COVID-19 has had a profound impact across the financial services industry. The effects of the social distancing measures and restrictions on travel introduced in response to the outbreak have meant product categories such as mortgages, car finance and travel money have been effectively put on hold throughout the lockdown period. Other categories, such as personal loans, have been hit by consumers’ reduced opportunity to spend, with retailers forced to temporarily close their doors.

The impacts on consumer finances also have clear repercussions for the financial services market. Millions have been laid off or placed on furlough with reduced income. Consumers will focus on protecting themselves in the coming weeks and months, through increased saving and reduced borrowing.

While COVID-19 is unquestionably a major challenge for financial services providers, it is also an opportunity for brands to improve perceptions by helping customers through this period of difficulty. For banks in particular it is a chance to rebuild reputations that were damaged during the financial crisis.

Key issues covered in this Report

  • The impact of COVID-19 on financial services categories in the UK in the short, medium and long term.

  • The impact of COVID-19 on the marketing mix in financial services.

  • The main opportunities and threats posed by COVID-19 in the financial services industry.

  • How COVID-19 will change consumer behaviour in the short, medium and long term.

COVID-19: UK context

This update on how COVID-19 is affect consumer-facing financial services markets in the UK was prepared on 10 June 2020.

The first COVID-19 cases were confirmed in the UK at the end of January, with a small number of cases in February. The government focused on the ‘contain’ stage of its strategy, with the country continuing to operate much as normal. As the case level rose, the government ordered the closure of non-essential stores on 20 March.

A wider lockdown requiring people to stay at home except for essential shopping, exercise and work ‘if absolutely necessary’ followed on 23 March. Initially, a three-week timeframe was put on the measures, which was extended in mid-April for another three weeks.

On 10 May 2020, the Prime Minister announced revised guidance, recommending that people who could not work from home should return to the workplace, and giving people more scope to spend time out of the home. Further relaxations to lockdown rules were announced in the week of the 23 May, including gradual re-opening of non-essential retailers, and increased opportunities for social interaction across households. Hospitality businesses and other public places are included on this roadmap, but would not be re-opening before 4 July.

Economic and other assumptions

Our economic assumptions are based on the illustrative scenario included in the Bank of England's Monetary Policy Report, released on 7 May 2020. The scenario suggests that UK GDP could fall by 14% in 2020, recovering by 15% in 2021, and that unemployment will reach 8% by the end of the year, easing slightly to 7% by the end of 2021. The current uncertainty means that there is wide variation on the range of forecasts, however, and even the BoE’s prediction of 8% unemployment is relatively optimistic compared to some other bodies.

We are working on the assumption that a vaccine will be available by mid-2021, but that there will be continued disruption to both domestic and global markets for some time after that.

As long as there is not a second wave of infections, social distancing measures should be gradually relaxed over the course of 2020, but we don't expect industries such as spectator sports, tourism or foodservice to return to any kind of normality until a vaccine is introduced. In the meantime, the economic disruption will mean that many operators will be forced out of the market, hitting capacity. In markets which were already in decline, we expect this reduction in capacity to be permanent.

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