History has taught us that times of crisis drive demand for technological advancement. Those that leverage innovative technology, to tackle challenges and turn them into opportunities, are often the most successful in helping society to recover.
Earlier this year, when the novel coronavirus sparked a global pandemic, physical distancing was enforced around the world to limit the spread of infection. This led to a surge in remote working and a spike in unemployment, sparking technological innovation within a number of industries. In the financial services industry, digital banking trends were quickly affirmed.
In Europe, there was a 72% rise in the use of fintech apps in March alone, and in the United Kingdom, 6 million people downloaded digital banking apps for the first time between mid-March and mid-April.
Technological innovation in financial services is now giving SMEs a greater chance of surviving the coronavirus. Prior to the pandemic, private sector fintech lenders, like our business, Lidya, were already stepping in to bridge the SME credit gap in fast-growing economies.
SMEs are the backbone of any economy, accounting for 80% of all jobs and playing a significant role alleviating poverty and generating wealth. But, according to the IFC, there is still a $4.5 trillion USD global funding gap for SMEs every year — and this figure was estimated before the pandemic took hold.
On top of that, SMEs have been some of the most financially affected businesses during the outbreak, particularly in fast-growing economies. Right now, SMEs — especially essential businesses, such as pharmaceuticals and supermarkets — need stability and the right financial support, to at least make sure that jobs are protected, and operations can keep going, in order to have any chance of scaling in the future.
Trading is not “normal” at the moment, and may never look the same again: some companies are experiencing increased operating costs, such as purchasing high-quality PPE to protect their workers; others are reorganizing their focus and their business models, to meet the new demands of a changing world. The financial needs of SMEs are changing, and the financial services industry must adapt.
Change is needed
A traditional approach to lending will not get cash to SMEs quickly, when many are just weeks or even days away from drastic losses or potential closure. In Nigeria for example, it can take up to six weeks for businesses to get an answer from a bank on a loan application, which may still come back as a ‘maybe’ or an outright ‘no’.
This is where fintech lenders are stepping in and using smart machine-learning algorithms to provide convenient access to credit in as little as 24 hours. In the midst of a pandemic, these fast alternative borrowing options are a lifeline for SMEs.
Traditional lenders often reject SME loan applications due to greater perceived risk, a lack of collateral and smaller sized loans that yield lower returns. This may become even more difficult as the world goes into recession and some lenders look to minimize risk even further.
However, online lenders like ours are able to streamline and optimize lending processes, using big data to assess risk, and offer financial support to SMEs even during the most difficult times. Since beginning operations in the Czech Republic in March and Poland in April — at the height of COVID-19’s hold in Europe — Lidya has so far had an almost 0% default rate — and a 100% repeat business rate.
Fintechs can provide solutions that are not only more comprehensive and convenient, but also safer. Perhaps one of the most important qualities about fintech solutions today is that customers can remotely access financial services without the need to physically visit a bank, or handle physical cash. People, and cash, are potential transmitters of the virus. But with online lenders, digital channels are the new branches. SMEs who adopt fintech solutions are reducing the need for unnecessary human contact and protecting people’s health.
The outbreak of COVID-19 has driven society online more than ever and reflected the importance of digital transformation strategies in financial services and other industries. It has shown that it is possible to do everything digitally and remotely, and that digitizing client-facing services and internal operations can drive efficiency.
Fintechs, that have been digital from day one, now need to step up and assume a responsibility to support SMEs, so that they can emerge from the global economic crisis and fast-track business growth. It is an opportunity for fintechs to build their reputations: legacies will be defined by how lenders acted during this pandemic, and customers will remember those who looked after them through these difficult times.
This article was co-written by Tunde Kehinde and Ercin Eskin, co-founders of Lidya
Published September 4, 2020 — 09:12 UTC