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Opportunities and Challenges for Digital Lenders in Covid 19 Recession Times

As the coronavirus, the antagonist of 2020, is constant to capture lives across the world , businesses are reacting to the recession in three alternative ways . Some businesses, mostly start-ups, have landed themselves with better product-market fit, some have pivoted towards satisfying new market demands and therefore the rest are staying put, expecting the tornado to pass.

While we take baby steps towards normalcy, we all know that the Covid crisis is here to remain for a short time and therefore the aftermath will linger upon us for the months (or could also be for the years) to return . While it's going to be disheartening to ascertain some businesses bury themselves during this difficult time, it's both relieving and interesting to watch how certain business models and industry sectors have the chance for innovation, learnings and behavioural shifts.

The Future of Fintech after the Covid-19 crisis

The fintech industry, like all another within the country, is feeling the pressure of the pandemic acutely. Some difficult decisions are made by fintech players within the last months and lack of access to capital continues to haunt. Also, some players could also be benefitted through the Job Keeper package while some might not be.

However, for an industry that's so digitally and financially literate, carving a neighborhood within the new economy, post the coronavirus pandemic won't be an unachievable thing. In fact, post the Covid crisis, the Australian government is looking to increase its international links through collaboration with countries like the united kingdom and Singapore. In fact, the govt has hinted at watching ways of boosting private sector investment within the fintech industry post the Coiv-19 crisis.

Digital lenders were like digital dynamos…

Just about three months ago, the digital lending landscape looked much different than what it does today. With the economy looking warm and conducive and fintech lenders offering record-low interest rates at an unimaginable pace, different categories of individuals were flocking to the cash-flushed digital lending space. The millennials loved the moment gratification and therefore the frictionless experience and believed in these lenders than the normal banks.

Challenges

Change is that the only constant, they say! Covid-19 has brought some significant economical, behavioural and societal changes within the country. While grappling with these changes and trying to emerge a winner, digital lender must tackle some challenges.

A strong rise within the rate of impaired loans

With unemployment reaching a replacement high, impaired loans are going to be on the increase too. While the support from the govt can hold the impaired loan ratio for the primary two quarters of 2020, the subsequent months will exert some serious pressure on lenders. Experts predict that elevated levels of impaired loans may still persist even until 2025.

No sufficient appetite for credit

During this critical time, businesses and individuals are getting to act more careful about their dollars (excluding the panic-buying of course!). the thought of shopping for a replacement car, home or exotic holidays has been suspended temporarily. Consequently, this may cause poor loan growth throughout the year within the country. Businesses with little or no income are going to be hesitant to require on the burden on a loan, regardless of how attractive it's .

Different approaches for various categories of consumers

The coronavirus pandemic has affected businesses overall and yet at varying degrees. The time taken by a restaurant to recover to business, could also be lesser or quite a shop . (This also implies that the danger involving in funding businesses may vary significantly between different business sectors.) SMEs, generally , may have varying needs and digital lenders must be ready to offer a difference in terms of credit type and repayment models supported the industry sectors they're catering to.

Increased competition

Covid-19 was a sort of “digital-check” for many financial institutions. Banks that had delayed their raid the digital banking ecosystem will find extreme pressure from lenders offering highly targeted products at incredible interest rates. In response to the present situation, traditional banks would consider this point because the most apt to maneuver into the digital space. Consequently, fintech players are going to be facing fiercer competition from traditional banks that are going “digital” also as from alternative sources of lending like peer-to-peer lending. Considering the broader customer base, deeper understanding of monetary operations and therefore the ability to draw in funding, if traditional banks execute their digital plans right, then they'll become solid competition to digital lenders.

More pressure from regulatory bodies

Just as if the economic pressure wasn't sufficient, there'll be added stress from the new regulatory changes in terms of capital management, liquidity standards, cyber security and risk management. Digital lenders must wait and watch how things will evolve and the way lending standards will tighten.

Opportunities

Of all the long-term effects of Covid-19, the surge in digital services are going to be remarkably high (thanks to social distancing norms). this is often very true for financial services. The pandemic is close to throw some curveballs at the lending landscape and therefore the possibility of the players to show them into sixes remains open.

Meet the necessity for capital

When things fall back on target , digital lenders are getting to be back in business. Businesses that are will devour where they left and still grow. Quite obviously, with unprecedented growth comes the necessity for capital. Businesses are going to be searching for both traditional and digital lending sources to make sure the simplest access to capital. With lower transactions, this is often the proper time to think from the customer perspective and style products and services accordingly.

Quick Fact: Experts predict that there'll be high demand for low-value loans as individuals and businesses may seek the capital required to return to their pre-Covid lifestyle if not for extravagant expenses and out-of-the-box investments.

A chance to attach together with your customer

Building customer loyalty isn't a simple task in today’s transitional business environment. Considering that digital lenders have little or no direct connect with their customers, this is often probably an honest time to reconnect with them. this will be done by offering products that are highly specialised to satisfy specific demands of consumers and by allowing some amount of leniency into the method . Armed with technology and lower operational costs, digital lenders are way before the curve in meeting customer demands than traditional businesses.

Re-innovate and re-direct

Some market experts believe that not all digital lending companies are getting to survive the crisis, while some don’t agree! However, with lowered commercial activity thanks to the crisis and a greater need for redirection, this might be the right time to reinvent the business. as an example , fintech lenders can abreast of |cross-check|look at|verify|scrutinize"> check out ways of using analytics to create better customer relationships or catch up on all the technology-related security tools to appease more customers.

Technology for operational excellence and innovation

Lending, and actually , most financial services are going to be turning to technology to smoothen out their operations. Digital lenders can specialise in technologies like loan management system(LMS) which will further make digital transactions easy and risk-free. Also, during a time when risk managers are battling with the assessment of technology risks, digital lenders must specialise in analysing their data (data residing in silos), understanding the stress of latest regulations and compliance risks and be prepared for integration challenges too. This helps digital lenders to adopt new and emerging technologies like machine learning, AI and advanced analytics which will mitigate risk and enhance performance.

Greater opportunities for partnerships

The recession will make traditional banks more hospitable collaborating with fintech lending companies as digitization is that the need of the hour. Such collaborations are going to be a win-win situation for both entities. For traditional banks, the collaboration awards lower investment (in technology and staff), reduced cost per loan, a fully-digitized customer experience and quicker gratification of customer needs. For the digital lender, the association means access to a broader customer base, increased support in terms of regulation and compliance and deeper financial services experience.

Aim for greater agility

Adoption of the proper technologies can make digital lenders more agile that ever. By staying agile, companies help customers also as themselves by building a sustainable platform for loan provisioning. Some ways to reinforce agility is thru the utilization of low-code applications (giving greater visibility into the process), intelligent automation and case management (quicker analysis and management of scattered data thus preventing data silos). While all three technologies are important, automation is taken into account a tad more significant to streamline the whole process.

Build a robust approach to fraud prevention

With more people choosing online financial services during the lockdown period, the landscape has became a fertile ground for fraudsters. Banks have so far reported multiple cases of Covid-19 scams and most of those fraudulent actions are targeted towards the vulnerable and elderly. Digital lenders who have already been handling such threats may even see an increase within the volume and sort of frauds. Using Covid 19 as an excuse, it's time for fintech lending companies to hunt technologies like behavioural biometrics, consortium intelligence and large data analytics to resolve the difficulty . Companies must specialise in creating a multi-layered approach to fraud prevention thus allowing themselves to realize optimal revenue and deliver laudable customer experience.

Social distancing and digital mortgage:

Australia has tightened the social distancing rules so as to combat the spread of Covid infection within the country. While the govt has reported to finish most restrictions by the top of July 2020, social distancing is predicted to remain for quite a while . With more banks and financial institutions choosing closure of banks and therefore the fear of the virus lingering upon the heads, more and more people are expected to travel mobile while availing financial services. this might end in the event of latest mobile-based technologies with prime specialise in user convenience and safety.

Quick Fact: it's expected that regulatory mechanisms that specialise in holding a particular level of regulatory capital and a proven ability to work virtually are going to be established by the govt across all industries.

Conclusion

There is tons of uncertainty about what is going to happen after COVID-19 and this is often not just from the economic perspective. The “new normal’ will push its demands on businesses and therefore the digital lending sector are going to be no exception.

It is quite well-known that the low-income groups of the country are the foremost suffering from the pandemic. With an economic slowdown like never before, small and medium-sized businesses may find it harder to garner loans. Also, while more businesses may began seeking loans, the quantity needed could also be lower (people are going to be less willing to require risks as there'll be a particular amount of uncertainty continuing to exist). this might cause the increase of digital lending platforms within the financial crisis. While there'll be an initial struggle for digital platforms that are now handling the pressure of lowered capital access and forbearance of loans, there's certainly light at the top of the tunnel. With the proper technology like machine learning, data analytics and AI , digital lenders are going to be ready to handle creditworthiness efficiently and drive financial inclusion too.

In conclusion, digital lenders who have already got the technological platform for accelerated loan disbursements, will now seek technology for innovation and risk mitigation. With a robust specialise in innovation through technology and by partnering with a sound technological partner, challenges aggravated by Covid-19 are often became lucrative opportunities for the business.