With the ongoing covid-19 crisis and the lock-down, a worldwide economic recession has become inevitable. Businesses across the globe have taken a hit, and survival during this crisis is now crucial. Business models will need to be revamped to meet the needs of the time, and businesses that succeed in doing so are the ones that will survive.
Fintech companies and startups, themselves hit with the crisis, will need to focus on the critical role they play in bringing in the required enabling innovation.
Surviving The Current Crisis
First, the current economic crisis is characterized by caution with physical contact, given its medical trigger. The move to digital and contactless forms of functioning is thus needed immediately to enable business continuity during the lock-down, and in the long-term to deal with the caution that is unlikely to subside soon even post the pandemic.
Second, a recession necessitates cutting costs wherever possible, and where going digital enables this (say a reduction in costs on account of a decrease in manual processes and handling paper, or a turn to WFH processes where possible thus reducing office rents) then this will be adopted.
Maintaining business continuity, increasing efficiency and cutting costs are thus vital areas where fintech needs to contribute.
Fintech And Digitising Internal Business Processes
From the perspective of a business, fintech’s natural role is with digitizing the financial and banking side of it. Steps to maintain the flow of business despite a lock-down include digitising managing the business itself, such as invoices and salaries. Another is facilitating the digital and remote on-boarding of clients, customers, vendors, etc.
Fintech services can facilitate these, such as via invoice automation and API based banking apps for payouts for the former, and digital KYC and identity and document verification solutions for the latter. Risk management tools will also help with tracking and containing cybersecurity and fraud risks with increasing digitisation.
Digitising Banking Services
A role of fintech outside of the internal processes of a business is with enabling access to banking services digitally and remotely, via digital banks, neobanks and branchless banking. For instance, Chinese ride-hailing company Didi’s issues with entering the Singaporean market illustrate the pandemic-induced acceleration of digitized banking.
Here, the turn to WFH delayed Didi’s opening of a corporate account in Singapore to remit funds across borders. To overcome traditional requirements, like face-to-face meetings and couriering of physical documents (say business registration papers), Citibank then enabled digital on-boarding.
The situation is similar in India. KYC processes for businesses, for instance, are not yet remote or digital (the recently introduced digital and video KYC are for individuals alone). Banks that are digital are thus at an advantage, while also encouraging digitization and fintech and banking partnerships to this end.
Facilitating Access To Loans
Apart from banking services like account opening or money transfers, fintech also plays a role in facilitating access to loans. The declining revenues have created liquidity and cash flow issues (reports suggest that 1/4th of MSMEs could shut shop on this account), for which loans will be turned to. While the recent RBI measures have introduced the scope to lend, issues exist with loan origination processes (which are not yet digital) as well as with the lending supply chain (eg.: business correspondents have faced difficulties with operating during the lockdown).
Fintech services can help resolve existing hassles for lending institutions, like enabling digital and remote on-boarding and digitizing the underwriting process. Here, it is also important to accelerate the implementation and adoption of facilities introduced via regulation, like account aggregators, video KYC and the Digi Locker.
Wet signatures are another issue which regulation needs to resolve. The Steering Committee report on Fintech, for instance, pointed to the insistence on wet signatures on physical loan agreements when filing a loan recovery suit in court. It thus recommended introducing amendments to enable digital alternatives to legal processes that have a bearing on financial services, such as for power-of-attorneys, wills, trust deeds, negotiable instruments, etc.
Fintech can also introduce new supply chains, such as helping financial institutions turn to digital platforms for lending, fintech firms focused on digital lending to specific segments (say gig workers or microfinance to those below the poverty line) as well as enabling lending on existing payment rails.
AI-Based Fintech Services And Enabling Unsecured Credit
The lack of digitisation with lending processes has also made secured lending difficult (eg.: a guarantor’s signature or physical documents of the property to create a charge). Data here can be leveraged to provide access to unsecured credit, for instance, via the creation of alternative credit scores.
Alternative data will be important in particular as persons get unemployed, displaced or default on payments as a result of the lock-down. Partnerships with fintech companies will also come in (eg.: Indifi partners with Zomato for data to provide credit to restaurants, or with Uber/Swiggy for the drivers/delivery personnel).
AI and data analytics can also come in to streamline the lending process, for instance, the increase in possible defaults in the pandemic require companies to be able to identify which payment collections to prioritize.
Enabling Consumer Purchases And Digital Assets
At a consumer level, the natural move was to digital and contactless payments, introducing a change in payment behaviour. While there is an overall decline in payments due to segments like travel, hospitality and discretionary purchases being hit, other categories have seen a rise, like e-commerce purchases (eg.: groceries), money transfers, bill payments and recharges.
A welcome move here is the NPCI’s fast-tracking of the on-boarding to UPI and UPI-QR processes for vendors and merchants (exact details are as yet unavailable), allowing a quicker transition into digital processes.
Another area is the crisis-induced demand for the digital purchase of real assets. The lock-down, for instance, led to an increase in the use of gold buying apps (eg.: Glint reported a 718% spike in use in the US and the UK). These apps allow the virtual sale and trade of gold, which is allotted virtually to the owner but physically stored in a secured vault of the company.
With the pandemic preventing gaining actual physical possession of the gold via traditional paths, the allotment of actual gold bullion by these apps enable a stronger sense of ownership over digitally purchased gold.
Fintech’s Role As New Industries Go Digital
Moving on from aiding businesses, the last illustration of the enabling role of fintech arises as to the shutdown of courts in the crisis leads to hearings via video conferencing (in India) and increased advocacy of digital courts and online arbitration to maintain continuity. Virtual courts will also require enabling seamless, remote and contactless handling of related payments digitally, such as of court fees, fines, penalties, etc.
Issues specific to litigation related payments, like handling e-challans, usage of stamps and managing the court’s accounts, along with other issues like identification and authentication of parties (eg.: consider personal presence requirements in litigation), proof of payment, etc., will need to be identified and resolved.
Seize The Innovation Opportunities
The pandemic’s effect on business will without question be far-reaching, destructive and disruptive. Innovation opportunities will also arise thereby. These must be seized to provide businesses with cost-effective and revenue-enhancing digital services, and thus aid their survival of the crisis.