2020 has been quite a year. It made almost every public and private organization go back to the drawing board and review their plans and strategies.
This holds incredibly true for the Canadian financial industry.
Right at the beginning of the pandemic, the Bank Of Canada came up with a targeted response to reduce the strain on the financial system.
The Bank put in place asset purchase programs and liquidity facilities to keep the financial system running smoothly. Another key decision was to bring the policy rate down to an incredibly low level to help businesses and households across Canada.
The 150 basis points cut in the overnight rate, led to unprecedented drops in mortgage interest rates for both variable-rate and fixed-rate mortgages available from financial institutions.
In addition to lowering the mortgage interest rates, Canadian financial institutions also offered short-term relief options such as payment deferral programs to their customers. According to CMHC, the amount of deferred mortgage repayments is estimated slightly over $1 billion per month.
A closer look at the mortgage industry shows a clear trend when it comes to refinancing and lender switch volumes as well. Our research highlights that home owners chose to stay with the same lender and chose to borrow more money in their new mortgage rather than switching to a new lender for additional financing.
Additionally, we didn’t really see as many deferrals as we initially expected. The average book received 10% – 15% referral requests, which shows that a majority of Canadian borrowers aren’t from the low-income bracket.
Another key trend seen in the financial industry is the move towards digitization and automation. While many companies were already working towards adopting advanced technology, the pandemic accelerated this process.
For instance, Payments Canada shares that, a 17% decline in the use of cash by Canadians between 2008 and 2014 shows how Canadians prefer using digital payment methods. This percentage likely increased during the pandemic as more people opted for contactless payment options.
This is why, in 2019, Payments Canada launched programs for modernizing the core payments infrastructure and facilitating fintech innovations in the Canadian market.
In 2020, the push for digital transformation is even stronger. Financial organizations have accelerated the roll-out of remote client servicing solutions, introduced new offerings such as video-conferencing capabilities, and focused on enhancing data security.
While it was a challenging year for the financial industry, 2020 did enable change.
This is the first part of our year in review series. To learn about the impact of the pandemic on other sectors and the Canadian economy, keep watching this space.