Monthly Newsletter | April 2020 | Issue 104

Featuring 

• COVID-19 Impact : Challenges and Opportunities to Lending Industry

• How to navigate through COVID-19-5 quick steps to Lenders

• In the News

• Major Events

• Key Stats

Focus On

COVID-19 Impact: Challenges and Opportunities to Lending Industry

COVID-19 has curbed the globe, unexpected and unwanted. Virus outbreak has belted lenders with a ripple effect the size of a perfect storm- record refinancing demand, time-consuming credit checks, fluctuation in credit scores and lots of questions about getting short-term loans until income stabilizes. Lenders should bear in mind that this crisis is likely to reinforce, in direct proportion to its extent and duration and maybe even more, several existing trends.

Implications of Covid-19 in Lending

• Workplace dynamics and talent management durably changed after an extended period of remote working
• Customer routines and expectations shifted with expectations for proactive communication and care
• Operational resiliency remains critical with mounting risks of pandemics, societal and geopolitical tensions, and climate change
• Rise in cyberattacks and fraud, as businesses and employees adapt to remote working

The covid-19 outbreak is, hopefully, a once-in-a-century event. For now, however, it’s too early to think about the lessons we’ll learn. It’s crucial to address client’s concerns and provide services with as little interruption as possible.

Despite the negative outlook, fortunately, there is a brighter side here. Economic uncertainty creates opportunities for new business models powered by emerging technology. For FinTech, the future is Contactless Lending, a great boon during this crisis

Amidst this bleak scenario, ‘Contactless Lending’, greater adoption of digital channels, enables firms to cater to the needs of clients globally.

As countries go into lockdown, people are forced to keep social distance and work from home. This crisis highlights how important digital capabilities are and products are, and how important speed and seamless integration are.  Contactless payments and branchless lending are widely implemented.

Here is a list of digital initiatives to not only survive covid-19 but thrive on the other side of it.

• End-to-end loan digitization
• e-signature workflow solution
• Automated follow-up solution
• Virtual service option
• Data analytics strategies
• Advanced chatbots

Those who invest in advanced analytics, innovation, and digital transformation can leverage their customer experience and digital product advantages more than ever.

Business downturns are not uncommon. Those firms that recognize and adapt to new market conditions have the chance to outperform. For lending firms of any size, the message is clear: Digitize or risk losing customers — or even risk failure.

Keep Reading 

How to navigate through COVID-19 crisis: 5 quick steps to Lenders

As the world copes with the corona virus, the outbreak is causing widespread concerns and the biggest danger to the global economy since the 2008 financial crisis. The situation is fast-moving with wide impacts on consumers, businesses, and communities across the globe. Lenders have business continuity plans, but there are no clear contingency plans to face situations like widespread quarantines, extended office closures, and added travel restrictions.

In response to COVID-19, most lenders are developing their contingency plans quickly. Some are adapting existing plans to handle this outbreak, while others are starting from scratch. Confident action today can position your business to thrive tomorrow.

Here we identify five action steps lenders should take to navigate this unprecedented situation.

• Effective crisis management plan: Most Contactless lenders already have business continuity plans, but those may not fully address the fast-moving and unknown variables of an outbreak like COVID-19. Lenders must plan and act on a crisis management basis before, not after or if, it becomes a necessity. Create a dedicated crisis management team. This team must conduct a contract risk assessment and identify preventive actions, manage customer-supplier contract disputes due to economic impacts or supply disruptions, and even be prepared to invoke “force majeure” clauses when required.
• Stand up operations to handle increased volumes: Given remote working and sickness-related resource constraints, firms need to establish a more sustainable approach to processing the surge in lending applications. This should include electronic channels to manage COVID-19 related loan applications and the extension of automated credit decision-making to as many applications as possible, allowing manual credit underwriting to be focused on exceptions and higher risk cases.
• Proactive Communication: The immediate priority is communication and assurance. Everyone is facing this crisis together, so be transparent about what your business is going through. Customers can empathize with brands facing a crisis if you communicate with them properly. Clarity and transparency are crucial in sustaining confidence at both a client and a market-wide level.
• Better use of digital capabilities: As businesses move from reacting to mitigating the impact of the outbreak, strategies to emerge stronger may come in focus. Accelerate digital transformations as the shift to remote working reveals gaps in IT infrastructure, workforce planning and digital upskilling.

• Business continuity strategies: As companies move from reacting to mitigating the impact of the outbreak, strategies to emerge stronger may come in focus. Protect growth and profitability through actions such as scenario planning, more frequent financial modeling exercises to improve resiliency, and new models that incorporate economic impacts of past pandemics.

The Path Forward

Eventually, the coronavirus pandemic will subside to allow for the ‘new normal’. In the meantime, there is an opportunity to learn from the consumer and employee alike. For many firms, there will be new opportunities spawned by innovations tested, marketing models adjusted, and delivery networks transformed. There will be major winners and some losers that result from this unexpected disruption of business.

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In the News

Trump small business lending program is a failure to launch

Just a day after the launch of a $350B loan program designed to rescue millions of small businesses, technical glitches continue to cripple the process. The launch of a $350 billion loan program designed to rescue millions of small businesses pummeled by the coronavirus pandemic, technical glitches continued to cripple the ability of the nation’s top lenders to begin processing the loans, throwing into doubt when any of the applicants will start receiving any money.

The lending program, which forms part of the $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act, is a much-needed lifeline for the 30 million small businesses across the country. It offers loans of up to $10 million to companies who employ fewer than 500 people. Those loans are forgiven if the businesses meet certain conditions, such as using most of the funds to pay worker salaries for the eight weeks following the loan closing.

Major banks like Bank of America, WellS Fargo and JPMorgan Chase received tens of thousands of applicants within hours of the program’s launch

To begin the lending process, small businesses must submit their application via an online portal on their bank’s website. A banker then conducts a phone call with the applicant.

However, there’s no way in the hastily fashioned system for the banks’ computers and those of the Small Business Administration, which administers the Paycheck Protection Program loans, to talk to one another. Bankers have resorted to entering applicant information by hand into E-Tran, the proprietary system used by the SBA to guarantee loans and generate loan numbers.

Senior banking executives at Bank of America and Chase told NBC News they were still waiting on loan numbers to come back from the SBA, and so far had not processed any more than a trickle from the flood of applicants.

Bankers said they were working systems to automate and speed up the process but had no idea when these customers would start to see money in their accounts.

An email from the Small Business Administration to lenders apologized for “ongoing technical issues,” which included slowness and the inability of “many” lenders to create new logins or reset passwords. The SBA did not immediately respond to an NBC News request for comment.

US doubles interest rates on loans after small business complain

The federal government doubled the interest rate that lenders may charge small businesses — from 0.5 percent to 1 percent — under the $350 billion emergency loan program after top U.S. banks complained that the previous rate would require them to take on too much financial and legal risk.

Treasury Secretary Steven Mnuchin and Small Business Administration Administrator Jovita Carranza released the updated guidelines hours before the lending program, known as the Paycheck Protection Act, launched. The change is intended to make the program more attractive to smaller community banks worried they would reap “unacceptable losses” if required to offer a 0.5 percent interest rate.

Companies may borrow up to 2.5 times their payroll, or up to $10 million, which can be used for payroll and other expenses, like insurance premiums, mortgages, rent or utilities. The loans, which are guaranteed by the federal government, will be fully forgiven if 75 percent of the money goes toward keeping workers employed, according to the SBA.

But small banks had sought a higher interest rate. In a letter to Mnuchin and Carranza, Rebeca Romero Rainey, chief executive of the Independent Community Bankers of America, said a 0.5 percent interest rate was not “feasible” and instead pushed for a 4 percent rate.

“It would not make these loans profitable for lenders; we recognize that’s not the purpose of the Program,” Romero Rainey wrote. “But a 0.5 percent rate would create unacceptable losses for lenders, which have a duty to preserve their financial strength for the sake of their communities. We recommend changing the guidelines to allow for rates at the 4 percent level provided for in the CARES Act or as close as possible to that level.”

Organizations can apply for PPP by calling their banks and other SBA-backed lenders directly.

Kabbage finds a way to support emergency loan program

Kabbage, an online lender that recently stopped lending after being routed by economic fallout from the coronavirus pandemic, has started accepting applications for the Paycheck Protection Program.

The company’s leaders hope that by helping to distribute the program’s funds they will help small businesses bounce back and rehire workers who were furloughed.

Kabbage stopped lending on March 29 to give itself time to upgrade its systems and teams to support the Paycheck Protection Program, which is being administered by the Small Business Administration and the Treasury Department. It also cut off credit lines to customers after many of its small-business borrowers went out of business due to challenges presented by social distancing.

Kabbage furloughed an undisclosed number of its 500 employees and shut down its operation in India.

Kabbage had to upgrade its systems because the PPP requires data and documents the lender normally doesn’t have. Nine documents must be provided, including the Form 941 from the IRS.

Kabbage had to provide a way for applicants to upload the documents and apply optical character recognition to extract relevant data from the documents. It also had to adjust its Know Your Customer and Know Your Business systems.

Kabbage, which will offer the loans to new and existing customers, should have an advantage because it’s used to automated lending decisions, Petralia said.

“If you look at the 30 million small businesses in the U.S., 90% of them have fewer than 20 employees and 80% have fewer than 10 employees,” she said. “They’re looking for very small amounts. It’s very hard for any manual process to serve all these small businesses that need small amounts at scale.”

NISSAN seeks $4.6 billion credit line after Corona Virus hit

Nissan Motor has requested a 500 billion yen ($4.6 billion) commitment line from major lenders after sales were battered by the coronavirus outbreak, two people with knowledge of the matter told Reuters.

Like other automakers, Nissan has been hard hit as the pandemic decimates demand and disrupts production, but the Japanese automaker is more vulnerable than others.

Even before the outbreak, it was badly hit by a slump in profitability following decades of aggressive expansion and the scandal surrounding ousted leader Carlos Ghosn.

Nissan is requesting the funding given the possibility that the impact of the coronavirus on production and demand could continue for an extended period.

The Nikkei business daily reported earlier that Nissan is seeking the commitment line from Mizuho Financial and two other major commercial banking groups, as well as from the Development Bank of Japan.

Events

Future of fintech

16-18 Nov 2020, Sanfrancisco, CA

Key Stats

Central Bank Interest Rates and Current Libor Rates

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