The global economy’s double challenge
There is a certain comfort in thinking that that once we get through this current phase of the pandemic, things will start to return to a semblance of stability. The truth is though that any stability we achieve is unlikely to represent a return to the way the world worked before.
In this article, I’m going to discuss four parts of the global economy and explain how they are likely to change over the next few years.
Payments: Less cash
For the financial services, the last year has seen a massive acceleration in the move away from a cash-based economy, with far more people engaging with online transactions that was the case in 2018. This change was already in process before 2020, but the acceleration is likely to have been far greater than anyone would have predicted simply because so many countries went into lockdown and people discouraged from leaving their houses. Far more of our shopping was being done online and we have all got out of the habit of carrying cash. Even the parts of the community that had retained a commitment to cash started to move away from it because suddenly they didn’t really have an option.
The acceleration of the cash-less society is likely to be permanent. The technology is in place and social pressures mean that more and more of us are quite comfortable using tap and pay rather than hard cash.
Lending: Pay later
The buy now, pay later (BNPL) form of alternative lending has also been becoming increasingly important over the last few years. 2020’s challenges may not have accelerated its adoption in the way that they have been a catalyst for the move to a cashless society, but the process is likely to continue. The sector may start to accelerate as people look for innovative ways to fund their spending when life returns to a semblance of normality.
It is interesting to note that Sweden and Germany lead the market in BNPL penetration with nearly a quarter of e-commerce spending in 2019 completed on a BNPL basis according to WorldPay’s Global Payment Report 2020. Given that both countries were relatively quick to absorb innovations such as the internet, it seems likely that they will be pointing the way for future development
It’s very hard to say whether the end of the various lockdowns will lead directly to a spending bonanza, but the technology is increasingly in place to support consumers with flexible payment schedules if that is the way that they decide to go.
The question of where and if regulators feel obliged to step in is unclear at this stage and will presumably vary from jurisdiction to jurisdiction. In the meantime though, it appears that there is plenty of movement in the alternative lending sector and that is likely to continue.
Real estate: Out of office, into living room
One sector that is likely to be hard to call overall will be real estate. There is little doubt that Covid-19’s challenges will have led to a lot of soul-searching among individuals as they question whether they will want to return to the rigours and dubious glamour of the daily commute. Moving out of the city and into a place in the country with a garden and some space is likely to have become very appealing for some, and so the housing market is likely to be buoyant over the next couple of years.
At the same time, organisations of all kinds will be looking at their real-estate commitments and questioning whether they need to maintain their current roster of individual desks and offices. There is a very realistic opportunity for companies to reduce costs by bringing down their real-estate commitments, so the next few years could see considerable changes.
From a technology perspective, the real estate sector presents specific challenges. Any platform that is put in place needs to be flexible enough to adapt to different types of building, as well as different legal requirements between different countries and in some cases different regions within the same country. It is an area that could well see some interesting blockchain related developments.
Insurance: Changing risk
Insurance is the business of risk management. Given that change is one of the largest risks on anyone’s book, it is perhaps unsurprising that the insurance industry tends to be resistant to change.
This resistance is starting to weaken however, with several credible insurance technology solutions gaining traction across the industry. The simple reason for this is that much of the technology has been tested in other sectors and can be implemented across insurance with relatively little risk.
The sector is in a fascinating position in that in many ways many types of claims are likely to have been low during 2020 on most policies. This could lead to some organisations being relatively cash-rich, depending on their exposure to pandemic claims. At the same time though, some underwriters face a unique challenge in pricing policies: as lockdowns ease, claims could be higher than usual as hardware that has been mothballed for a year is used by people that might be a little out of practice.
These circumstances are likely to drive innovation as market professionals try to find a fair and cost-effective way to price risk.
What this means is that over the next five years we are likely to see a lot of focus on insurance as efficiency translates to lower prices. There has already been a high level of consolidation at the top end of the industry over the last decade among both underwriters and brokers on both the insurance and reinsurance side. It is a process that is likely to continue as innovative start-ups are snapped up by existing players.
Just looking at these four sectors of the economy, it is clear that the next few years are going to be exceptionally complicated, as long-term trends meet short term challenges. Success is going to be defined by those that can keep one eye on the wave and one eye on the horizon.
QATO CONSULTING LIMITED
Collingham House 6-12 Gladstone Road
SW19 1QT London
About Marco Quacken
Marco has a passion for business development that helps projects succeed and businesses flourish. With a global network of contacts, he brings teams together, matching expertise to requirements and implementing strategies that help good ideas grow into sustainable businesses. He has experience across a range of sectors including finance, real estate, technology, advertisement, automotive, consumer goods, energy, retail, sports and telecommunications.
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