MonJa's Digital Banking and Lending Monthly Roundup | December 2020

MonJa’s Digital Banking and Lending Monthly Roundup| December 2020

In Commercial Lending, Industry News, Small Business Loan Underwriting, Underwriting Automation by Yulia GnatyukLeave a Comment

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Digital banking and lending is evolving rapidly. Recent fintech-banking partnerships and innovation in technology with the introduction of AI, ML and blockchain herald a new era in lending. Fintech’s are changing the competitive ecosystem,  empowering lenders to process loans faster and smarter.  In a world full of noise, understanding how the technologies and developments may impact your financial institution’s credit decisions and credit portfolio is of critical importance. With MonJa’s Digital Banking and Lending Monthly Roundup, it’s easy to stay up to date on what’s happening in the space. Get the latest updates, analysis and commentary on digital banking and lending segment!


MonJa's Digital Banking and Lending Monthly Roundup | December 2020

Quite contrary to the common belief that all startups must be in a dreadful situation owing to a raging pandemic, FinTech startups are raising more funds than ever at very high valuations. In 2020, neobanks such as Chime, Varo, MoneyLion, and others gained not only millions of new users but also massive amounts of funding. The big question now is whether they will continue to thrive. FinTech startups gained traction over traditional banks through their focus on AI and the automation of financial services. The Federal government relied on FinTech companies to join the banks in helping to distribute CARES Act PPP funds to businesses in need. Google recently hinted about its plans to become a bigger financial service player when several weeks ago it announced major advancements in functionality for its Google Pay digital wallet. But with a new administration that is more open to adding regulatory constraints, it is clear that the legal landscape will change for FinTech startups. And how will this impact their liability exposure, operations, and even appeal in the eyes of investors, is yet to be seen. 

According to the latest research by PYMNTS, Millennials have unique spending priorities, especially related to online shopping, and these priorities standout post-pandemic as most of the commerce has shifted online. Millennials have been the largest users of BNPL (buy now pay later) services, and the age group of 32 to 41 leads the early adoption of BNPL services. This because they tend to have more purchasing power than their younger counterparts. This group has also recorded a 28% spike in BNPL usage since March 2020, which is more than any other generation since the beginning of the pandemic. Convenience and trust are two important factors driving BNPL adoption among Millennials. It also indicates why consumers are more eager to use BNPL services that integrate with their digital wallets. The PYMNTS research shows a quarter of consumers who have never used BNPL would be interested in using it if the service is integrated with their digital wallets.

The end of October found the lowest balances on credit cards in two years for credit unions, according to Fed data. The latest Fed’s G-19 Consumer Credit Report shows lenders of all types held $942.8 billion in credit card debt on Oct. 31, down 10.3% from a year earlier, and the lowest balances since May 2017. As of Oct. 31, credit unions hold over $61 billion in credit card debt, down 5.6% from October 2019, according to the most recent CUNA report. In October, banks kept $844.1 billion in credit card debt, down 10.5% from a year ago. The silver lining is that the share of credit unions has increased over the past year in the shrinking pool. In October, it was 6.5%, compared to 6.2% in October 2019. The share of banks in October was 89.5%, compared with 89.7% in October 2019. Credit unions held $512.5 billion in first mortgages on Oct. 31, up 10.4% from a year ago, the Mortgage Bankers Association report showed. First mortgages rose 8.9% in the previous 12 months, from October 2018 to October 2019.

Fidelity Digital Assets will enable its institutional clients to pledge Bitcoin as a guarantee against cash loans in a partnership with the blockchain start-up BlockFi. Fidelity aims to target Bitcoin investors who want to turn their digital stash into no-sale cash, and potential customers include hedge funds, crypto miners, and alike. The announcement is made at an appropriate time when the world’s most valuable digital asset increased by164% this year. Fidelity began a Bitcoin custody service last year, but this is the first time it’s allowing the coins to be used as collateral. To receive a loan, a Fidelity client must have a BlockFi account. BlockFi will risk-manage the volatility of Bitcoin by offering a cash value of 60% of a loan supported by digital assets. 

In 2020, consumers, businesses, and financial institutions learned to adapt to new behaviors, mandates, and protocols, especially when dealing with Fintech. Some things, on the other hand, will remain the same post-pandemic. Firstly, contactless shopping and payments will continue to grow as global e-commerce, and contactless stores experience considerable growth. Contactless shopping options would be offered by everyone, from the largest retailers to local small businesses. Secondly, Fintech engagement will also continue to grow as consumers are already accustomed to using digital engagement methods. To sustain growth, firms will need to continue investing in digital engagement platforms. 

Country’s 5,244 credit unions earned $3.6 billion in the three months ended Sept. 30, down 7% as interest income shrinks losses among 1,006 small credit unions, compared to 602 in the third quarter of 2019, according to the latest NCUA quarterly data. The growing number of undercapitalized credit unions is distressing. As of Sept. 30, there were 48 credit unions, up from 32 a year earlier and 43 in June. In total, the 48 had assets of $5.4 million and 771,037 members on Sept. 30. 

Today, tech giants are coming up with their financial services, and banks are forced to compete for customers. Many banks have partnerships with FinTech firms to meet evolving demand. WalletFi has partnered with BankFirst Financial Services in Mississippi to give its customers greater visibility of their recurring payments. Communicating with clients with recurring fees and reducing the burden of missed payments increased the bank’s interchange revenue by $1.7 million in 2019. Progress Bank introduced the Fintech Sensibill digital receipt management solution to improve efficiency. The $1.4 billion asset bank will utilize Sensibill’s technology via the FIS Digital One platform. Meanwhile, the Bank of Utah could launch a new digital account opening platform using the bank account opening software from MANTL. The partnership makes it possible for customers to open a bank account online from their mobile phones in about three minutes.

Social Finance (SoFi), the giant online lending startup, has held talks with blank-check acquisition companies about a deal that would allow it to make its debut in the stock market. The discussions show that going public is in the sights of Anthony Noto, CEO of SoFi. Noto, a former investment banker for the Goldman Sachs Group and former chief operating officer of Twitter, succeeded SoFi co-founder Mike Cagney. The San Francisco-based company, which was valued at $4.8 billion in a private fundraising round last year, held talks with many so-called special purpose acquisition companies (SPACs), the sources said, cautioning that there was no guarantee that an agreement would be reached. 

During the third quarter, Paycheck Security Program loans made up a significant part of the loan portfolios of four of the top credit union lenders in this market. According to a new analysis by S&P Global Market Intelligence, these loans contributed to at least 15% of the portfolio at Self-Help Federal Credit Union in Durham, N.C., Notre Dame Federal Credit Union in Indiana, Vibrant Credit Union in Moline, and Greater Nevada Credit Union in Carson City. The highest proportion of loans at the $862 million-asset Notre Dame was PPP credits at 24.1%, followed, according to the report, by the $918 million-asset Vibrant at 20.2%. According to the study, Mountain America Federal Credit Union in Sandy, Utah, had the highest amount of PPP loans at $349.2 million.

Fintech platforms have been impacted by the coronavirus, but many are growing as part of the overall digital transformation of financial services. The CCAF (The Cambridge Centre for Alternative Finance) survey held three specific goals: First, the research looked at the impact of the global pandemic on Fintech markets. Second, they studied the responses of these organizations in shifting their products and operations throughout the pandemic. Finally, to identify issues, Fintechs are facing on a regulatory front. Many fintech companies have introduced new products or services that have been adjusted as a result of the pandemic, modifying product supply as demand grows or changes. CCAF said that retail facing Fintechs, in particular Digital Payments, Lending, and Banking were among the most agile verticals to implement changes to their offerings. Regarding capital formation, CCAF reported that approximately 40% of “Digital Capital Raising Platforms” indicated that they had been hosting COVID-specific offerings. One area that may be viewed in a disappointing light is that government entities have been slow to leverage the agility of Fintechs to deliver services during COVID.

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