Fintech lenders: Institutional investors must step forward

By Alison Harwood on Monday 27 April 2020

OpinionAlternative Lending

Fintech lenders can and must be allowed to contribute to overcoming the ensuing global economic crisis, writes Varengold’s Alison Harwood.

Fintech lenders: Institutional investors must step forward
Image source: Photo by Gustavo Fring from Pexels

COVID-19 has sent the world into a state of emergency and daily life into a new normal centred around staying home. Financial markets have been pushed into a steep nosedive and the world is bracing itself for the economic fallout the pandemic will leave. 

Fintech lenders can and must be allowed to contribute to overcoming the ensuing global economic crisis. They can be part of a meaningful legacy of this virus. To be empowered to do so, they need strong support not only of governments and regulators but also of their investor partners. 

Sitting working from my living room in week four of the UK’s lockdown (interrupted regularly by an energetic toddler), life has changed immeasurably in an incredibly short space of time. Agile working is the new norm and the pandemic has brought into sharp focus the importance technology plays in our daily lives. 

Stagnant economic growth now seems a best-case scenario in the short to mid-term, with fears of global recession very real. What is certain in these times of great economic uncertainty is that cash liquidity will be under a hard squeeze for many businesses and individuals as a result of measures taken to stymie the spread of infection. 

Lending businesses will play a crucial role in plugging this liquidity gap, whether under government-backed programmes or otherwise. The extent of their effectiveness in quickly meeting liquidity needs will be a determinative factor for economic recovery. 

This is a pivotal moment of opportunity for the fintech lending sector; a chance for their agility, bold innovation and customer-centricity to shine. 

Governments globally have announced unprecedented financial stimulus packages aimed at combatting the economic fallout of COVID-19. The fintech lending industry has reacted with the speed and dynamism for which they are so well known and are clamouring at the doors of the state banks running those stimulus schemes. 

Fintech lenders are eager to be allowed to demonstrate the full potential of their tech-driven models to quickly and efficiently deploy the already urgently needed financial stimulus. Will state banks favour the path of innovation and allow these financial innovators to be a material part of the solution or will it be a case of better-the-devil-you-know with the incumbents? 

This remains to be seen, but we would strongly advocate that the opportunity to bring fintechs into these programmes would not only accelerate the distribution of financial stimulus to its intended recipients but would also facilitate meaningful change in the digital transformation of financial services more broadly.   

We are encouraged to see Starling, OakNorth and Funding Circle receive accreditation under the UK’s CBILS programme. Our own close work with clients and government schemes shows promise for the announcement of more fintechs accessing programmes shortly.

It is inevitable, however, that government-backed financial stimulus programmes will not meet all financing needs arising from the pandemic. Fintechs are champions of accessibility and financial inclusion and can offer sustainable lending solutions to fill the gaps these programmes will leave behind. 

Their innovative product solutions could also ensure all participants in global supply chains are not locked out for want of financing. Tech-driven product offerings will ensure that liquidity can be deployed quickly, securely and with efficient risk pricing. Traditional lenders may not be able or willing to offer financing to meet this need. 

Technology and innovation are only one part of the puzzle, however. Cash is the other. If fintech lenders do not have capital available to deploy, their promise in this moment of opportunity will be lost. My clients do not intend to lose momentum in this time of lockdown and nor do I. 

In ensuring a bright future for the fintech lending sector, institutional investors must step forward and continue in their support of trusted partners. We must be as forward-thinking and agile as our fintech clients and work collaboratively to ensure liquidity is made available to them. 

Communication lines must be fluid and transparent and we must tackle challenges together. Risks must be calculated and allocated mindfully - our safety and stability must be ensured to allow us to continue supporting a broad range of clients. We must make decisions quickly, but those decisions must be based on solid rationale. 

This is not the time for institutional investors to shut up shop. It is instead a time to leverage the strength of trusted partnerships and play our part in shaping the economic and societal legacy of COVID-19. 

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