This blog is drawn from a discussion between our MD Roy Warren, Ian Nelson, MD Q2 EMEA, and Pankaj Soni, Executive Director at MBD Credit Goldman Sachs at the AltFi Festival of Finance 2021 in June.
Lenders have been critical to the survival of almost every kind of business over the last 18 months. Unprecedented government support and private forbearance have likely made the difference between a wave of potential insolvencies and – the reality – a great many businesses that were able to survive, and even pivot to deliver their products and services in a different way.
And lending will continue to be critical for the recovery. As government support winds down, forbearance periods end, and repayment becomes a requirement across the board, fast access to reasonable credit will make the difference. But this borrowing will be different. A good portion of it will come from alternative lenders, and many of those lenders will be using complex technology stacks to assess borrowers, and disburse cash.
Bringing the client closer
“Over the past year or so, our lending clients have been looking at ways of bringing their clients closer to them,” says Ian Nelson of Q2. “That’s for a couple of reasons. First, they need to be able to do everything online – portals, documentation, e-signatures and so on. Second, they want to be able to monitor their clients in real-time. This is a volatile market and they want to be flexible. It’s not possible to do that with legacy tech.”
For Roy Warren at marketplace lender Folk2Folk, “initially, at the start of the pandemic, there was a lot of uncertainty and doubt, but we determined that we had to make our customers feel like nothing had changed. Customer confidence was key.” Technology is helping Folk2Folk meet their goals. “We were already introducing a new system, but we have accelerated this.”
Real-time data for considered decisions
At MBD Credit Goldman Sachs, Pankaj Soni described how they experimented early on with know-your-customer (KYC) technology. “We looked at our processes and identified areas where there were hard-line decisions that could be applied automatically in the tech stack, to speed things up.” And they used real-time data to determine their strategy too, using APIs that fed data into their modelling.
Lenders are cautiously optimistic
As for the future, there is some optimism. “It’s cautious, though,” warns Roy. “We expected more forbearance requests at the beginning than we actually got. There’s probably going to be a cliff-edge where the government support disappears and people have to start paying that money back.” But the important thing for us is that we continue to scrutinise the benchmarks of serviceability and the security that sits behind the business plan.” Such scrutiny is greatly aided by a tech stack that integrates best-in-class APIs from the financial ecosystem.
A unique opportunity
Whether or not the market will see the recovery lenders want is unknown. But some things are obvious. “Fintechs and neobanks are achieving a great deal,” says Soni.
“As lenders, we will all have to keep reviewing our portfolios and be as sympathetic as we can,” says Roy. But Q2’s Nelson says that a tricky market is where open architecture technology systems come into their own. “There’s a unique opportunity for lenders to provide even more support to their customers now. With technology, you can manage the risks and make the green shoots of recovery grow faster.”
Watch the full on-demand video of the discussion here.
This is an abridged version of a blog authored by Q2 and published on the Q2 website – it is reproduced here with their kind permission.