The banking ecosystem has experienced several transformational shifts as a result of the COVID-19 pandemic. COVID has brought about an increased reliance on digital banking and made it a “must-have” capability as opposed to an optional capability for many enterprises. Post-COVID, while there have been severe repercussions on the economy as a whole, there have been positive developments in Fintech as a result of the pandemic. Financial institutions are increasingly realizing the importance of integrating Fintech into their services to survive in the new normal, and the latter is responding formidably.
Impact on Financial Institutions and Traditional Lending
According to The Financial Brand:“The coronavirus pandemic disrupted the entire world of banking and the consumer marketplace in an instant. Bank and credit union branches closed, paychecks stopped, loan payment deferrals became the norm and sources of new funding evaporated…”
- The shutting down of businesses both large and small have caused “large-scale insolvencies among firms” and households (Vox EU, 2020).
- Banks have taken immediate steps such as placing restrictions on loan approvals (The Financial Brand, 2020) and/or completely excluding certain categories of borrowers altogether (Business World, 2020).
- Underwriting has become extremely stringent as a result and access to credit from conventional lenders to the common man will be next to impossible.
- Unbanked individuals are at a huge disadvantage anyway when it comes to securing loan/credit in the conventional manner. They will find themselves all the more isolated from credit access as lending becomes more rigid.
- Banks that are still traditional in their operations will require customers to physically visit their outlets. This will be tedious for customers as well as banks because the latter are operating on reduced capacity to ensure social distancing. As a result, loan seeking and lending will take much longer than usual.
- According to Shailesh Pandey of Fino Payments Bank, as a result of thousands of migrants – mostly daily wage-earning workers – having lost their jobs, there has been a severe impact on their domestic remittance business – almost “a dip of up to 80%”.
How Fintech can save the day
In the post-COVID world, most customers want to avoid going places (bank branches, ATMs) and/or avoid visits from outsiders (insurance and loans agents). In this situation, the demand for digitization is going to get stronger and rightly so as customers will prioritize their safety. In that case, it is essential for lending institutions to reach customers through the digital medium.
According to Adil Shetty, Bank Bazaar, “In these testing times, enabling 100% digital access to credit products via video KYC and CKYC will greatly help everyone: customers, financial institutions, and intermediaries…policymakers and leading banks and NBFCs should fast-track such a system”, he opines.
Prakash Ranganathan, CEO of PayU states that “…digital lending platforms with the principles of financial inclusivity will emerge as the heroes of the financial crisis. By leveraging the right technology such as AI/ML, they will be able to verify creditworthiness and drive financial inclusion – underwriting the risk of providing credit services to people that banks will not.” VISA group country manager (India & South Asia) T R Ramachandran believes there’s been an increase in Micro, Small and Medium Enterprises (MSME) digitisation post-covid. In addition to innovative payment solutions, there was a heterogeneity of payments and the government’s active role in the space is encouraging.
The late Steve Jobs once said, “Innovation is the ability to see change as an opportunity – not a threat”. The COVID-19 pandemic no matter how devastating presents opportunities for Fintech companies pushing them to reinvent and innovate, all at an accelerated pace.
Post-COVID, Fintech is surging ahead to transform the financial sector in India and the world. The pandemic has forced financial institutions such as banks, NBFCs, insurance companies, etc. to either pivot with Fintech or perish. Simultaneously, Fintech must “accommodate this increased demand and significantly scale up their enterprise IT infrastructure” as going forward “robust financial services will be a lifeline for many individuals and enterprises”(Fintech Magazine, 2020). A holistic approach to digital transformation in strong collaboration with a Fintech provider is key for the survival of financial institutions in the post-COVID recovery period, and in the long run to deliver “efficient, effective and sustainable banking services”(Financier Worldwide, 2020).