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Banking and Financial Services strategies for a post-COVID world. As a physician by first training and a Futurist advisor / keynote speaker on industry trends and strategy to over 400 of the world's largest 2000 companies, I warned for years of the threat from new viral pandemics like COVID, and of course multiple variants such as Delta and Omicron.

My clients include many of the world's largest banks, with a proven track record of longer term forecasting over the last 25+ years, here are some guiding principles to banking and financial services beyond COVID.

The Global Crisis will accelerate pre-existing banking and payments trends. Most banking trends described in my books, including The Future of Almost Everything, will continue to shape the world as before, but the Coronavirus pandemic will bring forward the timings of many key events in many industries. Examples:

Huge further acceleration of online sales, mobile payments, mobile banking and business to business online transactions. Many Shopping Malls will struggle to re-open in developed nations. Physical retail will lose out even more to online shoppers, with big jump in online sales which will only partially reverse after the pandemic has ended. Airlines will consolidate more rapidly in Europe because of COVID-19, following US picture over the last decade. Larger airlines will be most likely to be rescued by governments. Borderline-non-viable airlines will be allowed to fold.  Even faster growth of virtual working and virtual teams. Faster introduction of virtual learning into college education, MBAs, Business Schools and High Schools etc.

Here below are notes I made on 25th March 2020:  judge for yourself how right they were.  Banking and financial services trends unfolded during April 2020 to May 2021 much as I described below - with exception of rate of COVID spread in emerging markets which turned out to be less explosive than I expected.

Examples of existing global trends that will be accelerated by Coronavirus pandemic

Expect huge further acceleration of online sales, mobile payments, mobile banking and business to business online transactions. Many Shopping Malls will struggle to re-open in developed nations. Physical retail will lose out even more to online shoppers, with big jump in online sales which will only partially reverse after the pandemic has ended.

Airlines will consolidate more rapidly in Europe because of COVID-19, following US picture over the last decade. Larger airlines will be most likely to be rescued by governments. Borderline-non-viable airlines will be allowed to fold.  

Expect even faster growth of virtual working, virtual teams.

Expect faster introduction of virtual learning into college education, MBAs, Business Schools and High Schools etc.

I predicted many times future threats to banks and banking from new pandemics

I am writing this banking update on 25th march, in the very early stages of the global coronavirus crisis, at a time when already 25% of humanity is in lockdown, or has severely restricted permissions to mix with other people.

I have warned for over two decades about significant threats to banks, banking, insurance companies and other financial services from new mutant viruses which appear roughly once a year, usually emerging in Southern China (for reasons unclear), just one of many potential Wild Cards that could strike down any successful global business.  For example, when the SARS outbreak began to threaten our world in 2003, my media warnings about the threats from new mutant viruses reached an audience of over 300 million.

One reason I am so sensitive to the threat to banks from new mutant viruses like Coronavirus is that 32 years ago, my own medical practice, looking after people dying of cancer at home in London, was hit by a new mutant virus called HIV - 85 million deaths since then. And 31 years ago, I started in our family home an international foundation called ACET preventing HIV spread and providing practical support in many of the world's poorest nations such as Uganda, Nigera, DR Congo, India, Thailand and so on as well as in nations like the UK and Ireland. So yet another new illness, like COVID-19, is no surprise.  It was only a matter of when.

Need for Agile Leadership and Dynamic Banking Strategy

I have also warned many hundreds of times at global corporate events banks and their VIP clients for over the last 20 years that:

"The world can change faster than you can hold a board meeting of your bank. The days of having only one banking strategy are over.  You need plan B, C, D and E as well - because there is no time to plan when a banking crisis hits, and in our hyper-connected world, the impacts on financial services are even greater and faster. That's why we need Agile Leadership and Dynamic Banking Strategy."  I was not just talking about viruses - but a host of Wild Cards which can have gigantic impacts at the speed of light across nations and industries.

Book your own board strategy review and coronavirus update - contact Futurist and Physician Dr Patrick Dixon 

Coronavirus pandemic will sweep uncontrolled across most emerging markets, rapidly

Whatever happens to banks in the EU, North America, Japan, Australia and so on, 85% of humanity lives in emerging markets, many of whom have very limited health care facilities, and which are likely to see very rapid, uncontrolled spread, at a time when developed nations are still employing all kinds of radical strategies to flatten their own peaks of cases.  And the trajectory of coronavirus spread amongst the 85% who live in such nations, will have massive impact on strategies to contain or manage coronavirus spread in developed nations.

it is inevitable that so-called herd immunity (when 70-80% of a population has immunity from previous infection) will develop much faster in poorer nations, albeit with huge death rates amongst older and more vulnerable people. Having said that, many of the poorest nations have very high birth rates and few older people with multiple, complex health problems, so the impact of the Coronavirus pandemic / COVID-19 will be less per 1000 infected than in most developed nations.

What this all means is that business, including banks and financial services, will return to normal much sooner in the poorest nations (within 3-5 months from their first major cluster of cases), who will be impacted by many deaths, but whose "community resistance" will climb rapidly to Coronavirus.

However there are many unknowns - for example how long immunity lasts after infection before someone can be hit again by the same virus or a slight variant.

Banks and financial services in developed nations will be impacted for longer than in many emerging nations

Developed nations with the most powerful anti-infection strategies will have populations which are largely without any antibodies, for many months, maybe over a year.  Maybe longer.  Depends on many factors.  That will create an ongoing vulnerability to further rapidly growing clusters of infection, some of which may also become national threats.  The only answer to this will be very large scale vaccination, when the technology arrives.

Google N1N1 and look at Wikipedia entry to understand this more - repeated clusters some time after pandemic.

For these reasons, paradoxically, retail banking disruption in particularly is likely to be much longer, and repeated, in many of the most developed nations, compared to the poorest nations.

I don't mean collapse of banks themselves - as banks are better prepared with stronger balance sheets than in the 2008-2009 crisis.  I'm talking more about the mechanics of running trading floors with full teams, being able to hold important client meetings face to face, being able to open branches of banks and run them in a normal way.

Global Crisis will accelerate many pre-existing business trends such as digital payments

Many things will change less fundamentally than you might imagine - in March 2020.  Others will change faster and further than many expect.  The key is knowing the difference.

Most mega trends described in my books, including The Future of Almost Everything, will continue to shape the world as before, but the Coronavirus pandemic will bring forward the timings of many key events.

An obvious example will be massive acceleration of every aspect of online shopping, e-business, mobile payments, online banking (statement review, moving money from one account to another online and so on).

Many banking and payments trends will be relatively unaffected by Coronavirus Pandemic

85% of humanity will still be living in emerging markets.

Most new middle class consumers will still be found in tomorrow's emerging markets.

There are still almost 1 billion unbanked people globally, who will soon find access to financial services on their smart phones for the first time.

Emerging markets will ensure that our world does not slip into a global recession, or if it does, that such a severe downturn will be very short lived.  Expect 1.5% fall in global economic output, averaged out from March 2020 to April 2021.

Governments will take radical action to support national economies

Expect Central Bank lending rates at almost zero interest or going negative to mitigate economic impacts of the Coronavirus pandemic.

Negative interest rates is a strange concept to most people:  it means that a Bank is paying you interest on loans or mortgages, instead of you paying them.

How can this be, you may ask.  It usually happens when an economy is in free fall, and when prices are also falling.

Take someone who borrows $1000 for a year.  If prices are falling fast, then $1000 will be worth a lot more in a year's time when you repay the money than it is worth now. So the bank will be making a profit when you return the cash, even without charging any interest.  

And what about you?  When you borrowed the cash, you only had to repay $1000, but by the time you actually pay back $1000, the same amount is worth a lot more in real terms, so you will have incurred a loss.  To compensate for that loss, the bank therefore needs to pay you interest.

The truth is that all the normal ways of thinking about the economy start to change when deflation happens.  I predicted 15 years ago that Central Banks would need to stop trying to keep inflation to as low as 2%, because that would leave very little room for global shocks. And that is exactly what has turned out to be the case in early 2020.

Expect large-scale printing of money (digital equivalent is so-called "quantitative easing")

Whatever it takes to try to prevent this Coronavirus causing deflation and major recessions, with huge impacts on the banking sector in particular.

On what scale?  When the pandemic was still at a very early stage, in mid March 2020, the US had already approved an initial $2 trillion of support, while the UK announced a stimulus equivalent in size to 17% of the entire national economy (GDP).  

Leaders of many governments have said that they will do "whatever it takes" in fiscal stimulus to stabilise battered economies.  

The reason for such language was to try to prevent a catastrophic sell out of company shares on stock exchanges, not only by individuals but also by institutions, especially pension funds, who hold a very high proportion of equities in some nations.

Banks will be used by governments as conduits to pass a lot of this new cash into the wider economy through relaxed lending criteria, larger corporate loans, larger mortgage approvals than would normally have been the case.  Bad debts will be chased less aggressively than normal during and shortly after the Coronavirus crisis.

In the 2008-9 crisis, governments were worried about "moral hazard" - risks of bailing out banks and other financial institutions who may have contributed to the crisis any poor risk taking. If the bail outs were too generous, the argument went, banks etc might become even more careless in future. Hence moral hazard inhibited what governments did.

But this time around, there is no moral hazard.  There is no risk of rewarding poor behaviours by banks or bankers in the past.

And because of huge steps taken to reduce risks in the banking sector, with Basel II and Basel III banking regulations, which require banks to retain more capital on their balance sheets, global banks are in a much stronger position on the whole than in the last, to withstand economic shocks.

The global economy was growing nicely before the crisis and many nations were seeing stable growth and stable banking industry with low inflation, job creation etc, so the fundamentals are there for a strong recovery SO LONG AS governments manage to prevent massive closures of perfectly viable businesses, which would otherwise have a really great future.

Increased government debts will create pressures on spending for at least a further decade

The longer term impact in all developed nations, following the Coronavirus pandemic will be additional government debt, on top of debt created when fire-fighting the last global economic crisis in 2008-9, much of which had not yet been repaid. The same will be the case in a proportion of emerging economies.

What it all means is that when all the Coronavirus / COVID-19 crisis has finally resolved, governments will be shorter of funds than they expected in 2019, paying more in interest than they expected, and needing somehow to reduce government deficits each year to zero, to then start repaying debt.

All this will be painful with pressures on government spending whoever is in power, plus higher taxation or combination of both.  All of these factors are likely to place a dampener on future economic growth.

Impact of Coronavirus pandemic on mobile payments, use of cash and retail banking

Hundreds of millions of bank notes were destroyed in China during the Coronavirus pandemic because it was feared that they would be vectors for virus transmission.  The Coronavirus pandemic has shifted tens of millions of shoppers online, using the web in ways they never have before, and these habits will endure.  At the same time, many consumers have shifted to cashless payments to avoid ATM machines or physical banks, especially using no-touch payments.

Banks and their shareholders were punished, mocked, blamed by societies following the 2009-2009 global banking crisis. Owners of banks lost huge amounts of money. But the main owners of bank shares were of course pension funds, so all of us were affected.

And some banks will come under pressure during the Coronavirus pandemic.  However, most will remain in a relatively strong position as I said earlier, because of all the new regulations passed from 2010-2020 forcing banks to hold more capital reserves in order to withstand future shocks (like the Coronavirus pandemic)).

However, expect more global regulations to force banks to hold even more capital, with lower limits on the levels of risk-taking. But if regulation is too severe and returns on investment fall too low, no one will invest in banks, banks will be poorly led, bad to work for, with old technology, vulnerable to hacking, and providing last-century levels of service.

Rise of third millennial banking post coronavirus pandemic

Investment banking risks have already been separated from retail and corporate banking. We will see further banking regulations. But we can also expect to see some banking regulations relaxed by 2025. New types of banking services will also evolve, with ingenious banking work-arounds, enabling better investment returns with better managed risks. 

Many predicted the decline and fall of the City of London as one of the world’s dominant financial centres.

As I said at the time, this was overstated. Whatever the final terms of the trading relationships between the UK and the EU after Brexit, the City will continue to be one of the world’s most important communities of the smartest and most experienced financial experts, from over 100 nations, with every large bank represented there. The City of London will also continue to be one of the greatest generators of GDP in the UK. 

Retail banking will become far more mobile, automated and highly competitive.  Banks will become similar to telcos, and some telcos will look like banks, along with a string of new non-banking competitors who have all applied for banking licences in Europe and elsewhere.

Revolution in peer-group lending

Expect rapid growth of peer-to-peer lending, social lending or crowd-funding websites, in competition with traditional bank lending in the retail sector or corporate loans. Costs are less because connections online are short between lender and borrower, with no people in the middle taking big fees, no banks involved.  A huge advantage is that large numbers of small lenders can club together to share their risks, in a single loan transaction.

China saw a massive boom from 2015-2018, with an astonishing $217bn of loans issued, but some investors lost huge sums and 300 companies went out of business following new regulations. 

Brazil, India, Indonesia and Israel are passing new laws to facilitate safe expansion. $4bn is lent each year on such platforms in the UK alone, with average savings of at least 1% on interest rates from banks.

The loans are mainly between 18-34 year olds. Peer-to-peer lending is just a small fragment of the rapidly growing ‘shadow banking’ industry, and regulators are slowly catching up. In the past, such lending has been by individuals to individuals, but hedge funds and other financial agencies are piling in to provide lending capital.

Linked to this movement is crowd investing, which will also boom: where large numbers of small investors club together to back an entrepreneur. Crowdfunding platform Kickstarter alone has raised over $4bn a day for entrepreneurs.

Book your own board strategy review and coronavirus update - contact Futurist and Physician Dr Patrick Dixon 


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