(PoV) Responding To Pandemic Induced Consumer Spending Patterns

Banks have an important role to play in helping consumers during this unprecedented time. We look at simple yet creative ways banks can help consumers maximise both their cashflow and spending power

COVID-19 has impacted the global economy and subsequent consumer confidence in dramatic ways. We are in unchartered waters as we haven’t seen a pandemic induced crisis like this in living memory. As restrictions were enforced globally, it resulted in many businesses shutting down (some temporary but many also permanently) and countless job losses. Naturally this impacted on people’s cashflow and consumer confidence and we are witnessing the widely expected reduction in discretionary spending (and a presumed increase in savings).

Despite the various stimulus packages that governments around the world have put in place, many countries are, or will go, into recession. Previous recessions have taught us that the road to recovery will be patchy and will have lasting impacts on consumers and their spending habits.

The Global Financial Crisis (GFC) and earlier crises have taught us that during these times, consumers minimize their discretionary spending and focus on saving cash where possible. The GFC saw a pronounced almost seismic shift away from credit towards debit and a shift in spend towards essentials, away from more luxurious and nice-to-have items.

During this Covid-19 induced global crisis, banks will have an important role to play in helping consumers maximize their cashflow and spending power and by doing so an important opportunity arises for banks to generate customer loyalty from it.

A few innovative and creative and surprisingly easy ways for banks to help customers are:

Opening Up Loyalty Points as Fiat Currency

Banks globally have large and growing balances of loyalty points which are typically treated as liabilities. The global loyalty market is valued at $169bn and expected to grow to $201bn by 2022. The US is estimated to have an average of 8 active loyalty memberships per household. Over 75% of Britons are a member of a loyalty program and 9 out of 10 Australians have a Loyalty card in their wallet. It is estimated that Australia has more than $2.5bn of loyalty points value across the major banks with ~160bn new points earned each year resulting from consumer spend.

It is clear that many bank customers sit on sizable points balances that they can convert into fiat cash at the point of sale in this time of need if the bank enables this conversion to happen.

Releasing these points to be used on everyday purchases like cash at the point of sale is a win for both the bank and the end consumer. Allowing points to be converted to cash for everyday purchases will mean consumers can still purchase what they usually do whilst allowing their other cash to be used for much needed expenses (e.g. rent, mortgages, etc). For the bank this presents an opportunity to reduce a balance sheet liability and the potential for the bank to capitalize on a 30% increase in consumer engagement which will be critical when economic times recover. This will drive greater spend, increase product holdings, product tenure and can result in your card being top of wallet.

Historically, points to cash conversions at the point of sale couldn’t happen because it required complex and expensive technical integrations with software on a merchant’s point of sale terminal. Current technology however, allows for points to cash conversions to occur without merchant terminal integration or even merchant staff engagement (eliminating the arduous task to educate merchant staff on these programs), making it a scalable and convenient way for banks to support customers in time of need.

Discount Programs and Cashbacks

During the GFC, on average 18% of consumers switched to lower priced products across all categories. That said, many consumers are emotionally attached to the brands they are used to as they are seen as safe havens. As such, banks should look to introduce discount programs that provide immediate / real-time consumer benefits and gratification , targeted towards essential purchases such as groceries and towards brands consumers know and love. As the economic recovery begins to take shape and confidence grows, banks should look to expand these programs to personalize discount offerings to customers on an increasingly personalised basis, taking into account customer preferences and spending habits. These can include more discretionary spend categories and potentially more personalized rules to drive further benefit to the merchant network. These merchant networks are surprisingly easy to establish with the support of a few dedicated trusted partners and have the potential to provide meaningful cash rebate value for customers when they need it most.

Instalment payments / Buy Now Pay Later

Account based installment payments are the fastest growing payments category in mature markets such as the US, UK and Australia, clearly meeting the needs of large volumes of customers. Oftentimes these instalment payments are processed and managed by new fintech entrants who take payments volume away from banks and – with it – a crucial customer touch point with which banks can influence the loyalty relationships with their customers.

Banks can play into this by providing consumers the ability to move any card transaction into an Instalment Payment giving customers the flexibility needed to manage cashflows whilst taking control back over the customer relationship by eliminating the need for bank customers to establish new accounts with installment payment (Buy Now Pay Later) providers.

With current and readily available technology, banks can create this installment payments capability without the need to change or swap-out existing core banking and core payments systems, making installment payments accessible and affordable for banks.

Personalised Benefits

Almost all credit and debit cards in the market today are static products with pre-configured features and benefits that are not customizable by the consumer. As such, these card products and their associated benefits rarely adjust to the changing circumstances of each individual consumer. Whilst COVID-19 is unique, it has meant benefits such as those related to travel (insurance, lounge access, etc) are no longer relevant given international border restrictions in place. Giving consumers the ability to change these benefits to something that is more relevant to their situation (e.g. swap-out travel benefits to cashback on grocery purchases) could mean the difference in retaining those customers for the long term by addressing and meeting the current needs of customers, whilst not adding any operational expense for the bank.

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