Changing consumer behaviour: An opportunity for financial services as willingness for self-service surge

By Suchintan Chatterjee, Shreya Sarkar

Adam Smith once famously said, “All money is a matter of belief”. As COVID-19 spread, it naturally impacted the way we think about both, our physical and financial health. How we ‘feel’ about money as consumers at a point in time can also provide vital clues to our financial services providers about what we are likely to value in their services.
Our fundamental needs for money may be classified into four areas: day-to-day transaction needs, borrowing needs to fund unmet present requirements, savings and investment needs for future goals, and finally – protection needs to safeguard ourselves in face of any unforeseen risks in the future.

Deloitte India recently conducted a Consumer Sentiment Survey to understand how the pandemic is influencing their sentiment about money. The survey attempted to capture the sentiment of consumers across the four needs and uncovered some interesting insights.

An overwhelming 96% of respondents showed a strong propensity to adopting digital channels for fulfilling their day-to-day financing needs. Another 72% of customers exhibited a preference for online transactions for mutual funds and insurance products against dealing with a financial advisor. Seventy-five percent of customers happened to be wary about their creditworthiness as demonstrated in their concern for future credit scores. When it comes to investment choices, 59% of customers showed an inclination towards moving their monies from the capital markets to lower risk options like Bank FDs. Finally, there was a marked increase in the risk perception of customers. This was manifested in the fact that 62% of customers reported that they are likely to purchase life or health insurance for the first time in their life.

The data points emerging from the survey point to a few clear themes about consumer sentiment in the short to medium term. Each of these, in turn, gives rise to some key imperatives for financial services organisations serving these consumers, in the backdrop of the pandemic-induced uncertainty.

Firstly, as customers show a clear preference for digital channels, we are likely to see an increasing willingness for self-service. This may necessitate financial services organisations, especially those that have traditionally depended more on ‘marketing push’ than ‘customer pull’, to rethink their channel strategies. It not only means that organisations will need to beef up their digital offerings but also orient their brick-and-mortar workforce for selling to and servicing a more digital-savvy customer segment.

Secondly, we are likely to see a sustained change in consumers’ spend profiles, and hence borrowing needs. At the same time, retail and small businesses at the margin are going to see their credit profiles adversely affected. This will call for lenders to relook at their product portfolios and revisit traditional approaches to credit and collections. As the moratorium period draws to an end, the true extent of the credit stress built up in the retail segment will become evident. At the same time, we will see lenders becoming more competitive to woo the narrower band of creditworthy customers, which can lead to overleveraging, especially of the salaried segments that emerge relatively less impacted by the immediate economic hardships. All of these factors will call for a recalibration of credit policies, strengthening of underwriting processes, and collections operating models.

Thirdly, as customers become more aware of their health and physical well-being, we are likely to see significantly higher take-up of insurance products. Historic data shows a similar surge in insurance sales in the US in 1919 post the Spanish flu pandemic2. Coupled with the strengthening of digital channels, this may lead to higher disintermediation of an industry that has traditionally been one of the most intermediary driven areas in financial services.

In summary, the ongoing pandemic has triggered a number of changes in consumer sentiment that may modify the way customers behave when they interact with their financial services providers. This also gives organisations a window of opportunity to reflect on these sentiments and rethink some of the elements of their go-to-market strategies and enabling operating models. As the world comes to terms with the ‘new normal’, how financial services organisations react to such behavioural triggers will separate the truly customer-centric organisations from the rest.

Suchintan Chatterjee is Partner at Deloitte India and Shreya Sarkar is Senior Consultant at Deloitte India. Views expressed are the authors’ personal.