Viral Opinions – Lessons from a crisis

With all the talk of vaccines, delivery and contracts this week much of the news from the financial services industry again seemed lost in the mix. It was still there, but for the moment COVID the vaccine scandal has dominated the news. There were however still some takeaways from this.

Undoubtedly what became increasingly clear was the value and need for good legal advice. When push comes to shove, and there has been a lot of shoving this week, everyone has been looking at the detailed contract wording and what all this means. This is especially the case in the creation and review of such large contracts.

This unfortunate episode also highlighted a couple of other aspects too.

  1. Impact of resource scarcity: Shortage of a desired resource, whatever the reason for it, can bring out the worst behaviours in all of us. Backed into a corner, under pressure, we fight, and it can get ugly quickly. It is hard to resist the urge to point fingers, apportion blame and then have grown-up conversations in order to find solutions. Throwing rocks is just easier. We saw a lot of this week and more generally have seen a lot of this in politics. It an increasing trend and one that is concerning, nothing good comes this way. Lesson: Try to take the high road, be the bigger person and concentrate on finding solutions.
  2. News reporting is all relative: I obviously mainly read English language news, but do also have access to other media. On this topics the stories from the UK, Italian, and German newspapers have all had slightly different interpretations of events, which has been useful in forming any sort of opinion. Lesson: Take a balanced view of opinions and read widely.

Of course the rest of the world has still turned, and back in the world of consumer finance, there were also a few notable stories this week

  • Credit Card balances continued to fall as repayments outstrip borrowing, however on the other hand 9m people have increased their borrowing in 2020 due to COVID. All of this points to divergence and segmentation within the consumer base. People who have jobs and not really impacted by the virus yet are doing fine, saving money. However, those who have been impacted are struggling, significantly. We need to think hard about ensuring we have support mechanisms for the later group.
  • Persistent debt changes were visible this week, with one of the largest credit card in the UK increasing minimum monthly payments, so consumers pay off their debt faster. This has been in progress for a while, of course, but with timing, difficult, after Christmas and in the middle of a pandemic.
  • Consumer action, the short squeeze. The US stock market does seem to have lost sight of the ground in recent months, however, the action with RobinHood investors and GameStop has been fascinating. Coordinated mass market buying to influence the price (then getting restricted from trading), all sounds very similar to the behaviour of some hedge funds. Before we all get too righteous mind you, the gordian knot that is investment finance could see these linked with our investments, and via defined contributions our pensions. How this could unravel is yet to be seen.
  • Lastly, Buy now Pay Later: There are concerns about this form of lending, and whether this could be the instance of over borrowing. Even some in the industry are calling for more regulation. This was rejected by MPs the other week. Although gone for now, taking a proactive stance on approaches to credit risk and collections now is worthwhile, it will likely return.

That was the week, have a good weekend everyone…