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The Rising Tide of Lending – A Market Recovery Mechanism

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Due to the impact of COVID-19, the financing sector has seen significant growth, and as a result strengthened its position as one of the key pillars of the FinTech industry. The digitalization of the lending process – from client acquisition, to underwriting, and all the way to collection – is key in engaging clients these days. Furthermore, markets understand the power of using financing tools in recovering local businesses and trade, providing financing to entities who suffered from the crisis can have a wide impact which in time fuel GDP skywards.

The pandemic has led to a global debt the size of $258 trillion. Small and medium enterprises (SMEs) play a major role in emerging economies, representing around 90% of businesses. 40% of the national income (GDP) in developed economies is formed by formal SMEs. In current booming economies, less than 15% of SMEs have access to the credit required for their operations. Research by the International Finance Corporation reveals that the unmet financial needs of SMEs, reach a total of  $5.2 trillion every year, and only 27% of small business loan applications are approved. 

 A major drawback of traditional lending for small businesses is the business potential it holds. Less than 20% of loans have been approved this July compared more than 50% in February. The main reason for such a reduction is the risk factor of financing SMEs – which tend to have a higher risk by default due to having less information available. While the underwriting process is similar, lenders would rather focus on large corporations which could potentially generate higher income and are more likely to have enough assets to be used as collateral. The secret to obtaining mass growth in the SMEs space lies in the reduction of onboarding costs and utilizing alternative credit scoring to increase approval rates.

Multinationals and financial institutions are not lagging behind, and taking significant position in the growing lending space. A solid indication of such can be highlighted by the possible acquisition of Kabbage. Kabbage is a leading U.S. FinTech which specializes in SMEs suffering from the lack of financial aid.  Kabbage has extended more than $16 Billion in loans to SMEs, and is currently in the process to be fully acquired by American Express later this year.

Another strong indicator to the growing momentum of FinTech lending is the rise of new FinTech startups using their own proprietary digital banking and lending technologies to provide relief to small businesses during COVID-19.

One of these emerging lenders is New York based Salaryo who according to its CEO Yair Levy, processed over $60 Million in SME loan applications since the beginning of the pandemic. Salaryo’s platform features a fully digital loan application experience including KYC (Know Your Client), financial underwriting, payment method validation and contract signature.

The entire application process can be completed in less than 3 minutes, and funding for approved applications is provided within 1 business day. This is a great a example of how FinTech startups can reduce the gap known as the “Last Mile”, by getting the funds into the hands of customers in the shortest time possible, once they are approved.

In conclusion, financing allows people to purchase goods, propel more business opportunities, and overall aids the financial recovery of the market as more financing sources emerge. Innovative FinTech solutions allow SMEs to reach their financial needs and unlock the blocked potential that the pandemic has brought. Artificial intelligence, alternative credit risk sources, and data aggregation allow lenders to tap in to never before opportunities.

With the help from the FinTech sector, and more than 250 lending platforms worldwide, it is possible to ease the crisis and soften the financial challenges that this catastrophe has brought to the table. 

On  9th  of September FinTech-Aviv, the Israeli FinTech Association, will host a Lending event focusing on the challenges and opportunities in the lending space. During the event financial institutions and innovative tech companies will share their insights on the enormous potential the lending space has to offer. Register here

Author: Tal Sharon

#Fintech #Lending #SME #Salaryo #Kabbage #Fintech-Aviv