COVID-19 – the financial services impact so far

Coronavirus (COVID-19) might sound like a new payments industry acronym, but the virus is having an effect that is far from beneficial. Last month, fears raised by the continuing spread of COVID-19 wiped £200bn off the FTSE 100 in its worst week since the 2008 financial crash.

In addition to the tragic human cost, the impact of COVID-19 is being felt by companies around the world from luxury retailers to airlines and banks. International banks and wealth management firms that have expanded aggressively into China in recent years, are now dealing with the isolation of potentially exposed staff and put strict travel bans in place. Both Credit Suisse and UBS in Hong Kong have directed staff to work from home and limited international business travel to help kerb the spread of the virus.

According to a recent Financial Times article, Mastercard has cut is revenue outlook citing the impact of the coronavirus on cross-border travel and commerce. First quarter revenues are now expected to grow 9-10 per cent compared with a year ago, roughly 2-3 percentage points lower than the company forecast when it reported 2019 earnings a month ago.

However, the UBS Chief Investment Office has a more positive view stating that financials may only be ‘moderately affected’ by the virus. They indicate the main risks for US financials would likely be in the credit card spending and payments areas, which could be somewhat negatively impacted by less consumer travel and entertainment spending. With Asian consumers reducing their travelling and therefore spending less on hotels, restaurants and entertainment, a drop in cross border payments volume growth is likely. However, UBS believe any slowing in gross dollar volume of card spending would be temporary and offset over the intermediate to longer-term by expanding global economic growth.

The evidence strongly suggested that this new virus will have an impact on the global financial services industry, but it remains to be seen how long the effects will last and how severe they will get.