As the COVID-19 crisis hits the economy, a taskforce of UK-based fintechs has come together to make over £500,000 available to MSMEs (micro, small, and medium enterprises) in urgent need of credit. This virtual lending operation, designed to inject emergency cash into vulnerable businesses, plans to leverage digitization and use multiple digital lending platforms and industry expertise to expedite access and approval for loans. While this may not be enough as a one-off initiative, it could provide a template for peer-to-peer lending and what needs to be done more widely, as we stare into the potential of a massive global recession.
Digital peer-to-peer (P2P) lending is not a new phenomenon. Peer-to-peer lending has been in widespread use, especially in China, for some time now. What seems to have changed now is the dramatic need for P2P lending and the scale at which it can be deployed. The need of the hour is to build platforms and environments that can support this. Such a comprehensive and automated digitized ecosystem should encompass the full range of services from online loan application to document capture, electronic signatures, credit analysis, interest pegging, loan finalization, and disbursal.
Most banks today offer some form of digital capability around the lending process, such as loan status, payments, and account information. However, the bulk of the lending process, including onboarding, underwriting, SME loans, and omni-channel selling, are yet to be digitized. Banks can avail a number of benefits with the digitization of the lending process, such as enhanced customer experiences, better decision-making, optimization of resources, delivery speed, and greater cost savings.
Of course, it is certainly a challenging and complicated project. And this is where technology and digitization can be intelligently deployed. Marshalling an array of technologies such as big data, AI, and alternative credit scoring algorithms, banks and lenders can use digitized data, across multiple databases, to inform credit decisions and build intelligent customer engagement strategies. This customer engagement will enable access to and processing of large volumes of structured and unstructured data, with active participation from borrowers. In the end, customer engagement of such a manner will help banks develop better products catering to underserved clients, and delivered in faster, more cost-efficient, and engaging ways.
The economic landscape today has changed from just a couple of months back. Speed, efficiency, and effectivity is critical as we try to support businesses, many of which are in urgent need of cash infusions. Recognizing the regulatory perils that may lie ahead, banks need to partner with incumbent governments to ensure that privacy and security is not compromised. The current experiments in the market are testament to the fact that this can be done. Companies like Zopa, Rate Setter, and Lending Works have led the way and built substantial credit sheets.
We are in the middle of a massive economic downturn and we need to use all available tools and platforms to help businesses as they navigate this health and financial crisis. Digital lending will bring speed and viability to the system and boost financial inclusion; especially helping small-scale borrowers otherwise unlikely to benefit from formal financial systems. It will also reduce the pressure on banks and bring a much-needed efficiency to the lending process.