At the macro level, the uncertainty under the current pandemic is great, and predictions are difficult. Physicians are still discovering new ways the COVID-19 virus is behaving. And it is unclear how well we will deal with local flare ups or a broader second wave. On the economic side, we are in equally uncharted territory. While governments have provided unprecedented relief and central banks have massively injected liquidity to ensure the functioning of financial markets, we don’t know yet how resilient families and businesses can be in face of extended lockdowns and a deep economic downturn.
At the sector level for retail financial services, short- to medium-term trends can be more easily predicted. As large parts of the world are under stay-at-home orders and trying to move online, people will seek accelerated access to digital payments. They will be more conservative with their spending, and spending priorities will shift. In the face of uncertainty, people will try to save more if they can and seek out different insurance where available. For borrowers and lenders alike, loans that were extended pre-COVID under different assumptions will come under stress, and everyone will be careful with new credit against the backdrop of economic hardship.
The series of recent 2020 quarterly earnings calls, in particular in the U.S., where more of the firms with relevant data are standalone public companies and thus provide such information, is giving us a sense of where we are headed…for now.