Pandemic Relief Response and Lasting Impacts on Access, Credit, Banking, and Equality

5 Min Read By: Aaron Iovine

The ongoing pandemic and resulting consequences have created a new normal. The short- and long-term effects are far-reaching and touch upon a number of societal issues and functions. The financial services industry has been far from immune to these ongoing consequences. COVID-19 has forced the industry to fundamentally alter the way in which it operates and focus on ways to evolve current product offerings through technology. In the process of this transition, financial institutions have been tasked—both directly and indirectly—with helping small businesses and consumers navigate this economic storm. The burden falls on them to ensure that affordable credit and other services are readily available and accessible. Many fintech companies and banks have already been doing this, but the pandemic provided a demonstration of those abilities and a specific reason for additional focus and investment. As the evolution of the industry continues to unfold, institutions must work to increase access and financial inclusion and ensure that traditionally underserved communities are not left behind.

Like in previous crises, during the pandemic, the federal government has provided relief to help ensure families and businesses could weather the economic storm. Direct stimulus, relief opportunities and moratoriums on student debt, rent and mortgage obligations, are just a handful of the measures the government has implemented to help those most directly impacted. Additionally, the government and regulatory agencies have used their full powers to provide financial institutions with the flexibilities they need to deploy capital in a safe and responsible way, to ensure credit markets did not dry up and that hard-working families still had access to the financial system and credit products they needed.

While the government has heavily leaned on the financial industry to serve as a partner during this period of uncertainty, financial institutions and their fintech partners have stepped up, working hand in hand to provide access to the Paycheck Protection Program (PPP), Main Street Lending Program (MSLP) and a number of other relief efforts. The partnerships created during this pandemic provide important insight into the growing role of technology in the financial services industry and have truly highlighted how embracing responsible innovation can be utilized to deliver efficient and effective products. By capitalizing on each party’s expertise (banks’ regulatory compliance and controls, with fintech’s innovative models), tech-forward banks and fintechs are able to use partnerships to expand their offerings to a larger, more diverse base and maximize the benefits to consumers and small businesses.

This is not only true in times of crisis, but in the day-to-day offerings small businesses and consumers have come accustomed to expecting from their financial institutions. The pandemic has shown how important it is for all banks to adapt to the evolving nature of the industry in order to facilitate increased financial inclusion and to continue to serve businesses and consumers, particularly those who are traditionally underserved. According to the Federal Reserve Bank of New York, fintech lenders like Cross River were critical in providing PPP loans to underserved borrowers, including Black-owned businesses. Further, the research demonstrates that 95% of those who applied for PPP loans through a large bank had prior relationships with their financial institutions. Effectively leveraging technology and automation was a key way in which banks and their fintech partners were able to originate PPP loans in a safe and compliant manner to underserved communities, especially for borrowers who had no pre-existing relationship.

The financial services and banking industries are no strangers to adaptation—they’ve often had to shift in the face of potential and ongoing crises, from those caused by natural disaster to economic recessions to public health concerns. The lessons learned from each previous crisis, have in part, helped to reshape the way the industry operates, its offers for the next wave of products and its preparation to mitigate any future disasters. Technology and innovation have been strong driving forces pushing the industry forward, creating solutions that empower consumers with faster, safer and more convenient options. The ongoing digital transformation alone is not enough to ensure that communities that have been traditionally underserved are made whole or gain equal access following the pandemic, however. Access to broadband, transparency in product offerings, consumer education and financial literacy efforts are all equally important in achieving the goal of improving financial inclusion and equality throughout the country.

This pandemic has specifically highlighted the need for institutions to offer more digital options that allow customers to get paid, move money and obtain loans without needing to physically enter a bank branch. Whether it be retail banking offerings, deposits, payments, point-of-sale lending or small business lending, the combination of the crisis and the advancement of technology has inspired companies to innovate. Many are creating products to fill gaps in the industry, ultimately expanding financial equality and leading to a more inclusive and resilient financial system. Bank-fintech partnerships in the Marketplace Lending and Buy Now Pay Later ecosystem are prime examples of responsible, transparent offerings that provide consumers with the necessary flexibilities and alternatives to legacy products and often assist those who would not qualify for traditional credit products. Without this innovation filling the gaps, it is hardworking families who are hurt the most, and often forced to turn to high-interest predatory debt traps as the only alternative.  

As the industry moves forward, recovers from the latest crises, and continues to evolve, it is essential that equity and inclusion are made a central tenet of the industry’s mission. If we are to truly learn and improve from previous crises, we must ensure that we are working to expand access and create a more inclusive financial system.

By: Aaron Iovine

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