The current coronavirus crisis is having unprecedented impact on the world and the financing industry, in particular.
On the one hand, we have lenders like Rocket Mortgage (RKT) that are making money fast with their stocks growing. On the other hand, not all lenders are faring quite that well.
There’s no denying the fact that online business loan companies now hold the power to influence the global economy and possibly halt the outright collapse of small businesses. Whether they have the resources to do this is a much more important question.
This crisis has already caused an unprecedented growth in fintech use. Yet many lenders couldn’t cope with the pressure and many others will fail as more debtors default on their payment. Will the industry itself survive once the bubble bursts?
The COVID-19 Crisis Impact on Online Loans and Mortgages
The impact of the coronavirus crisis on the entire financing industry is very close to catastrophic. One matter of concern is the governments, which encourage (or enforce) lenders to offer payment suspensions of mortgages and other loans. However, relief to lenders themselves does not cover all their losses.
There is also a matter of lockdowns to consider. All financing institutions operating through brick-and-mortar stores were affected by lockdowns and other restrictions as deeply as everyone else. They also had to reallocate their resources and offer relief to employees. They also had to restructure their entire business model in order to keep offering services. The loss of customers was unavoidable at that point.
This is where online lenders were at a definite advantage. As they didn’t have to change their operating procedures. In fact, they quite enjoyed the influx of clients that seek digital services as an alternative to traditional banking.
Has Online Lending Prevailed?
Admittedly, banks pushed this particular trend forward by cutting loan originations. It’s now quite difficult for anyone who isn’t a big corporate client to get approved for a bank loan. Online lenders are offering a solution to those who struggle without resources. So, seemingly, they are in a great position now, right?
For all that some online loan and mortgage providers are making money right now, their future is highly uncertain. Quite a few of these companies are struggling or have already failed. It’s because online lending is extremely high-risk as these companies mostly financed those with lower credit score and no collateral.
The result is that when the crisis struck, people defaulted on their debt payments in great numbers. With no money coming in from regular payments many online financing platforms simply had no resources to support themselves.
And speaking of those that are doing well. They might as well face the same fate in the near future. The problem is that while there are millions of aspiring borrowers, the unemployment rate is extremely high. Also, small businesses are closing at an alarming rate.
All things considered, all those people who took out loans now have little chance to keep up with their payments. And for all that the number of mortgages and house sales is up, so is the number of foreclosures. It’s impossible to say which will win out.
How Will the Situation Change Now That a Vaccine Is Here?
Online lenders are at risk due to social and economic uncertainties. However, they are also in a position to succeed like never before. The difference might lay in how soon the crisis ends and the economy starts to recover.
Already there are coronavirus vaccines, although their rollout to the public hasn’t been smooth. However, it is possible that the launch of effective vaccines signifies the end of the pandemic.
Yet there is still talk about further restrictions and even more lockdowns. Uncertainty is abound in everything and so online lenders cannot rest and enjoy their growth. Their only solution seems to be looking for the same securities and relief from the federal government that traditional banks enjoy. But with the fintech industry so poorly-regulated it’s not guaranteed that they will get access to those.
A complete redesign of the financing industry at a legal level what lenders desperately need now. That and resources to keep functioning and offering loans.
However, above all we have to remember that should the economy collapse completely, online lenders and mortgage providers will go down with it.
Is This the Best Opportunity for Online Lenders or the Beginning of the End?
It’s true that increased interest and accessibility make the current situation a good opportunity for online lenders. However, it’s also true that the US is in a depression now. Therefore, no business and no investor can be completely sure of their success.
Online lending is currently breaching the huge gap left by banks that do not provide loans to small businesses and often individuals as well. Due to this, fintech loan providers are invaluable. One could actually argue that they can help prevent the seemingly inevitable economic collapse.
The question is whether they will have enough money to do so. Experts urge that now is the time to increase small business lending. online platforms can facilitate the delivery of micro-loans to where they are most needed. Government backing can make all the difference now.
The potential is there, but too many factors affect the outcome. Therefore, we can only wait and see whether fintech will be able to use its chance at exponential growth in 2021.