There’s something about difficult times that unleashes humanity’s innate creativity. Uber, Airbnb, WhatsApp, Instagram and a whole host of other great businesses were formed in the aftermath of the 2008 financial crisis.
Maybe the necessity to make do with limited resources or manage in hard times fires up the human spirit. Perhaps they encourage collaboration or simply create an environment where new ideas can thrive because the old ways are no longer tenable. Indeed, it is probably a combination of some or all of these factors. I’m convinced that in the aftermath of Covid-19, a new array of game-changing businesses will be born. Alongside the creativity unleashed in difficult times, we are seeing society transition to a new way of living. Existing businesses may struggle to adapt, but new players can flourish.
In this new normal, most of us are finding that we can work from home as productively as we did at the office, or that we can maintain our workout schedule without paying large amounts for a gym membership. Many of us are cooking more, while all of us are going to the supermarket less and making more use of delivery services. Restaurants have moved rapidly to delivery-only models, with some also selling raw ingredients in the face of overwhelmed supermarket supply chains.
Looking specifically to financial services, we have already seen fleet-footed innovation from Starling Bank, which recently launched a ‘Connected Card’ feature that offers customer a second debit card that can access only a limited pot of funds (in this case £200), allowing someone else can do their shopping for them during the current lockdown.
Porter’s Five Forces Framework is a key methodology when it comes to assessing business competitiveness and profitability – and all five of those forces have been significantly impacted in the last month. The bargaining power of buyers (#1) and suppliers (#2) alike has shifted dramatically as store shelves emptied and customers switched in large volumes to online services. Established competitive rivalries (#3) have likewise been recast, as the flood of discount offers from Uber Eats, Just Eat, Deliveroo and other such services that have hit your inbox in the past few weeks attests.
Substitutes (#4) are no longer a threat but a reality, as people flock to digital alternatives to what have been until now been physical services. The gym is a good example, as closures have pushed people to online home workouts. Once restrictions are lifted, I suspect many people will not be renewing gym memberships, having recognised that they managed to maintain their fitness while paying less money for a service they can access more conveniently and flexibly.
Finally, Porter’s fifth force: the threat of new entrants. With interest rates at historic low levels, borrowing for start-ups has becomes cheaper. In the aftermath of the initial market turmoil, this easier access to capital for new market entrants, coupled with the exposure of weaknesses within many heavily used core services, and the sudden demand for digital replacements across all spheres of activity, will create the perfect environment for new entrants to thrive.
We were in a similar scenario between 2008 and 2011, as the world reeled from the fallout of the financial crisis. That tumultuous period gave birth to companies that went on to alter established expectations and behaviours, and I’m confident it’s about to happen again. I except to see the introduction by banks of an array of new products and services as they step up to get the economy on its feet again. In the aftermath of the 2008 crisis, we saw new mortgages which allowed buyers to use a parent’s home as collateral; so-called ‘springboard’ mortgages which allowed friends or family members to loan a deposit to allow a buyer to take a 100% LTV mortgage; and the introduction of offset mortgages which are today a staple of the mortgage market.
In the aftermath of Covid-19, banks and insurers will have a similar role to play to kickstart the market and keep the economy moving. One example: small businesses will be in need of capital to begin operating again after what will likely be months with little or no income, and new risk models could be introduced to evaluate the credit worthiness of such businesses.
It may also prove an opportune moment for Peer-to-Peer lending products to resurface - I’d happily provide a small loan to my local Indian street food restaurant to help them get up and running again, and I’m sure other members of our community would too. If a bank could facilitate such support, with some benefit to the lenders, they could tap into the strong community spirit has come to the fore during these difficult times. It need not involve interest on the loan - personally, I’d happily settle for some free meals, loyalty points or even having a dish named after me.
These are just a taste of some potential ways forward as we navigate through and beyond the pandemic. As a new post-COVID consensus takes root, I expect to see a host of potential solutions to emerge to benefit how we live, work, play and engage with big issues ranging from financial wellbeing through to healthcare and the environment.