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…

This week, the general stupor from the holidays seemed to lift and we all found ourselves standing in bright sunshine, staring at each other. It dawned, maybe, just how high the mountain of work for 2021 is. A sense of urgency has returned.

So it was a burst of activity on the current challenges on the horizon.

Breathing Space. This new consumer regulation is due to go live in May. Although this was being discussed last year, for January we have started off seeing more activity. Likely an issue, especially for large lenders, with multiple products, systems and complexity. We should expect even more as we get closer to the deadline.

Bounce Back Loans. Another issue from 2020 becoming a hotter topic now. An interesting discussion hosted by CharterBanker this week clearly laid out some of the issues; moral hazards embedded within the UK scheme, the strategies to best approach collections for these loans. The CSA, as the industry trade association, provided guidance to try to move this conversation forward too. With expected peak delinquencies to occur in July/August, the sense was now is the time to prepare.

Declining spending and declining balances. Data this week showed how we have all been spending less on clothes, amongst other things. As for lending, we have also seen declining balances on credit cards, as people who can afford to, have used this as an opportunity to reduce amounts owed. With COVID the economic cycle of borrow and spend, seems to be faltering a little, at least for now. All of this could have some significant knock-on effects for the economy, and the banking and lending industry in general reducing profitability. We know there is pent up demand to lend, but without demand more business transformation may be needed. One for the radar.

Negative interest rates. In a talk last week, the Bank of England, reignited talk of negative interest rates in the UK. This of course would mean that there would be a charge for keeping money on deposit, and low cost lending for borrowers. How this would be achieved systematically, given it has not been done before, has shades of Y2K behind it. It does sound like this is coming back as a discussion.

Brexit and data. I am not quite ready to discuss this topic on here just yet, although was on a bruising guidance call discussing some of the new implications and regulations now required for export. However still on the horizon is the UK getting a data adequacy decision. We have a bridging agreement for now, but a decision is needed (or an extension), by 30 April 2021. If not data transfer and data infrastructure will become incrementally more difficult. Definitely, one to watch.

The year is now well and truly up and running. Have a good weekend everyone.