Coronavirus threatens fintech lenders

We are only just coming out of the last recession, and now we are hurtling into another one at breakneck speed. Countries are going into lockdown one after another, with those that can continue to function with employees working from home, having a distinct advantage over those sectors, such as tourism and hospitality that have been brought to their knees in some places already.

We all know that finance is going to be hugely affected yet again, and with so many people losing employment and therefore their salary, loans are going to be in the spotlight once again. Jeff Kauflin suggests that fintech lenders in the USA may be facing the biggest risks right now, starting with the basic reason — people won’t be able to repay their loans.

Upstart is a fintech-based lender that lends consumers up to $50,000 for purposes ranging from credit card debt consolidation to putting in a new kitchen. However, as the bond-rating agency Kroll reports, “It makes most of its loans to people with below-average credit scores.” Upstart argues that by using alternative data and machine learning to assess risk, it can identify creditworthy borrowers with lower traditional credit scores. It is true that the company has not reported significant defaults over the last year and is in profit, but what will happen to it during a sharp and sudden economic decline?

William Ryan, a managing director at investment bank Compass Point points to the fact that in a crisis, people place repaying personal loans very low on their list of priorities. He says, “People pay their cell phone bills, mortgages, auto loans and credit card bills before personal loans.”

And if the fintechs are not facing defaults, they face is a rapid rise in the cost to fund their loans. Most of them don’t hold banking charters and this means they can’t do what banks do — use customers’ checking accounts to fund loans cheaply. Typically, fintechs borrow from banks to fund their loans and this approach prevents them from holding loans on their own balance sheet, thus reducing their risk.

Another issue the fintechs face is the fact that interest rates for low-grade corporate debt have surged in recent weeks. Together, these factors are already making fintechs lower their growth expectations. Dan Rosen, a founder of fintech-focused venture capital firm Commerce Ventures said: “I was with a bunch of entrepreneurs last week. Most of them had already been having board calls and dramatically changing their plans for originating [new loans].”

The outcome for fintechs depends on the length of a lockdown. Chris Brendler, a senior director of research at CB Insights says that most will be able to survive a one to two-month lockdown, but that if it goes on for three to four months there will be a significant rise in unemployment, as well as

A List Of Fintech Firms Providing Free Technology During The Coronavirus Crisis

Coronavirus, or Covid-19, is preoccupying everyone at the moment, and in different ways. Businesses in almost every sector face a rough ride ahead, as they close offices in response to protecting employees health and responding to government instructions to stay at home and avoid contact with others.

Meanwhile, most of us still need money. We have to pay for food and online products, and for that we depend on bank services. And at this critical time, the more traditional banks have been receiving support from the fintechs, so that they can continue to support their customers.

According to Ron Shevlin writing for Forbes, the fintechs are “extending free, discounted, or accelerated deployment offers to financial institutions.”

So let’s see what some of them are doing.

Active.AI has a pre-built virtual assistant that can be quickly customized with answers specific to the institution. It is offering a 30-day free trial.

Agolo is providing customers with AI-generated summary feeds focusing on the impact of coronavirus on various sectors such asFinance, Energy, Media & Entertainment, Health Care, Info Technology, etc. It is offering these feeds for free on the web and via social media.

Agora Teen is an interesting fintech that specialises in offering white-label solutions for teenager bank accounts pre-opened by parents. It is offering free access to its products.

BillGO helps track, manage, and pay bills in one place and it is offering its Prism app free to help everyone stay on top of their money.

Brace is a borrower platform and it is helping borrowers to seamlessly apply for mortgage assistance in the event that the hardship is caused by COVID-19.

Digital Onboarding is a fintech offering its clients unlimited usage at no extra cost to help educate their customers/members on how to access money and utilise digital services without visiting a branch.

Similarly, Horizn works with financial institutions globally making sure both customers and employees understand and know how to bank digitally. It is providing a discounted short-term licence package of our cloud-based Customer Digital Platform and Digital Demos, and like other fintechs, it is accelerating deployment to get banks up and running within two weeks.

There are many other fintechs who are rallying around the financial sector and helping those institutions that need to react quickly to support customers. It’s a welcome move from fintechs and it can only help to boost confidence in digital banking once we come out the other side of this crisis.

Is ‘The Simpsons’ ahead of the Bitcoin curve?

One of my colleagues recently shared an anecdote with me about ‘The Simpsons’. She told me that during a chat about politics, her son told her, “Well, it was on ‘The Simpsons’ and then it came true.” And then he asked her, “How do they do that?”

Indeed, how is it that the long-running animated series appears to be a more reliable source of future predictions than Nostradamus, or even the MSM? So, I was very interested when one of the writers I follow, Billy Bambrough, published an article at Forbes about the The Simpsons’ predictions for Bitcoin

It’s true that cryptocurrencies, and in particular Bitcoin, have been mentioned in a number of shows, perhaps most relevantly in ‘Silicon Valley’, as well as in The Big Bang Theory, but who might have expected that Luno, a major bitcoin and cryptocurrency exchange, would turner to the Simpson family’s past prediction to figure out when Bitcoin might go mainstream.

Bambrough refers us to an episode that aired on 23rd February, which I must admit I didn’t see. It featured Jim Parsons, who plays Sheldon Cooper in ‘The Big Bang Theory’, and in it, Bitcoin is described as ‘the cash of the future” and that this future is coming closer “each day.”

As Bambrough points out: “Over the show’s 30-year run The Simpsons have correctly predicted Donald Trump becoming U.S. president, the NSA spying scandal, Apple’s FaceTime, smartwatches, and the Disney takeover of Fox.”

Now, here is the interesting bit. The analysts at Luno have calculated that it takes an average of 15.6 years for a ‘Simpsons’ prediction to become reality. That means we’ll see mass adoption by 2036. Marcus Swanepoel, Luno’s chief executive, said, “It seems the creators behind The Simpsons have a knack for picking up on things that seem out-of-this-world, and a way of portraying the impossible as part of day-to-day life,” adding, “I wouldn’t be surprised if they’ve overshot their prediction slightly in this case.”

Indeed, the very fact that ‘The Simpsons’ are talking about crypto and Bitcoin on-screen may give adoption a very helpful nudge, because there is no doubt that public perception and awareness is one of the most important factors in digital assets going mainstream.

Perhaps we should all be keeping a closer eye on ‘The Simpsons’ — it’s obviously about so much more than eating doughnuts!

Why has Australia fallen in love with neobanking?

Neobanks, or digital banks, arrived in Australia in 2018, dues to a change in legislation, and since then there has been a flurry of activity. Some might even call it a tsunami of neobanks, and this has led to a high level of competition in the country’s banking sector, something that hasn’t occurred for decades.

The neobanks are app-based banks accessed mostly from a smartphone. They don’t have physical branches and they promise clients a ‘touch of the button’ 24/7 service, and most of them have much lower charges than the traditional banks.

Neobanks have been growing in popularity outside Australia for some time, with Europe being a leader, especially the UK. As Jack Derwin points out, the fact that they are doing so well in the UK, and a number of them are registered there, such as Starling, Revolut and Monzo, is a good sign for Australia.

The digital banks are a more recent addition to the Australian banking scene, because until legislation changed in 2017/18, it was extremely difficult to start a neobank. Whilst the previous legislation was intended to protect the consumer, it was perhaps too restrictive, and anti-competition.

In 2017, Scott Morrison, who then headed the Treasury, dramatically simplified the application process to enter the banking sector. As a result, within months neobanks were lining up to enter the market.

Still, entering the banking sector is never easy. Neobanks need a banking licence, a core banking system and a substantial fund of money: one neobank founder told Business Insider Australia that $100 million was the figure needed to start up.

It takes time to raise that kind of money, and to get a banking licence, which can take up to 12 months, as the newcomer must convince the financial regulator to trust the product.

So, what is the advantage to using a neobank? Unlike traditional banks, they are more cost efficient. They don’t have a network of offices and the fact they have lower overheads, means they can pass the cost saving onto the client. Also neobanks have access to the best tech and can therefore optimise their product. It only takes minutes to set up an account, compared with all the paperwork needed for a bank. So, the consumer appeal is there, combined with free accounts and lower charges.

As Derwin says, “From recognising higher than usual bills, notifying you of unused subscriptions, and even helping you switch to a cheaper energy provider, neobanks say they can do banking better.”

That might not be hard to achieve in Australia, where the traditional banks have admitted to extorting fees for non-existent services, to the point they were even charging dead people. They also admitted to lying to the regulators, holding forged documents, failed to verify customers’ expenses when approving loans, and sold insurance to people who couldn’t afford it. And as Derwin says, with four banks controlling 80% of Australia’s business, there was no incentive for them to do better.

All this adds up to a reason for Australians to love neobanking. They now have around five to choose from, including Volt and Xinja, and the UK’s Revolut is testing the market. This is definitely a geographical space to watch for anyone interested in neobanks.