Is the Economic Outlook an Opportunity? Here’s 5 Ways Banks Can Help Customers at a Time of Need

It’s not news that bad news sells – and there’s certainly no shortage of gloomy global macroeconomic forecasts right now. But there IS an opposing view championed by the late journalist Norman Cousins: “Optimism doesn't wait on facts. It deals with prospects. Pessimism is a waste of time.” This blog discusses why bankers should be tech-forward optimists to help customers during difficult times.

Pessimism about the global economy is prevalent. The International Monetary Fund (IMF) recently cut its global growth forecast to 2.7 % for next year, warning that the “worst is yet to come, and for many people 2023 will feel like a recession.”[1] Aside from the 2008 global financial crisis and the peak of the pandemic in 2020, this is the weakest growth profile since 2001.

As reported by CNBC, the U.K. is already in the throes of a full-year recession, according to S&P Global Ratings, while Europe faces a tough winter and rising credit risk.[2] In the U.S., the Federal Reserve has increased interest rates 6x this year in an effort to battle inflation, which is at a 40-year high. It seems likely that markets will remain volatile and fall further before recovering.

The U.S. economy is facing a “very, very serious” mix of headwinds, warns Jamie Dimon, chief executive of JPMorgan[3], while in the U.K., house prices are forecast to fall. And the inconvenient truth is that, while the Fed and the Bank of England raise interest rates to tackle inflation, this puts the brakes on the real economy and may well slow consumer spending and weaken businesses.

Pessimism vs. Optimism – A Matter of Opinion?

Economic pessimism may seem universal, but in all probability there will be an upside and a downside over the coming months. The truth is that we simply don’t know what will happen. Economic activity levels are ultimately influenced by expectations, so pessimism can quickly become a self-fulfilling philosophy.

The good news is that optimism can be contagious too, but it is often more difficult to detect and perhaps harder to believe. Why? Research suggests that not all emotions are created equal and as humans we are prone to a negativity bias. This is part of an inherent defense mechanism that’s designed not only to look out for danger, but also to keep it front of mind.[4]

There’s overwhelming evidence that bad news gets more attention, more clicks, and more revenue for the publishers. In fact, Google search results react to this pattern by giving people what they seemingly want: more bad news. So, even in good times, pessimism can triumph. [5]

It’s Not All Bad

If we put pessimism to one side, there is some light amid the current darkness:

• Unemployment rates remain low, and many measures of economic activity are growing (albeit more slowly than last year)

• Recent data in the U.S. indicates that inflation is beginning to ease, and supply chain issues are starting to stabilize

• Consumer spending remains positive as consumers continue to spend down the savings they accumulated during the pandemic

The important point is that monetary aggregates are just that, and every person and business manager has a unique perspective of the road ahead, often based more on instinct than facts.

Banks and the Monetary Transmission Mechanism

Banks are caught in the middle of this whirlwind of sentiments. When a central bank increases the “official” interest rate, it quickly affects money market rates, lending and deposit rates. So, banks find themselves in the unenviable situation of being the “monetary transmission mechanism” between monetary policy and the real economy. 

In many respects banks are the messengers of monetary policy. Often, they must convey unwelcome news about the cost of borrowing and must also manage business and consumer expectations about the likely direction of interest rates, exchange rates and other monetary variables. From a customer’s perspective, this is often unwelcome news.

Banks as Trusted Advisers

Banks cannot influence monetary policy, but they can help customers interpret it and hedge against future uncertainty. Many banks already provide financial wellness tools to help individuals make more of their money, and modern technology can take things to the next level, for example harnessing the power of artificial intelligence (AI) and data to do more for small business and retail customers alike.

Here are 5 ways banks can help:

1. Real-time payments enable businesses to pay exactly on time, all the time. This increases convenience for consumers but is especially beneficial for small and medium size businesses. Real-time payments also serve as a quick way to reduce transaction costs.
   
   
2. Advanced cash management solutions can help businesses streamline processes, optimize returns, and automate everyday tasks to ensure cost-effective management of cash and working capital.
   
   
3. Tailored credit solutions can harness the power of data to understand and forecast cash flow and align credit with business strategy. With a clearer view of the road ahead, a business can plan for contingencies, such as rising interest rates or inflation. 
   
   
4. A digital-first approach to finance facilitates a holistic view of cash movements and streamlines credit applications and decisioning.
   
   
5. Value-added services help businesses become more efficient, such as for invoicing and payroll management.

Using modern technology, fresh thinking, and a positive outlook, banks can help their customers safely navigate through difficult times. Successful banks and bankers will become trusted advisers whom customers rely on for the long run.

[1] https://www.cnbc.com/2022/10/11/imf-cuts-global-growth-forecast-for-2023-warns-worst-is-yet-to-come.html

[2] https://www.cnbc.com/2022/09/28/uk-already-in-a-full-year-recession-as-europe-faces-tough-winter-sp-says.html

[3] https://www.cnbc.com/2022/10/10/jpmorgan-jamie-dimon-warns-us-likely-to-tip-into-recession-soon.html

[4] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3652533/

[5] https://blog.reputationx.com/what-makes-us-drawn-to-negative-online-content