The past few months have been an interesting experiment, both professionally and personally. COVID-19 hit nearly every part of the world unexpectedly, provoking an unprecedented response. Blame has been laid at the feet of countries, parties, and politicians alike. The measures enacted, and the sobering recognition of our stark lack of preparedness, as a world community, have been sufficiently transformative to ensure that we will never return to the “normal” we knew before.
Our current condition is the direct result of taking the easy path by a large number of people over a long period of time. Even now, we are bombarded on all sides by a deep dive into who made the mistakes and endless “what if” scenarios. Our collective effort – my personal effort – is better spent working to be a “part of the solution”.
I am fortunate to have a unique perspective and insight into the financial effects of the existing crisis due to the company that I run, which provides loan servicing software to many of the lenders across the US & Canada. This provides me visabilty into trends of the market related to these loans from several of my customers.
I am writing to share the information I have, in the hope that companies and individuals can use it to make the course corrections in the present that will prepare them for the future. It’s amazing to see how advances in technology have already led to finding solutions to our new problems. I believe further advances will help us guard against similar situations in the future. Here are the current trends that we’ve seen in the FinTech space, and my thoughts on the future of those trends.
Offices will forever be different. Many companies have already announced that they will continue to have employees work from home for the rest of 2020, and perhaps never return to the office. If and when employees do return, meetings will be virtual, employees may have their temperatures taken as a prerequisite to entry, company-provided food will be prepackaged, and some employees will remain remote.
Because so many companies are having their first-time experience with a remote team, the necessity of an office environment is also under evaluation. Office rental and maintenance, and perks ranging from in-office snacks, lavish boardrooms, and fun spaces that may include ping pong and foosball, seem to take a back seat to a work-from-home experience for a large percentage of employees. And office expenses are significant for most companies.
Work from home policies are here to stay. Forbes recently reported that a significant number of employees would take a pay cut if it meant they could work from home full time. We have heard from many companies that employee productivity has increased after the transition to work from home. Within my own company, I’ve seen the productivity of some departments increase, while it decreased in others.
A from-home workforce requires more from managers and isn’t the best permanent solution for some employees. That said, companies will, and should, evaluate the cost and employee benefits of having a workforce that works from home more often.
Distributed-technology models will be adopted across all industries. Most companies rely on software for a large number of tasks across all departments. In the current climate, companies that depend on systems located on their premises have had a difficult time offering remote work options to their employees. As a provider of a cloud-based software application, it has been gratifying to see the relative ease our customers have experienced adopting work from home policies.
Recently, several CEOs have stated that they are looking at FinTech differently, with some announcing that “they consider themselves a FinTech company now.” In the short term, that will mean these companies offer upgraded online services. In the long run, it means that companies will overhaul their own technology so it functions as a distributed cloud application or service. While this will be a large task for some, it will strengthen disaster recovery plans, and the alternative has become too risky and expensive.
We see this as the biggest opportunity for LoanPro.io as more lenders need a new core system we will provide them the infrastructure to run their lending business on.
The lending industry will change in the short term and the long term. With unemployment numbers breaking decades-old records, the US government has taken the lead in trying to fix a financial crisis before it happens. The measures taken are changing the cost of borrowing money, which has already made its mark on the lending landscape.
As unemployment started to ramp up, the Payroll Protection Program was quickly enacted. This program earmarked hundreds of billions of dollars in loans to help businesses cover payroll. The intent was to stop businesses from hemorrhaging employees. The SBA is charged to administer these loans, but has turned to the banking system to attest (I’d say underwrite, but it’s a far stretch compared to normal underwriting), servicing, & hold these loans on their balance sheet. Although the Treasury Department has issued liquidity options for the banks to borrow up to the face value of the PPP loans, essentially eliminating the liquidity crunch of these SBA lenders.
In an average year, the SBA issues $30 billion in loans. Through the PPP, the SBA attempted to deploy hundreds of billions in less than 90 days. This overwhelmed E-Tran, the SBA’s loan submission system.
Broken out by lending product segmentation
We provide the infrastructure for loan servicing and management. This gives my company a unique opportunity to see the trends in how loans are performing, being created, and so forth. Some general trends are:
- Point of Sale lending is seeing Black Friday volumes since mid-March nearly every day. With stores closed and liquidity of consumers tight they are turning to purchase on credit via online retailers. The application and loan create rates are very high right now.
- Online lending for underbanked customers has dramatically slowed on new loans being issued. Many of these underbanked customers have more liquidity now than they had prior with increased $600 per week of unemployment plus state benefit, the stimulus of $1200 for adults, plus kids amount, this means that these customers are not turning to online loans at the same rate they were prior to this “bump” of liquidity. However, the real test will be when those benefits expire.
- Forbearance and other payment assistance programs are in high demand. Tens of thousands of loans in our system have been enrolled in some type of payment assistance program. Partially due to payment programs, but also due to other consumer behaviors the loan delinquencies are not terrible. Many of the sample companies that we’ve tracked have only a minor increase in delinquency. Time will also tell depending on what shape of a recovery we have (V, W, L, Square Root, etc.).
- Asset-backed lending has flattened in some geographical areas and increased in other areas. We are seeing new loans on automobile, UTV/ATV, home furniture, and other consumer products highly dependent upon the geography of the company and consumer. This is highly correlated with the lockdown and its enforcement in those areas.
- Business to Business loans have nearly ground to a halt. Several large B2B lenders issuances of new loans have decreased by 90% in the past six weeks. This is due to the tightening of lending parameters, as well as the general uncertainty of the business climate. PPP introduced a fair amount of uncertainty as well. Several B2B lenders that I’ve spoken to expect new loan issuance to increase starting in June.
This is only a sample of what we are seeing in what is happening in the landscape. I hope that each of us will be “Part of the Solution” to get our country healthy both in our actual health (physical & mental), as well as our economic health. My team has done a terrific job implementing policies and helping people. We do not need to wait for someone else, or the government to solve these problems. We can solve them. You can solve them. I can solve them. Each of us can stand up and provide whatever it is you are best at.
Here’s to a better world we create together. Be “Part of the Solution”.
CEO – LoanPro.io