Categories: Next-Gen Debit

Why COVID-19 Drives Demand For Digital Advances, Long-Term Investing

Flexibility is an essential business principle for financial services providers looking to support their customers during this unprecedented time.

Many consumers are losing jobs and seeing reduced work hours, and those who have retained their positions are tackling new stressors, such as balancing remote work with managing childcare as schools, camps and daycares remain closed amid the pandemic.

Financial services providers cannot turn a blind eye to such changes — they must acknowledge their customers’ altered circumstances. That means adjusting services to ensure customers receive the offerings they need and that they can access them through convenient channels. Financial services companies that can identify consumers’ new priorities and meet them where they are will be able to maintain loyalty and build deeper relationships for the future, according to Tim Hong, chief product officer at digital banking and investment services platform MoneyLion.

“We’ve taken action to lower fees and prices for our customers,” Hong said in an interview with PYMNTS. “We’ve seen that it’s an opportunity to create lifelong loyalty by understanding individual circumstances, such as financial hardship and to do right by the customer. There’s no one-size-fits-all [move], but flexibility and convenience have really been things our customers have valued.”

Hong discussed why providers must focus on digital offerings during the pandemic and how the crisis has prompted increased consumer demand for cash advances and investment services.

COVID-19 Fires Up Financial Services' Digital Shift

Financial services companies must consider which services customers need to access and how they want to access them. Customers are wrestling with limited access to in-person services, as they are unable to visit banks because of closed branches, reduced hours and health and safety concerns. Many are worried about spending time in public spaces, where they could potentially expose themselves to the virus, and this has generated demand for digital services that consumers can access from their homes. Financial services providers have long been aware that digital offerings are coming into higher demand, and COVID-19 has accelerated this transition, Hong said.

“Physical branches, cash and ATMs are smaller parts of people’s lives now,” Hong said. “Things like eCommerce and digital services are now really more important than ever.”

MoneyLion has seen usage of its digital customer support services rise during the pandemic, he added.

“Engagement in our digital customer service channels like chat — we offer both chatbots to help answer folks’ questions, including about COVID-19, as well as the ability to engage with our agents directly through chat — has grown massively over the last few months,” Hong said. “We’re talking about growth rates not in the double-digit percentages, but the triple-digit percentages. We don’t expect this behavior to revert back after this is all said and done.”

Public health concerns are driving a major uptick in the use of online and mobile channels, but Hong said he expects the convenience of such offerings to encourage customers to stick with them even after in-person services become safe again. Consumers are building new habits and will see little reason to break them after the pandemic ends, he explained.

Consumers Prioritize Near-Term Cash Flows, Long-Term Investments

The pandemic has also prompted changes in consumers’ preferred short- and long-term products and services. Hong said that companies should always expect to see their customers’ demands undergo some changes during a given year, even under more normal conditions. Life is unpredictable, after all, and unexpected emergencies can and do crop up, prompting significant shifts in customers financial priorities.

Customers who spent nine months focused on saving money could suddenly have a month in which they need to draw heavily on those funds or get installment loans and cash advances to help them cope with surprise problems, Hong explained. The pandemic has meant that such problems are happening to more people at once.

Consumers facing these problems are prioritizing services that make more funds available right away, which can mean reducing spending and improving cash flow. MoneyLion has seen a significant rise in the number of customers seeking loan deferrals, which enable borrowers to focus their financial resources on supporting their families. Customers are also tapping paycheck cash advances for added security and to cover surprise expenses.

“If you think about the old way of doing things, you have to wait two weeks for your paycheck,” Hong said. “If you have a cash shortage emergency — which, in a lot of cases, has impacted folks in this crisis — people want to be in control of that. The ability for customers to get paid any day of the week, including weekends, via cash advance has been powerful.”

Some consumers have to go into survival mode and focus on enduring immediate financial strains, while others who are more financially stable are turning their attentions toward preparing for future emergencies. That has largely meant renewed focuses on saving and long-term investments.

“For some, this [crisis] ... has provided clarity around the value of having savings,” Hong said. “It translates into increased demand for saving and investing with an eye toward preparing for the future in these uncertain times.”

Hong added that MoneyLion has had the highest rates of engagement it has ever seen in auto-investing, which allows customers to automatically invest portions of their paychecks.

The COVID-19 pandemic has seriously shaken U.S. consumers’ financial stability, and financial services companies are being called on to assist. This includes offering digital services that customers can access from home and supporting them through new hardships while also preparing them for the future. Financial services companies that can provide convenient, affordable ways for customers to quickly and safely get cash on hand for the long term are more likely to achieve lasting customer relationships.

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The September 2020 Leveraging The Digital Banking Shift Study, PYMNTS examines consumers’ growing use of online and mobile tools to open and manage accounts as well as the factors that are paramount in building and maintaining trust in the current economic environment. The report is based on a survey of nearly 2,200 account-holding U.S. consumers.

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