On 15 April 2020, Jessica Robey and Claire Hayworth presented an initial overview of the impact of Covid-19 on South Africa’s financial sector at the Digital Frontiers Institute virtual community of practice meeting.
The presentation focuses on three sectors – credit, insurance and payments. The insights are derived from previous analysis and research 71point4 has conducted, particularly on the credit market in SA, our work in other countries such as Rwanda, data other organisations have released on the topic, as well as tracking service providers’ response to the pandemic.
As mentioned, this presentation is only an ‘initial’ overview as things are changing so quickly in the market; already some financial service providers have shifted their response in the time since this presentation. By way of example, as at 15 April, Momentum had not yet formally announced to its vehicle insurance clients that it would offer an automatic premium reduction, hence it was not included in the list of insurers on slide 18. By 20 April, Momentum had announced this benefit.
The key takeaways from the presentation are summarised below:
- South Africa’s credit sector was already under strain pre-lockdown, it’s likely to get much worse
- Loan repayment defaults during lockdown will have long-term impacts on the health of the credit sector
- Credit retailers are going to be badly hit by this, their loans are likely to be the first that people default on and they already have high arrears. In addition their sales will be badly affected by the lock down
- Current support interventions by banks will help but exclude the most at-risk consumer groups
- Reduction in the repo rate may help buffer the sector and a small silver lining of this period is the increased awareness and usage of credit life insurance
- Should the credit sector be doing more to protect the financial health of their customers in the long term (i.e. freeze on debit-order bounce penalty fee, limiting negative reporting to credit bureaus)?
- All insurers are facing the same risk in terms of the decrease in investment returns due to the drop in stock market
- Short-term insurers likely to be facing additional risk of consumers cancelling or downgrading their policies
- Risk for consumers is that missed premiums means policy lapses
- How can insurers support their loyal customers through this time to ensure long-term sustainability?
- Will this be a catalyst for people to move to insurtech services which appear to be more flexible to customer needs?
- SA’s retailers serving lower-income segments have innovated quickly in response to Covid-19 lockdown with QR payment options, will this sufficiently nudge consumers away from cash?
- Will this be the catalyst that the industry needs to accelerate the usage of digital payments (both in and outside of SA)?
The recorded presentation is available below.