What's going to change in finances after the pandemic?

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Online purchases and payments

The Covid-19 pandemic has forced the world to quickly adapt to a "new normal." We found ourselves at an inflection point where many businesses were forced to move their sales partially or totally to the digital world. Either because they had to close the stores or because people had to stay at home because of the mandatory lockdown regulations and had to make their purchases from home to contribute to curb the spread of coronavirus.

One of the biggest changes that have taken place very rapidly due to the Covid-19 spread is the behaviour of South Africans when making a purchase or payment. Both going shopping in crowded places and using cash, since it can be a vehicle for the spread of the coronavirus, are behaviours that South Africans have recently adopted and it seems they are here to stay.

According to a study conducted by Nielsen South Africa, the technological adaptation of people to make purchases from home during the mandatory lockdown is paving the way for e-commerce to successfully expand in South Africa. Gareth Paterson, director retail vertical at Nielsen South Africa, said “We can, therefore, expect a permanent uplift in online shopping numbers even after the pandemic has ended since many behaviours adopted during the Covid-19 period are likely to translate into more permanent long-term habits.”

Peach Payments, an electronic payments platform for South African entrepreneurs, said the number of new monthly users has grown 400% since February this year. “The growth was being driven by accelerating consumer adoption of e-commerce and by developing more localised products for South African merchants”, said Rahul Jain, co-founder at Peach Payments.

Mobile apps

As a result of the lockdown and the impossibility to attend bank branches, consumers began to use more mobile applications and online services to carry out their financial transactions.

The apps South Africans use the most to manage their finances are the apps for transferring money and for paying bills. Regarding non-bank apps, they are used with less frequency and mainly for online purchases. Very few people use mobile money and it is mainly used for purchases in stores or international money transactions.

Broadly used by South Africans, 22seven is an app that allows linking all banks, credit and store cards, investment, and loan accounts of more than 100 financial institutions, so all transactions are displayed in one place. The app generates a budget based on the user’s actual expenses so it is possible to know exactly how much is spent on expenses.

According to the financial services comparator, QuotesAdvisor, a non-bank digital option mostly chosen by South Africans is the electronic wallet. This method is used to transfer funds, local and cross-border, and to buy online.

As the financial platform said: “The use of online banking in the local area has increased and it is expected to keep on the rise, while the use of cash has been on the decrease. This trend is not only driven by convenience and concerns about the safety of cash transportation but also by the necessity of South Africans to stay at home during the lockdown and for the sake of avoiding crowded stores and banks."

Credit losses

Research conducted by PwC, a global network of firms that delivers assurance, tax, and consulting services, shows that banks will suffer significant credit losses caused by defaults on residential home loans, commercial loans, online loans, and unsecured retail loans. The possible reason for this loss is not the affordability driven by price increases and loan installments but the loss of the borrower's income.

However, despite the many pressures they face, SA Bank's current capital is enough to withstand the impact of the coronavirus economic crisis. This is so due, in part, to the measures taken by the last global financial crisis.

PwC said that a "high-level stress testing" was carried out recently. Financial stress tests consist of evaluating the results of modeling on various adverse economic scenarios, which are called "stress scenarios".

“The largest full-service banks, that include Absa, FirstRand, Standard Bank, Nedbank, and Investec, were assessed. These banks account for 91% of all bank deposits and 94% of all loans granted by South African banks. The research shows that banks are expected to experience significant credit losses." said PwC.

Samira Mensah, senior credit analyst of African Bank Ratings at S&P Global Ratings, said at a seminar that while credit losses among South African banks are expected to increase, they are still good compared to Brazil, Thailand and Morocco.

According to the test, unsecured loans are expected to be the most affected by the economic consequences of the Covid-19 pandemic. PwC said that compared to the 2008 financial crisis, residential mortgage loans would be less affected than in 2008, while business loans may be under pressure similar to 2005.

Unsecured loans have always been a vulnerable area of the banking system. According to PwC, “Over the last 12 years, unsecured lending increased on average by 9.6% per year.

This loan category is likely to be severely impacted by the current crisis.” Nowadays, despite one of the few things you can be sure of is the uncertainty caused by the pandemic, it is crucial to make sure to achieve a balance between risk and opportunity.

Above all, the new normal should not eclipse the ultimate goal of eradicating COVID 19 and all of its negative socio-economic impacts. The new economic paradigm needs to persist in areas where recent developments surpass normal levels.