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Changes in business models and consumer spending

The pandemic has dominated life both in the UK and globally over the past year, affecting almost every aspect of everyday life. The finance industry is no exception and the impact can be seen in many different aspects as well as in consumer spending patterns and behaviour. 

Many service businesses, including banks, have had to adapt their operational working model to support the requirements and restrictions imposed as a consequence of the virus. This has resulted in new and flexible working practices, primarily involving working from home, as well as a reduction in staff either through furlough or redundancy.

This has enabled businesses to assess the new practices in terms of cost and efficiency and to consider how to move forward in the light of restriction easing and the hope of some previous normality being regained. 

As part of this process, many financial institutions are deciding to adopt to a greater or lesser extent the new model of flexible and hybrid working patterns, driven by savings in premises costs and improved staff satisfaction. Examples of such companies include Bank of Ireland, Revolut, HSBC and Nationwide building Society to name but a few.

Consumer spending patterns have likewise been affected by the pandemic resulting in an increase in online spending, increased usage of banking mobile apps, a rise in contactless usage and even an increase in the contactless transaction limit.

Figures released by UK Finance show that in terms of UK cardholders:

  • There were 1.2 billion debit card transactions in January, 26.6% fewer than in December and 18.1% fewer than in January 2020. The total spend of £47.8 billion was 18.8% less than in December and 7.3% less than January 2020. 
  • There were 196 million credit card transactions in January, 32.9 % fewer than in December and 31.1 % fewer than in January 2020. The total spend of £10.7 billion was 27.6% less than in December and 37.9% less than January 2020. 

The figures also show that outstanding balances on credit card accounts have reduced by 20.7% over the 12 months to January, as a result of repayments being in excess of new borrowing over the year. These figures seem to indicate that unable to spend as normal, consumers have chosen to pay down their debts. Statistics released by the Office for National Statistics said that household savings increased significantly over 2020 with deposits up by £186.1 billion.

With the recent easing of restrictions for shops and restaurants, spending behaviour seems to be showing an increase: according to Springboard, footfall at retail destinations has risen to three quarters of its old level and numbers of diners eating out has been back to within 50% of pre-Covid levels, according to reservations website Opentable.

Going forward it will be interesting to see whether the rebound in spending results in debts soaring again. Apparently last year even in August, the peak rebound month of the year after the first lockdown, credit card balances rose by only £368 million compared to the January fall of £3.18 billion. 

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