The novel coronavirus outbreak that began in Wuhan, China in December has expanded to touch nearly every corner of the globe—bringing with it widespread quarantine requirements and economic distress. As of September 2020, COVID-19 has caused 902,216 deaths, with approximately 190,869 deaths are from the United States. With society all but entirely upended, it has left a drastic need to push for more education in fields related to science, technology, engineering, and math. Most businesses around the globe will suffer significantly in the aftermath of Covid-19, however, a few sectors will bear a disproportionate impact, of which lending is one. For the lending sector generally and for the Blockchain and Cryptocurrency lending specifically, with several Blockchain and Cryptocurrency start-ups folding-up, the adverse impact is expected to last for a few years. (Banafa, 2020)
Blockchain and Cryptocurrency lending is the use of new and innovative technologies to create new business models to improve and ease lending processes and underwriting. Popular Blockchain and Cryptocurrency lending business models in India include Peer to Peer (P2P), Aggregator/Marketplace, Point of Sale, Direct and Indirect (bank/NBFC partnerships) Lending. It is expected to top USD 1 trillion in lending in the next 3-5 years, generating employment for thousands and contributing significantly to the GDP. (Canesin, 2020)
Blockchain and Cryptocurrency players will have to reshape their business models and build new capabilities. One important aspect will be to create diversified portfolios. This will mean providing new products, entering new customer segments, and new geographies. A well-diversified portfolio may result in lower yields but will enable business sustainability and immunity from external circumstances (Banafa, 2020). This is a potential period for Blockchain and Cryptocurrency lenders to build better technology for underwriting as well. Since traditional data like credit history and banking transactions will no longer be sufficient, off-beat techniques like psychometrics and gamification should be tested for underwriting. (Jones, 2020, 11-12)
Most players focus on technology and centrally managed operations with little or no feet on the ground. This will need to change as physical touchpoints with customers will become important. Blockchain and Cryptocurrency lenders will need to connect with their customers at regular intervals to understand their situation and changed needs. Customers will be looking for a solution to help them ease out of their financial troubles. Blockchain and Cryptocurrency lenders will have to offer several solutions like loan rescheduling, reduction in interest rates, waiving-off late payment charges, converting revolving lines into close-ended products, etc. (Liu and Zhang, 2020)
With Blockchain we can share any transaction/information, real-time, between relevant parties present as nodes in the chain, in a secure and immutable fashion. In this case, had there been a blockchain where WHO, Health Ministry of each country and maybe even relevant nodal hospitals of each country, were connected, sharing real-time information, about any new communicable disease, then the world might have woken up much earlier. We might have seen travel restrictions given sooner, quarantining policies set sooner, and social distancing implemented faster and maybe fewer countries would have got impacted (Liu and Zhang, 2020). Where Blockchain and Cryptocurrency lenders have given loss guarantees, they must offer a guarantee on a higher proportion of assets to build more confidence in their business models. Direct lenders must steadily reduce their debt. It would also be a wise idea for Blockchain and Cryptocurrency lenders to build a rainy-day fund to tide over tough times. The money will need to be in liquid fixed return funds, which means lower yield but will still be a good practice.
- Banafa, Ahmed. 2020. Blockchain Technology and COVID-19. Retrieved from https://www.bbvaopenmind.com/en/technology/digital-world/blockchain-technology-and-covid-19/ on 10 July 2020.
- Canesin, Fábio C. 2020. How COVID-19 Is Impacting Blockchain and Cryptocurrency. Retrieved from https://www.supplychainbrain.com/blogs/1-think-tank/post/31351-the-impact-of-covid-19-on-blockchain-and-cryptocurrency on 10 July 2020.
- Jones, David. 2020. Following COVID-19: How the virus is affecting the mobile payments industry. Blockchain Technology. News Features; Louisville, pp: 11-12.
- Liu, Yang and Zhang, Youtang. 2020. Digital Financial Inclusion and Sustainable Growth of Small and Micro Enterprises—Evidence Based on China’s New Third Board Market Listed Companies. Basel: MDPI AG, volume 12, issue 9, pp: 3733-3750.