In 2008, necessary liquidity was confined and directed into the financial system to help it weather the financial crisis. Everyone was concerned that too much liquidity would lead to rampant inflation. It didn’t.
In 2020, new historic levels of liquidity were sent directly to the people’s personal purse to assist them through the obligatory lockdowns and restrictions from travelling and working. Everyone was concerned that this level of unprecedented liquidity would also result in inflation risk. It has. The central banks are trying to manage it with a host of targeted actions, one being raising interest rates. This time is different because, in addition to liquidity, two key events are simultaneously and intrinsically contributing to rampant inflation:
The global supply chain crisis. This should remain an ongoing concern and treated as high alert risk even when better times return and
The war in Ukraine that has seen commodity prices pushed to uncharted territory.
Here are two ideas for fintech companies in the credit space to help customers build financial resilience during this inflationary environment; both deals are eminently implementable:
Lending Companies. The rate of default is expected to exceed pre-pandemic levels. Leverage ML models to predict those customers that are expected to default. Use that information to contact them and offer a payment holiday. Don’t wait for people to default first before taking action. Differentiate yourself from lending that banks historically delivered and their unforgiving and abrasive communication with customers defaulting on payments. You have the data. You have the models. Use them as a business tool and as a trust building mechanism.
Credit Rating Agencies. Consider adding more data and enhancing your current models to deliver more nuanced outcomes to help those potentially facing default risk due to temporary circumstances. Enable your customers to clear their records promptly and on-line, remove friction. You have the data, you have the models - uses them to build trust with your customers. Help them when they need help.
This TransUnion study provides valuable data on how origination, balance and delinquency volumes have changed in recent years. Link
How consumers are faring in this unpredictable economy
How to estimate the impact of continually rising inflation
How lenders can apply these insights while managing and growing their portfolios