When Moneyboat met Cambridge Business School

How taking part in a study into Fintechs and Covid-19 helped reinforce our ethos.

Deep into 2020, when the impact of the Covid-19 pandemic was clear for all to see, we were approached to participate in an amazing piece of research. The University of Cambridge’s Judge Business School was looking into how the global fintech market was responding to Covid. It was asking whether the industry was still as vital as it was before Covid struck and whether it has a role to play in helping us all recover from the economic trauma of the last 12 months.

The results show that the fintech industry has indeed adapted and evolved. It is solving new financial problems with new products and solutions. Here, we look a little closer at this study and at what we in the financial services industry can learn from each other in a post-Covid world.

New challenges needing new solutions

The pandemic has created a whole new set of financial problems for consumers and businesses to deal with. Millions of people across the globe saw their income fall almost overnight. Demand may have dried up or lockdowns took hold, with entire sectors closed for business for months on end.

People who were already performing an impossible balancing act to keep their personal finances in order found themselves struggling to make ends meet. Others already in debt may have found themselves unable to meet their repayment obligations with no clear endpoint in sight.

None of us could predict when the impact of the pandemic would end and when our lives and our finances would get back to normal. And it’s this lack of scope for planning that makes life so hard for consumers and for businesses alike.

The study

For the purposes of the Cambridge University study, Evergreen Finance London was classed as a digital lender, which is accurate in light of the fact that we offer consumer loans through our brand Moneyboat. We obviously witnessed the impact of the pandemic on the market and very quickly decided to dig our heels in and adapt in any way necessary to get through 2020.

We were also committed to helping our customers through the crisis. We’re proud that we have succeeded in filling the financial gaps that emerged for consumers. Whether this meant providing quick access to cash to cover emergency costs or helping to lighten the load for those who found they were struggling to repay.

The Cambridge University Business School surveyed more than 1,300 individual fintech firms, in June to August 2020. The geographical spread of those businesses covered more than 160 countries. This was a vast study. It is one of the largest to look at the impact of the Covid-19 pandemic on Fintech businesses, analysing them in terms of 13 Fintech ‘verticals’.

The study was intended to establish what impact the pandemic has had on the fintech market globally. It also aimed to find out how fintech businesses had adapted to challenges and how things like regulation and daily operational challenges had evolved in the face of the pandemic.

The results

The Cambridge University study’s results showed that fintech businesses overwhelmingly succeeded in adapting in order to survive the pandemic. Globally, fintechs grew by 13% and 11% in the first and second quarters of 2020, respectively. Almost all the verticals reported growth in transaction numbers, but this growth did vary. For example, the verticals described as Digital Asset Exchanges, Digital Payments, Digital Savings and WealthTech all enjoyed growth of over 20%, while others struggled a little more in the face of unprecedented adversity.

Looking specifically at the Digital Lending vertical, for example, the story was a little different. It was the only one of the 13 fintech verticals that reported a contraction in transaction volumes over the first half of 2020. Not only this, but digital lenders also experienced an increase in defaults and arrears. This led to an average downward revision of 2020 financial year turnover targets.

But Moneyboat bucked the trend…

In 2020, we were operating in a market that struggled to maintain the performance levels of the previous year when confronted with the fallout from a crippling global pandemic. Despite this, we made the right changes and adaptations that stood us in good stead to weather the storm.

Improvements in key metrics

While our competitors started to show signs of coming apart at the seams, we strengthened our resolve and came out fighting. While other digital lenders were reporting slumps in performance, our key indicators, such as first missed payment rates (MPRs) saw a favourable improvement on 2019 figures. For the six months to the end of September 2020, we noticed a 30 per cent favourable decrease in first missed payment rates. Our borrowers were demonstrably MORE able to make their repayments than before the pandemic, thanks to the measures we took to protect our business as soon as the pandemic struck.

As well as falling first missed payment rates, other performance indicators also improved. In the first six months of the pandemic we saw a 10% favourable increase in the cumulative principal and interest received after 3 months on book relative to the levels we observed pre-pandemic. This means we were making more money from our borrowers’ interest payments, allowing us to continue to grow as a business.

How did we do it?

Crucially, we introduced Covid-specific underwriting policies put in place to protect the business. We quickly identified the risks involved with lending to those on furlough and to borrowers who have recently become unemployed due to the pandemic. Although there was undoubtedly growing demand from this section of the market, we quickly established that lending to these applicants would be a high-risk strategy and would not represent responsible lending practices.

After Covid hit, we updated our lending criteria as follows:

• We developed a ‘COVID risk’ algorithm within our systems to discover the most vulnerable applicants and take additional due diligence prior to approval.
• We introduced weekend lending to make sure we could fund successful applications every day of the week.
• We implemented clear loan term limits and restrictions for furlough approvals - safeguarding customers as well as the business.
• We requested additional, relevant documents from customers flagged by the COVID risk algorithm.
• We Increased our NDI requirements.

Once we had limited our exposure to the worst-hit section of the market, we found that NET disposable income among those not as severely affected actually increased. This resulted in an increase in our borrowers’ ability to make repayments as scheduled.

As well as adapting our underwriting policies, we also minimised the impact of Covid-19 by supporting our existing borrowers in a number of ways:

• We went above and beyond the FCA's requirements by adding extra options for customers. This allowed them to extend the life of the loan by a month and split the next payment over two months, 50/50.
• We continue to listen carefully to our borrowers’ individual stories and find those who are struggling with payment solutions that are affordable for them.
• We value each and every one of our customers and encourage them to contact us with any concerns or worries they may have.
• We provide personal finance, budgeting and savings education on our blog.

What we learned from taking part in the Cambridge Business School study

A willingness to adapt is crucial

Globally, fintech businesses continued to grow throughout the Covid-19 pandemic because they were willing to adapt. Two-thirds of the respondents of the study said they had made two more changes to their products or services in response to the pandemic.

One of the most common changes made in 2020 was ‘changes to qualifications/onboarding criteria’, as well as ‘payment easements’. Along with those of many of our successful fintech counterparts, our adaptations certainly aligned with these descriptions.

We saw several of our online lending competitors collapse in 2020, including Uncle Buck and Sunny Loans, who didn’t make it through the first half of pandemic. These were major players with vast infrastructures and solid procedures in place. So solid, in fact, that they may have found it difficult to respond dynamically to the virus, leaving them vulnerable.

We take great comfort from the fact that we have weathered the Covid-19 storm. Not only have we survived, but we are flourishing thanks to our ability to adapt and our commitment to responsible lending practices. These are characteristics we’ve always championed and we believe in them now, more than ever.