Even Staff

2020-10-21

How COVID-19 Has Impacted The Lending Ecosystem Moving Into Q4

The lending ecosystem for personal loans experienced unprecedented disruption in Q2 of 2020, due to the COVID-19 pandemic and ensuing economic impact. In a swift reaction, peer-to-peer loan providers were forced to freeze acquisition efforts, both digitally and directly, as investor demand in the personal loans market came to a halt. 

 

With quarantine measures easing up and lending performance data coming in for Q3, loan providers are taking back to the market with cautious optimism. Outstanding loan performance data, as reported by dv01, signals a 70% recovery (to pre-Covid levels) of loan impairments (i.e., a delinquency or modification of a loan’s original repayment terms). This suggests that a majority of borrowers have been able to pay/manage their outstanding loans and that investors can expect normal returns, which allows lending platforms to unpause and/or expand underwriting criteria. 

 

Loan providers are adopting the following strategies to increase acquisitions during Q4:

 

  • Expanding credit boxes - Providers restricted originations to only the most creditworthy consumers during Q2. Now, providers are using updated underwriting criteria to extend offers to wider audiences outside of the super prime credit box. We expect more density and better offers for near-prime and subprime consumers.
  • Adopting alternative credit models - Despite economic hardship, traditional credit scores have risen as credit cards have been paid down and consumer spending has dropped. The rise in scores, however, does not reflect the crunch on consumer cash flow and ability to repay loans. Providers are leveraging alternative credit models to distinguish cash-strapped consumers from those with liquidity. We expect providers using diverse credit models to perform more aggressively and profitably.
  • Implementing additional verification - Providers are being more thorough in qualifying consumers during the application process, adding steps like employment verification to wider audiences. We expect an increase in a consumer’s time to fund as proving income or employment verification can add additional time from the original application to the disbursement of funds.
  • Restaffing operations - Providers with applications and flows that are 100% digital will scale faster. Those who rely on call centers to walk consumers through applications will experience a slower return to market as they rush to hire personnel that were lost to Q2 cutbacks. We expect digital-first providers to gain considerable market share.
  • Consolidating partnership channels by cost effectiveness - Acquisition teams at providers are also smaller, meaning the ability to manage multiple direct partnerships is curtailed. Providers are working to migrate direct relationships to API platforms, which reduces relationship management responsibilities while increasing conversion rates and cutting data costs. 

 

We predict that the prevailing loan providers of Q4 will be digitally-focused, using alternative underwriting to identify previously disenfranchised consumers, while leveraging end-to-end digital experiences like Even over direct partnerships to scale and gain market share. Affiliate partners looking to monetize will see greater success in tailoring their audiences to align with the desired consumer populations of these foremost and optimized loan providers. 

Disclaimer: The material provided on this site is not intended to provide legal, investment, or financial advice or to indicate the suitability of any Even Financial product or service to your unique circumstances. For specific advice about your unique circumstances, you may wish to consult a qualified professional. Any information or statistical data sourced by Even Financial through hyperlinks, from third-party websites, are provided for informational purposes only. While Even Financial finds these sources to be accurate, it does not endorse or guarantee any third-party content

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Haven Term is a Term Life Insurance Policy (ICC21 Haven Term in certain states, including NC) issued by C.M. Life Insurance Company (C.M. Life), Enfield, CT 06082. In New York (DTC-NY), and California (DTC-CA), and other states, it is issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001.    Policy and rider form numbers and features may vary by state and may not be available in all states. Haven Term is available through Haven Life Insurance Agency, LLC (Haven Life), whose agency license number in California is OK71922 and in Arkansas, 100139527. Both Haven Life and C.M. Life are wholly owned subsidiaries of MassMutual.   Please note that issuing the policy or paying its benefits depends on the applicant’s insurability, based on their answers to the health questions in the application, and their truthfulness.   MassMutual and its subsidiaries C.M. Life Insurance Company and MML Bay State Life Insurance Company are rated by A.M. 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