago, if someone told us that a microbe is capable of bringing the world to its knees, we would’ve laughed it off. Nations across the world have since time immemorial competed with each other in matters of military spend and war preparedness. According to reports, world military expenditure is estimated to have been $1822B in 2018. But across the world, probably only a minuscule of a country’s GDP is spent on preparedness for a health disaster like COVID-19 or even research and development. This lack of foresight has cost us dearly. Millions have now lost their lives to this pandemic and the world is still wrapping its head around the scale of the crisis and is at its wit’s end about how to emerge safely out of it. One thing is for sure – this crisis has left lessons in its wake that were once thought of as absurd. It has wrought changes that are here to stay- from how we socially interact with each other, travel, work, to how we shop for essentials. But what lessons does it hold for our personal finance? Let’s take a look.

The consumer that will emerge post the crisis will be nothing like the one before. And this is why consumer-centric businesses need to rapidly evolve and adapt to the changing needs of the consumer post COVID-19. This will help them sail through crises of this nature and scale in the future with confidence.

Additional Reading: How To Tide Over A Covid-19 Cash Crunch

Banking

There’s no denying that banks have played a crucial role in helping consumers navigate this crisis- from offering relief packages by way of loan moratoriums, providing special COVID-19 Personal Loans, to contributing to relief efforts. The COVID-19 crisis has also led to a sharp increase in the adoption of digital banking due to restrictions on the availability of physical channels. Across the world, when nations started announcing lockdowns one after another, one of the first measures that most banks took was to limit physical access to their retail branches.

Digital Banking

The pandemic has surely played a big role in enhancing the adoption of digital banking. However, it remains to be seen whether consumers will stick to this behaviour post COVID-19. Public memory is fleeting. According to the recently published EY Future Consumer Index report, only 24 percent of respondents expect to bank more online in the next 12-24 months, and just 16 percent of respondents said that the way they bank will change over the longer term because of COVID-19. Many customers still expressed a desire to revert to previous channel preferences. If banks want consumers to continue to bank digitally, they will need to think beyond offering basic banking services, insurance and investment online, and step up efforts to boost digital sales and engagement. This would not just mean diving deep into finding reasons why customers want to revert to their old ways but also focusing on more targeted and personalised communication through digital channels that address the security and financial concerns of consumers, especially the vulnerable ones.

Additional Reading: Money Management During The Coronavirus Crisis

Delivering Value

Another way banks can truly deliver value post COVID-19 is by offering services that go beyond basic banking services like offering sound financial advice and other services like tax calculation and accounting for consumers. This can be easily achieved through online financial tools and investment advisers dispensing financial advice remotely. A great way for banks to stand out in an overcrowded market.

Responsible Banking

In times like these, a bank’s reputation will be more important than ever in determining consumers’ purchasing decisions. How banks choose to act during this time will have a bearing on how much people trust them to do business with them post COVID-19. In the EY report, more than 50 percent of the respondents indicated that their future purchasing decisions will be impacted by banks actively supporting the community, being transparent in all they do, and ensuring they are doing good for society. Conversely, 44 percent said decisions will be negatively impacted where they perceive banks to maximise profits during this time. Only 17 percent said that they completely trust financial service firms in the current context. This means that banks will need to communicate more effectively how their efforts are geared towards assuaging their consumer’s concerns and what practices they’re following in keeping with the government and other authorities’ directives.

Additional Reading: An Easy Guide To Claiming Your COVID-19 EPF Advance

Greater Flexibility And Security

The pandemic dealt a huge blow to the finances of millions of people that came in the form of extended periods of leave without pay, layoffs and pay cuts. Many will depend on the support of banks to recover from this crisis. Banks will emerge to play an important role in this sense- help their customers get back on their feet. In the EY report, 26 percent of the respondents said they expect to invest more in being prepared for the future. Given the risk the crisis has exposed people’s hard-earned money to, many will be looking to “COVID-proof” their finances in the future. For instance, in the report, a quarter of individuals said they would be willing to pay a premium for a range of financial products that promote their family’s well-being. Banks, in this regard, can help customers chalk out a robust portfolio of savings, investment and insurance to fortify their finances in the future.

The Eclipse Of Cash

In India, demonetisation sounded the death knell for cash but COVID-19 has, in a way, cemented its eclipse. Amid fears of cash spreading the virus and many retailers closing down their physical stores, the usage of cash fell to 57 percent among respondents in the EY report. This was accompanied by a rise in payments using Credit Cards (7 percent net), Debit Cards (10 percent net) and online payments (14 percent net). For people who are still purchasing from physical stores, contactless appears to be the preferred payment option (up 34 percent net). Consumers are likely to stick to cashless payment options post COVID too- 20 percent of respondents said they expect to be using less cash and more contactless payments in the future.

Additional Reading: Will Job Loss Insurance Help You If You Get Laid Off?

Insurance

One of the immediate demands of consumers in the post-COVID world would be of a comprehensive insurance cover especially Health Insurance. No matter how minimalistic or conservative one’s savings and investment plan is, having a comprehensive health cover can no longer be overlooked as a luxury. Here are a couple of things consumers are likely to focus on while designing their investment portfolio:

Type Of Insurance

In the post-COVID world, consumers are likely to sign up for policies that offer coverage beyond run-of-the-mill and rudimentary ailments. There is likely to be an increased demand for policies that cover you against serious infectious diseases like pandemics as well as natural disasters as they are going to become the order of the day. Although IRDAI has permitted 29 firms to design and market COVID-specific insurance products, most of these offer very low cover. Given the spiraling cost of healthcare and instances of inflated bills from private hospitals treating COVID-19 patients, it is wiser to opt for a cover of over Rs. 5 lakhs at least, if you can afford it.

Additional Reading: COVID-19 Treatment: How Much Health Cover Would You Need?

Health Cover

When deciding on their health cover, consumers are likely to consider a host of factors now and not just the claim ratio of the insurer. Some of these are their existing lifestyle, existing liabilities, number of dependents, stress levels, and their health conditions. These factors will be crucial in determining if they will need an upgrade over their existing cover or will need to port their insurance policy to another insurer.

Additional Reading: Arogya Sanjeevani Health Insurance Explained

Extent Of Coverage

Along with the burgeoning number of people who’ve had to be hospitalised due to COVID-19, there is also a large volume of people who’ve had to be home-quarantined. This has brought to the fore the importance of insurance coverage for in-patient treatments along with hospitalisation. Consumers are likely to gravitate towards policies that offer extensive coverage for both pre- and post-hospitalisation treatments. Insurance policies that offer coverage for multiple scenarios are likely to emerge as having the most demand among consumers post-COVID.

Turnaround Time For Claims

Some time ago, IRDAI directed all insurers to decide on authorisation for cashless treatment to the network provider (hospital) within two hours from the time of receipt of authorisation request and last necessary requirement from the hospital. Also, health insurers have to communicate their decision on final discharge to the hospital within two hours from the time of receipt of final bill and last necessary requirement. While this is a welcome move, this needs to become more than an interim measure in a rapidly changing world. Given the dynamic nature of infectious disease and how soon things can go south once it spreads, consumers will be looking to insurers to develop mechanisms that will quickly settle claims, thereby allowing cash flow liquidity in the hands of individuals.

Individual Spending

The EY Future Consumer Index identified 4 types of behaviour in individual spending during the COVID-19 crisis:

a) Cut deep

b) Save and stockpile

c) Stay calm, carry on

d) Hibernate and spend

Consumers in the “Hibernate and spend” segment comprise individuals aged between 18-44 years. This segment is most concerned about the pandemic, but only 40 percent of them said that they are shopping less frequently. While 42 percent said that the products they buy have changed significantly, 46 percent of them said that brands are now more important to them.

There have been more distinct changes in the “Cut deep” segment though. This segment that comprises people aged above 45 years have been impacted the most in terms of employment. Many of them have lost their jobs or have been furloughed. 78 percent of them are shopping less frequently, and 64 percent are only buying essentials. In contrast to the “Hibernate and spend” segment, 33 percent in this segment feel brands are now far less important to them.

According to the report, post COVID-19, the four identified segments will morph into five very different ones as the crisis abates. For example, over time most consumers in the “Save and stockpile” segment will migrate to two new segments that the report calls “Remain frugal” and “Cautiously extravagant.”

The report states that five new segments will emerge in the aftermath of the COVID-19 crisis:

a) Get to normal

b) Cautiously extravagant

c) Stay frugal

d) Keep cutting

e) Back with a bang

Those belonging in the “Cautiously extravagant” segment have a strong belief that we will be in a global recession after the pandemic. They may be cautious about spending, but they said that they expect to increase spend across non-essentials once the crisis is over. But 45 percent believe that how they shop will have changed permanently, and 38 percent say the same about what they will buy.

Respondents in this segment were found to respond strongly to purposeful brands, with 62 percent saying they would be more likely to purchase from companies that they feel are doing good for society. And 29 percent would pay a premium for brands that contribute to the community and 42 percent for domestically produced goods.

By contrast, “Get to normal” consumers are determined that after the pandemic, things for them will be the same as before. 33 percent do not expect the crisis to have changed their lives on any dimension. Only 29 percent say it will have changed the way they shop, and only 21 percent what they buy. Most of them don’t expect to spend any more money than they used to.

Additional Reading: Post COVID-19: What Will Work Look Like?

Final Thoughts

Businesses will need to quickly evolve and develop mechanisms that facilitate more rapid, seamless and easy communication with their customers if pandemics are going to become the “new normal” in the future. Banks and financial institutions will have an especially important role to play in the road to recovery as many reeling from job loss, furloughs and pay cuts will be relying on their support to address their financial stress. Customers under financial and health duress will need ready access to financial products. This is where banks and financial institutions will need to step in and offer products that will help meet their needs through digital channels. Marketplaces like BankBazaar were well ahead of the curve when they introduced paperless application processes and e-approval for financial products, envisioning a completely contactless online process for both loans and Credit Cards.

After the crisis, social distancing is unlikely to go away and people may still not want to step out of their homes to reduce exposure. Consumers are expected to gravitate towards brands that offer contactless service and delivery. Thus, businesses will need to quickly identify areas in their customer onboarding funnels that rely on physical interaction to move ahead in the customer journey and look for ways to remove such dependencies.  For instance, BankBazaar has introduced products like the IDFC First Bank Personal Loan and IndusInd Bank Pre-Approved Credit Card with a 100% contactless, online KYC process, thereby making meeting bank reps for document signing and verification a thing of the past.

The world is going to look very different than it did before the pandemic. The only way for businesses to thrive and stay relevant is to keep adapting and responding to the changing needs of customers and look at ways to engage with them meaningfully.

If you’re in a cash crunch and need a Personal Loan or Credit Card to help you sail through this crisis, click the link below to explore your secure, contactless options.

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Category: Budget & Savings Investments Juggling debts Money Management Saving plans Savings UCN
Saroni Chakravarti

About Saroni Chakravarti

Saroni loves all things quaint and old world- be it art, music or cinema. She has a special knack for spotting the weirdest traits in people and can't for the life of her understand why she attracts the worst co-passengers. Despite her cynical exterior, she still hopes for a world that will be free from discrimination and cruelty. When she's not spending her day commuting, she can be found watching funny videos, reading, and sending out needy vibes to strays around her.

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