By Ray Birch
LAKE FOREST, Ill.—COVID has changed the future of financial institutions forever, says one economist, who adds changes in services and product pricing and marketing will be critical to success.
And all one has to do is look to history for why, the same person says.
“The Great Influenza produced Prohibition and the 18th Amendment to the U.S. Constitution, a period from 1920 through 1933, when the 18th Amendment was repealed,” explained Michael Moebs, economist and CEO at Moebs $ervices. “World War II produced faster cars which led to mandatory seatbelts in 1968. The Great American Smokeout, which started in California in 1976, led to states and businesses prohibiting smoking and a Federal Regulation prohibiting tobacco sold to minors. The coronavirus will lead to the mobile phone being a mobile transaction device propelling financial services into a new era of no currency or coin.”
Moebs asserted the Great Influenza era led to the formalization of credit unions.
“Mandatory seatbelts led CUs to be a dominant player in auto lending,” said Moebs. “The Great American Smokeout led to CUs doing small business loans. COVID will lead to credit unions transforming checking to transaction accounts, as paper checks become as extinct as the dodo bird.”
How did the coronavirus pandemic change financial services in America, what is ahead, and what must be done? Acoording to Moebs, a COVID risk analysis reveals changes in services as well as product marketing are vital to future success.
Moebs emphasized that working from home is now essential for more than 30% of the U.S. workforce, especially in business services.
“Zoom meetings have become mandatory, like seatbelts in 1968. Buckle up financial marketers,” advised Moebs, who added benefits and pay for at-home workers can be lower than pay for in-person staff due to gas and wardrobe savings.
Changes in Checking
Moebs said with the Fed having ended reserves on transaction accounts, the face of checking has changed.
“Large FIs, from Bank of America to Navy Federal, now are in the same position as community banks and smaller credit unions who never had to maintain reserves on checking. Large and small FIs are now all the same. Competition just became harder for community banks and credit unions,” he explained.
The move by the Federal Reserve to forego transaction limits on deposits alters how savers view and choose their financial institution, asserted Moebs.
Shift in Focus
“The Fed shifted the focus of deposits to totally short term,” he said. “DDA, savings, and money market deposits are the primary focus of the Fed’s depository structure. Term accounts, or CDs, became a more business focus. Competition intensified for all FIs to make their checking offerings stand out. Price becomes much more important.”
Michael Moebs
The pandemic has made fee-friendly pricing more criticfal to the bottom line than ever before, said Moebs.
“A lower fee produces much more volume and can increase profitability,” said Moebs, noting many credit unions have been making that move.
He added his company’s data show the practice drives greater revenue. “The faster this is recognized by community banks and credit unions, the better they can compete with Bank of America at $10 and Walmart at $15 on overdrafts, as overdrafts are a mainstay of checking profitability.”
Big Overhaul Needed
What all of that has led to, according to Moebs, is a need for a major overhaul of penalty pricing of fees, rates and balances by most financial institutions.
“The days of unprofitable checking are over. Checking fees must be lower. Checking interest rates must be higher, minimum balances smaller, along with fewer balance tiers,” he said.
Other casualties and developments from COVID: Term deposit accounts for consumers were dying before the pandemic and are now dead, concluded Moebs.
Long-Term Analysis
To gain a better understanding of COVID’s lasting impact, Moebs $ervices analyzed what happened as a result of the pandemic, from 2019-2022.
“One-million Americans have died from the coronavirus. The Great Influenza of 1918-1920 claimed about 2.3 million Americans and was the only period in U.S. history the population of the country shrunk,” said Moebs. “The COVID death toll is unconscionable. There are very few Americans who did not lose a family member, friend or colleague.
COVID hit the elderly hardest, while the Great Influenza did the opposite, hitting the young.”
How did COVID impact states? The Moebs’ study used four data sources to rank states: population, vaccination, infection and deaths.
“Two formulas were constructed: Those vaccinated divided by population and deaths divided by infections. These formulas were integrated into one risk algorithm which was then ranked in order by low to high risk,” Moebs explained.
What a Map Reveals
The result of this review can be seen in the map below.
The low-risk, green states, were mainly in smaller states in the East, plus New Mexico and Hawaii. The higher-risk states are in three groups: two in the Midwest, three in the Plains states, and seven in the Southern states.
“The low-risk states have less than 30% of the population of an average state and only 4% of the total U.S. population,” explained Moebs. “The high-risk state’s population is also less than normal, at about 75% of the average state population. Many citizens in low-risk states got vaccinated. Lack of vaccination caused more deaths than average in the high-risk states.”
Effects of Stimulus Payments
Meanwhile, said Moebs, the federal stimulus payments’ effects can also be seen.
“This economic response to a pandemic was never attempted before,” Moebs noted. “How these funds were used is also unique. Citizens in low-risk states used this money right away. Citizens from high-risk states kept their stimulus funds. Excess funds (see table below) in our report, are defined as money over and above normal growth in checking or transaction accounts. These stimulus funds still stand at $1.7 trillion in checking or DDA accounts being held by consumers and small business.”
Moebs pointed out that a great deal has been written about the social, political, medical and economic results of the COVID pandemic, and will continue to be.
“It all boils down to the second-worst disaster in U.S. history—saved from being the worst because a vaccine was created in less than 20 months instead of 89 years it took to develop a vaccine for the Great Influenza,” said Moebs. “That saved several million Americans from death.”