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Impact of the pandemic on online lending via fintech

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Highlights

  • The adverse effects of the COVID-19 pandemic can be seen in key sectors of the Indian economy.
  • In the short term, the RBI moratorium means very few new loans and only to low risk segments.
  • Obviously, Fintech players are prioritizing their strategies with many changes in the rules and market conditions.

New Delhi: Since March 2020, India has seen a drastic shift in “business as usual” for every industry, including the FinTech sector. The disruption caused by COVID 19, especially due to prolonged lockdowns, has been massive. With its long-term effects on the Indian economy, fintech startups see a silver lining in the surge in increased demand for digital payments and online loans.

Scan wave (data)
According to the sources, UPI payments and digital transaction platforms have attracted 50% of new users. Many lending platforms profit from double the average transaction value. The signs of rapid jumps in digital payments are quite visible during lockdown. According to more than 42,000 responses to a LocalCircles survey for the period March 23 to April 13, 42% of respondents said they have started making more digital payments since the outbreak. According to statistics portal Statista, payments, including e-commerce and mobile point-of-sale transactions, will grow from $ 64.7 billion in transaction value in 2019 with 513.84 million users to 134, $ 5 billion with 657.77 million users in 2023.

Impact on business
The adverse effects of the COVID-19 pandemic can be seen in key sectors of the Indian economy. All financial transactions have almost stopped at retail. This is causing a large chain of reactions for businesses that depend on digital payments. Loans have already been suspended for SMEs and consumers after the lockdown, as regulation still needs a human touch in most cases. After the RBI announced the moratorium, all lending virtually ceased. Several related regulations will have short and long term impacts. The moratorium will have a significant effect on the company over the coming months. Most banks and NBFCs have already stopped lending, which will further slow the recovery. But digital lending will thrive because lending is an “essential service” in the context of economic recovery.

Short term impact
In the short term, the RBI moratorium means very few new loans and only to low risk segments. SME loans are already showing higher defaults. If people lose their jobs, higher default segments that depend on funding, EMI purchases will be negatively affected.

Medium and long term impact
In the long run, all past business resumes should be driven by credit. The government is already pushing banks to lend. Demonetization has driven digital payments; COVID is likely to push digital lending, forcing regulators to remove barriers. Beyond loans, banks and financial institutions that have been slow to go digital over the years will now have to rely on fintech to go digital.

Sectoral and economic impact
Assuming the worst of COVID-19 doesn’t affect us, then we can worry about the economic recovery. For this, as a first step, the confinement must be lifted. Most of us expect that there will still be some form of partial locking beyond that. After that, it will take weeks, if not months, for the supply chain to restart. The government will be printing a lot of money during this time. Some consumer behaviors will change – industries like travel, tourism and hospitality, event management and even transportation will take a long time to recover. Real estate, which was in overcapacity even before COVID-19, will slow further. Other industries like telecommunications, online education and telemedicine will do well.

There will be a substantial impact since the whole economy is at a standstill. When life begins after the lockdown, even partially, we will slowly start to see transactions come to life. What is not clear is whether people’s behavior will change. For example, there could be a stronger push towards “contactless payment”, including “Tap & Pay” credit cards and payments based on QR codes that do not involve cash or tickets. bank. With the economic impact and job losses, discretionary spending will be much lower.

Impact on loans to SMEs and fintech startups

SMEs are the most critical, as without a working capital loan India’s business will come to a halt once the foreclosure is lifted. With the moratorium and the RBI foreclosure, loans to SMEs are currently frozen. Consumer loans do occur, but only in the high end segment, which traditionally does not have as high a demand as middle and low incomes where the need is now even more acute.

From a startups perspective, the biggest challenge with COVID-19 will be a slowdown in fundraising unless India manages to escape the worst impact and continues to have lower case counts. In such a scenario, it could attract a lot of investment.

Startups will need to identify emerging trends that will impact business, otherwise they will be left behind. On a positive note, now is a good time to focus on fundamentals at the cost of slow or no growth.

How fintech players are using unique means to face the crisis

Obviously, Fintech players are prioritizing their strategies with many changes in the rules and market conditions. Just as demonetization has given digital payments a boost, it is likely to digitize the lending chain. Most of the technologies like Aadhaar, eSign, eNACH are in place and have been working for some time. RBI just needs to remove some of the constraints and enable a fully digital loan workflow.

Outside of loans, digital payments will continue to grow as the economy rebounds. Insurance should see a big jump while wealth management will see a decline if economic growth slows and markets do not fully rebound.

How MoneyTap is handling this situation with solid plans for the future
Our motto has always been to “stay calm and in a hurry”. We continue to do so. Leading a startup is like sailing an ocean but building a boat as you go. Lucky for us we have been at sea for a few years and have built a solid product, have a huge client base, Rs. 1400 Cr loan book and most importantly have an amazing crew on deck. So if you’re in the sea and you see a storm approaching, which we did in late February, first pull down the masts and batten the hatches. In our case, we cut unnecessary expenses, downgrade interesting projects, focus on our best customers, and keep everyone safe.

The unusual challenge is that there are not one but two cyclones here – medical and economic. Most of the ecosystem underestimates the economic storm that won’t really hit until June or July. We have just finished our preparation for this and we are very confident that we can overcome it. Like all storms, it too will pass, not without significantly affecting the economy. Now we are trying to chart a course beyond that.

The path to follow
We live in the macroeconomic narrative with changes happening every day. Surprisingly, we are seeing the first signs of a good adaptation of fintech startups to this crisis. Just as demonetization has given a massive boost to digital payments, as we move into the COVID-19 world of lockdowns in some cities or regions, digital lending has become a priority. Fintech startups have championed them and the government should strongly encourage KYC, e-Nach, e-Sign, etc. based in Aadhaar. We also expect the government to inject much more liquidity through regulated banks and NBFCs so that consumers and SMEs can jumpstart the economy.

Bala Parthasarathy, co-founder and CEO of MoneyTap, is a guest author. The opinions expressed are personal.