The financial services industry provides a variety of services to consumers. These include standard banking, loans, investment portfolio management, insurance, retirement planning, and more. This article will explore common challenges market researchers face in this industry today and how they can overcome them.
Financial Services Industry Challenges
The financial services industry is a broad term that refers to the many different types of companies involved in providing financial services. There are three financial services categories: banking, insurance, and securities. Even though technology has changed over time, these industries still play a crucial role in our lives today by providing us with safe ways to store our money (banking), protecting us from unforeseen events such as accidents or natural disasters that could cause injury or death (insurance), helping us invest our money so we can grow our wealth over time (securities), and more.
The last few years have been tumultuous for the money business; the pandemic, lockdowns, and consumer behavior shifts have rocked the conservative industry to its core. These are the top challenges market researchers are faced with in 2022.
The inflation rate is a problem for all industries, but it can be especially detrimental for financial services. When the cost of living rises, people have less money to spend on extras. If they need to save more money to meet their financial obligations, they’re likely to reduce their investments in other areas. Inflation also causes businesses to lose money because their sales decrease.
The annual inflation rate in the US shot up to 9.1% in June of 2022, the highest since November 1981, and shows no signs of slowing down anytime soon.
A recession is a period of economic decline, which can be triggered by several factors. For example, interest rates and inflation may increase, leading to lower spending and investment. As a result of these changes in supply and demand, the economy slows down until it stabilizes at a lower level than before.
The financial services industry has been particularly affected by recessions because people usually save money during hard times, i.e. deposits decrease as people hold onto their money.
While we’re not in a recession just yet, economists worry we’re headed there fast. Per CNBC, “’Ugly’ inflation numbers make a recession more likely in 2022.”
In general, investing involves buying shares in companies or mutual funds. The goal is to make more money than what was initially invested over time. However, there are no guarantees when it comes to investing; stock prices go up and down all the time, so just because something goes up today doesn’t mean it will tomorrow, next week, or next year.
The investment banking world has an uncertain future as interest rates rise due to the high inflation battering the economy. The Federal Reserve has turned away from supporting the financial markets and the economy with record-low rates. To fight inflation, the Fed will continue to raise rates. Changes in interest rates can affect investments as stock prices dip.
Bull and Bear Market
A bull market is when the stock market rises over some time. A bear market is when the stock market falls over a period of time. As of this writing, the US stock market is a “bear market,” i.e., retreating like a wooden creature for a long winter’s nap.
Inflation requires Americans to borrow more for essentials like groceries, medication, and utilities. With more Americans using credit cards, and rising interest rates, less money is available to go into savings.
According to Bloomberg, “There were a record 537 million credit card accounts in the first quarter, a jump of 31 million over the past year, according to the Federal Reserve Bank of New York’s quarterly report on household debt and credit.” With credit card usage up and savings accounts depleted, customers will likely seek out cards with the lowest interest and fee options.
Buy Now/Pay Later
Buy now/pay later is a type of credit offered by online retailers that allow shoppers to make purchases without paying the total amount. Online shoppers can select this option when placing an order and pay only what’s due based on their financial situation. Cash-strapped consumers will likely choose this option to afford fun purchases, like clothing or tech. With many companies offering no fees or compounding interest, the buy now/pay later model is poised to steer consumers away from their high-interest credit cards.
Cost of Living
A new report from Redfin shows that apartment rental prices rose 15% from a year ago. And the median listed rent went up to $2,000 a month for the first time ever. With the rising costs of essential items like food and gas combined with the high rent costs, many consumers cannot afford to save money to purchase a home.
Mortgage originations have also dropped in the first quarter as rates rise. While the housing market boomed during the pandemic thanks to historically low-interest rates, times have changed. Customers will seek out the most attractive first-time homebuyer programs to purchase or keep renting.
How Data Can Help Financial Brands Stay Relevant
Financial services marketers are facing new challenges every day. The financial market is uncertain, with rising inflation and interest rates causing many to fear a recession is right around the corner. In such chaotic times, customers shift their behaviors, wants, and needs.
With prices on everything from gas to groceries going up, many consumers will spend less on “extra” activities like investing. Stock prices may also dip as consumer confidence and profits wane. The use of credit will increase to help wary consumers weather the inflationary storm; however, high-interest rates may also drive up debt and annihilate savings accounts. Credit card users will seek out options with fewer fees and lower interest, even utilizing buy now/pay later options for e-commerce. Finally, the rising cost of rent and higher mortgage rates may turn away buyers, leading to fewer mortgage originations.
To overcome these pain points and keep consumers’ attention in a sea of options, financial brands must focus on always-on marketing strategies driven by data to build loyalty. Knowing your customers’ financial needs, expectations, and pain points is crucial to rising above the competition. Agile market research is the best way to get to know your customers.
Fuel Cycle provides brands with a complete set of tools to map the customer journey, uncover pain points, identify missed opportunities, and perfect overall CX strategies.