Permanent Working at Home Will Rock Banks and Credit Unions

The longer Americans office at home, the better it may look to both workers and employees. No commuting, more living and the chance to work in sweatpants all the time. But the ripple effects will hit many industries, including financial institutions large and small.

The COVID-19 pandemic is having a huge short-term impact on market demand for retail banking services — but the long-term impact of some elements of the response plan may eclipse those.

In the last two weeks, 10 million people filed for unemployment insurance, 20 times a normal two-week period. As more businesses shut down for weeks on end, those numbers will climb. In an earlier article I focused on the impact to bank and credit union customers’ behaviors in relation to branches. In this article I want to focus on the long-term impact on market demand, which affects multiple aspects of banking.

The coronavirus has caused many businesses to find ways to continue operations in a virtual setting with employees working from home. In a recent conference panel on this topic, several credit unions shared how their firms were able to move 90%+ of their staffs to a work-at-home setting with no reduction in productivity.

I’ve worked remotely for over ten years. I can verify that my productivity hasn’t declined. I’ve managed large remote teams too, and they were highly engaged and productive.

Millions of Americans are now working from home. As the pandemic continues for at least a few more months, these workers and their companies will likely find that this operational approach, that they feared adopting before, actually works.

Pre-pandemic about 5 million employees worked remotely in the U.S. The pandemic has driven many millions more to do so. More firms are recognizing that a remote workforce model can work successfully for their companies. If this COVID-19 trend takes permanent hold, how does that impact demand for financial services post-pandemic? Some will be obvious and others will emerge as business customers of financial institutions feel the effect of a major social trend.

10 Potential Impacts on Banking Demand with a Remote Workforce

1. The demand for large commercial real estate properties will decline.

Firms will seek cost savings by reducing their need for expensive office space, especially in response to reduced demand from lingering high levels of unemployment. In turn, vacancy rates will climb. Prices will drop as demand declines. Demand for related credit will also lessen.

2. Many small businesses — such as restaurants —will never recover from the economic shutdown.

In downtown or high employment areas, more small businesses that thrive because of the local employment will be hurt by the reduced lack of demand. This could lead to an even larger vacant commercial real estate portfolio of smaller retail spaces and fewer urban small business loans.

3. Construction of new commercial buildings will slow too, as a glut of commercial space hits the market.

The impact on the construction industry — and construction lending — could be as large as the Great Recession ten years ago. On the positive side it seems like perfect timing for a massive infrastructure effort by the federal government to fix dilapidated roads, bridges and airports. Of course, that requires even more deficit financing by our government.

4. Fewer commuters mean cars last longer.

That will slash not only auto sales but also auto financing, which many credit unions depend on.

For many workers, the bulk of the miles they put on their personal cars comes from commuting. When I moved from commuting to work in the Boston area for Bank of America to working remotely, my annual mileage fell by 60%.

Some people may even find they can get by without a car.

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5. Fewer commuters reduces demand for gasoline and all auto-servicing related businesses.

These firms — tire centers, oil change shops, the corner garage, the auto parts store — will feel the impact on demand. So will their lenders. The positive is that less driving equates to less air pollution.

6. The “business” attire industry likely takes a hit too, as need for office clothing declines.

The current “stay-at-home” orders given virtually nationwide have shown that when given a choice, many workers will dress comfortably. Demand for sweatpants will likely to climb. The local dry cleaner won’t do so well.

7. As more businesses adopt a remote workforce it will become more of the norm.

Therefore, workers won’t necessarily have to move to take a new job. The barriers of job change are reduced. The impact on two-earner families when one worker gets a new job will be eased. However, the residential real estate market will take a hit as fewer people move — both homeowners and renters. Housing prices will likely take a hit as demand declines. The purchase mortgage business will take a hit if workers choose to stay where they currently live.

8. Alternatively, many cities have such high costs of living today and may see an exodus.

If workers can be remote, many of them will likely move out of those cities to more affordable places as the length of their commute is no longer a consideration. Smaller towns will likely see an increased demand for housing as workers seek a better lifestyle. This shift could increase the demand for new housing as renters might finally be able to afford a house.

9. The number one reason people change banks is that they move. What happens when they don’t?

If people don’t have to relocate for a new job, new customer acquisition is impacted. On the other hand, customer attrition likely declines as well, since there are fewer switchers. Online and mobile banking started this trend and working at home may cement it in place.

10. Fewer relocations mean many industries hurt.

From real estate brokers to moving companies to office furniture suppliers and more, all see a decline in demand or at least a shift from larger expensive cities to smaller, more affordable places.

The longer the COVID-19 pandemic and the associated economic shutdown continue, the more disruption there will be long-term. The latest projections by economists show a deep recession may last at least three quarters.

This pandemic is bad and will get worse before getting better. Retail financial services firms not only need to adapt to the current critical environment, but also need to prepare for the new normal ahead. The commercial side of banks will also feel an impact, factoring into the overall economics of each institution.

Now is the time to begin thinking about, and planning for, that new normal.

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