What will online lending be like in the post-COVID world?


Despite the lingering quarantine, the world is slowly returning to “normal life” and aligns its daily processes with new requirements. It is interesting to watch the course of events, because the crisis opened up opportunities for innovation and learning, changed consumer behavior. The business has focused on digital transformation, companies have increased investment in cloud products, cashless payments have gained momentum, and traditional retail stores have rushed to the Internet.

The demands of social distancing have put fintech in the spotlight because digital financial services can help solve everyday tasks quickly and safely under quarantine conditions. Thus, COVID-19 highlighted infrastructure deficiencies and low levels of digital literacy of users.

The positive results are the growth of non-cash payments. Reluctance to use cash, inaccessibility of banking infrastructure, and strict requirements of traditional financial institutions for borrowers increased the demand for non-bank loans and allowed this market segment to pass the beginning of the crisis more smoothly. The need to reduce the time for managing finance and the proliferation of smartphones will drive market growth in the future. Even taking into account the coronavirus crisis, experts predict annual growth of the global digital lending market at the level of 20% per year until 2025.

However, retaining customers during the quarantine period when everyone is cutting costs is not easy. Market leaders use complementary data to improve scoring and find a personal touch for different audiences. Traditional credit scores are designed to serve people who have a history of using financial products. However, this excludes a number of potential clients who either do not have such a history or have an unstable income. Such borrowers need loans and are able to fulfill obligations, but cannot prove their solvency. The future is in using diversified datasets to find new ways to attract customers and provide better scoring. To this end, financial companies will forge partnerships with popular B2C companies that have user data.

It is important not only to get additional data but also to learn how to work with it. Big Data analysis is hard to imagine without artificial intelligence. By processing large amounts of information using machine learning, AI will help to create the most popular product or service for each market segment and improve scoring. Industry leaders are actively investing in this technology. AI algorithms study the pages of borrowers in social networks, and mobile operators offer their own scoring products by analyzing subscribers.

In addition, AI is able to track macroeconomic trends and monitor borrowers’ finances, alerting the lender when problems may arise with the loan, or vice versa when the borrower can repay the debt ahead of schedule. This will allow you to develop a proactive repayment plan.

The full digitization of the loan lifecycle will help finance companies stay competitive in the 2020s, creating conditions for greater transparency and cost-effectiveness while delivering the consumer experience borrowers expect. They, in turn, want to fully control the process: submit an application or receive a chat consultation at any time of the day, instantly find out the status of the request, continue the process of applying for a loan from the place where they left off and through the channel they choose.

Today, so much user data has been accumulated that the lending process can be easily automated, which means that the cost of the financial product can be reduced. Large companies that have already studied their customers are actively entering the financial services market. Amazon provides loans to small businesses, Apple launched its own credit card, Facebook launched a payment system. There will be more such projects in the coming years.

For their part, consumers become more demanding. COVID-19 taught them that digital technology can simplify everything from shopping online to video chats with colleagues. Therefore, they expect a lot from digital lending: an intuitive interface, exclusion of irrelevant stages, and automatic filling of application fields, a minimum number of interactions, warning about potential problems with loans … Most consumers are also concerned about how the coronavirus will affect their credit rating, and therefore are interested in financial literacy issues.

Banks and financial companies must remember that the consumer is not the cause of the crisis. Consolidation and fewer startups will lead to greater concentration in the sector and may slow down inclusion. Therefore, the task of digitalization and implementation of innovations is to increase the availability of financial services, reduce their cost, and increase the security of personal data. The actions that will be taken now to help the client will become the basis for the development of the company and the ecosystem as a whole in the future.