6 factors that will shape the US financing industry in 2020

Data: 2020.03.25

Author: Agneta Venckute

Another year has come bringing its unique challenges and opportunities for the global financing industry. Starting out as any other year, the economy felt is first shock at the beginning of March with coronavirus spreading all over the world. It’s clear that economies will be affected, but to what extent is the question. What factors are believed will shape the US financing industry in 2020?

1. Pandemic

The coronavirus situation has become more intense in the USA and Europe in March, with the virus present in 46 countries and leaving many in quarantine. Both disruption of supply and decreased external demand has weakened the global economy, followed by equity prices, bond yields, and oil prices in the US falling sharply.

What can we expect in the economy after the virus is managed? Looking at the Chinese example (at the time of writing, the pandemic in China seems to be stabilized), spending on the following sectors may decrease (taken data compares first two months of 2020 against 2019):

  • Retail sales (down 20.5&)
  • Spending on automobiles (down 37%)
  • Clothing (down 30.9%)
  • Jewelry (down 41.1%)
  • Home appliances (down 30%)
  • Furniture (down 33.5%)
  • Building materials (down 30.5%)

Presumably the same sectors will be disturbed in all virus-affected countries, making it difficult for debtors to pay off their debts, and weakening the credit market activity.

2. ASC 842 delay

The new effective date for the new lease accounting standard, ASC 842 has been postponed to January 1st, 2021, therefore current private companies, plus non-profit and tax-exempt organizations will have more time to find suitable ASC 842 lease accounting software to meet the compliance requirements as they continue to benefit from leasing.

3. US Elections 2020

The upcoming elections in November may impact equipment investment decisions as there will be uncertainty in terms of policy making, resulting in some businesses postponing their plans for new equipment acquisitions as they wait to see what changes the new elections my bring.

4. Sharing economy

According to PWC, global trends indicate that the sharing economy will gain popularity, therefore affecting the financial system.

The sharing economy has gained popularity in sectors such as hospitality, transport, and various other niches. Some are growing rapidly (ride-sharing platform UBER, Lyft); others are not so successful (China-based bike sharing platform Ofo has gone out of the business).

The financial services are expected to follow soon, resulting in decentralized asset ownership and using information technology to find efficient matches between providers and users of capital, rather than automatically turning to a bank as an intermediary.

5. Cloud as a dominant infrastructure

SaaS-based applications continue to gain in popularity. Currently, the greater number of financial institutions choose SaaS applications not only for their business process management (such as CRM, HR and financial accounting) but they also turn to SaaS for ‘point solutions’ on the fringes of their operations, including security analytics and KYC verification.

It‘s believed that by 2020, core service infrastructures in areas such as consumer payments, credit scoring, and statements and billings for asset managers’ basic current account functions will be well on the way to becoming utilities.

6. Cyber security remains hugely important

The risk of cyber threats remains strong and, unfortunately, it is not likely to change for the better in the coming years, due to the following forces:

Bearing in mind that there is a temporary shock to the global economy, it‘s possible to assume that the consequences may be long term.

The ELFA estimates that within 2020, most US-based businesses will use equipment financing for their asset acquisitions. Recent data indicates that currently 8 out of 10 US-based businesses use one financing option, mainly leasing.

Overall, the U.S. economy has been affected by political uncertainty, tariffs, the COVID- 19 pandemic, and reduced economic activity among several key trading partners that have impacted the U.S. exports and business investment. That may lead to a slower financing industry growth in 2020.