As unemployment rates soared and the stock market crashed, many believed the pandemic would lead to a repeat of the 2008 financial crisis with increased credit defaults and risks to the entire financial system. However, this is not what really happened.
Defaults and chargebacks have decreased rather than increased. The housing and mortgage markets reached record levels of activity. While households from a wide range of socio-economic backgrounds were affected, whether homeowners or not, many were able to get the help they needed. The victims of the economic downturn were not blamed because society understood that it was not their fault — and this attitude was at the heart of the institutional response.
As economies around the world have contracted dramatically, the the recovery of economies and households has been positively influenced by government actions. During the pandemic, the government has provided a range of aid – and unlike 2008, a host of financial institutions have also done so.
In 2008, the financial industry was simply not up to the task of working with troubled borrowers. Innovation and technological advancements were not yet widely available in the service sector, nor were there regulatory requirements setting standards for communication and notification to borrowers. Some lenders haven’t realized that there are solutions that both help people avoid defaults and foreclosures, but can also improve their organization’s bottom line.
Over the past decade, the financial industry has invested in people, technology, and systems that are more responsive to borrowers facing a financial shock, as well as in policies that allow for partial or deferred payments. Families needed the stimulus money just to stay afloat, and that available help was being used differently by different groups of cash-strapped households. According to a survey conducted in partnership with Elevate’s Center for the New Middle Class, about half of unprivileged respondents and a third of privileged respondents used stimulus funds to pay for their food.
As stimulus funds, increased savings and reduced spending have all combined to help families make ends meet and loan defaults have plummeted to record lows, help from financial services also played a major role.
By prioritizing people’s financial health – the state of a person’s financial affairs, the financial services industry has been able to retain its customers and retain or even grow its position as a lender. Financial institutions have pursued a consumer-centric strategy in various ways with services such as call center agents sharing resources with their customers in need and self-service financial technologies that meet people where they are. are found. According to our 2021 survey of call center agents, 93% said providing customers with access to financial resources helps them reduce their monthly expenses.
Today, two years after the start of the pandemic, it is clear that American families are still not out of the woods. Savings levels are falling back from their high levels. Federal student loan forbearance will end. Rising debt repayments may be reduced as people juggle rising prices. In a sample of more than three million financial aid resources American families accessed in 2021, nearly half were for basic necessities to pay for food and utilities and try to make up for lost income. or jobs.
Beyond mortgages and credit cards, other industries can benefit from integrating healthcare financial resources into what they offer their customers. Owners, service providers, and other businesses that rely on regular payments may be able to unlock value by giving people access to referrals and flexibility that enhances their business.
This approach takes a longer-term view of clients as people facing daily challenges. With technological and other advances, a focus on financial health is a win-win situation for financial institutions and the families they serve – and this goal must remain at the forefront.
Rochelle Gorey is the CEO and co-founder of SpringFour, the only social impact fintech that helps financial institutions give their customers the support they need to regain financial control. J. Michael Collins is co-founder of SpringFour and holder of the Fetzer Family Chair in Consumer & Personal Finance at the University of Wisconsin.