- The coronavirus pandemic has and will have a lasting impact on virtually every industry.
- In response, financial services firms are taking steps to ensure they hang on to their existing users.
- Ken Lin, founder and CEO of Credit Karma, hopes that “empathetic” measures taken by banks and lenders will persist.
- Fintechs, too, have an opportunity to collaborate with financial institutions to ‘bridge the information gap’ when it comes to consumer finance, Lin said.
- Lin also expects lasting changes in how lenders assess risk and the way credit is issued.
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Virtually every industry will see lasting impacts of the coronavirus pandemic. A record number of Americans are unemployed, and financial services firms, including lenders and credit card companies, are looking for ways to sustain their businesses as consumers’ financial situations change drastically.
While the financial crisis and global recession of 2008 is still a recent memory, the financial impact of the coronavirus on consumers is unprecedented.
“In 2008, we saw major corporations and banks take a hit, yet the crisis was more staggered for consumers,” Ken Lin, founder and CEO of Credit Karma, told Business Insider in emailed comments.
“Now, we’re seeing record numbers of unemployment and people without steady income in a matter of days and weeks, which is taking a toll on peoples’ finances and our economy,” Lin said.
Credit Karma was founded in 2007, offering consumers free access to their credit scores. Since then, the fintech has expanded into a broader platform that spans not only credit scores, but resources and recommendations on personal loans, credit cards, auto loans. It also offers a savings and tax filing product.
And in February, TurboTax parent company Intuit agreed to buy Credit Karma for $7.1 billion.
Here’s how Lin expects the coronavirus pandemic to change his business, the financial service industry, and the world.
Shifting focus to existing customers
Like many fintechs and financial institutions, Credit Karma has shifted focus from growth to maintaining its current base of 100 million users.
“All Americans are being impacted, some more severely than others, and now more than ever it’s important to do what’s right by our members versus focusing on increasing our bottom line,” Lin said.
Credit Karma is rolling out resources to help its users manage existing debt and access cash if needed. It launched a Relief Roadmap, a personalized platform where users answer a series of questions and Credit Karma provides resources and insight into relief options from governments and financial institutions.
“We’ve shifted to rally resources around this effort to ensure we can help as many members as possible during this time of need, and beyond this crisis,” Lin said.
Credit Karma is continuing to develop the product, and is currently working to integrate notifications to send to users when new relief programs are launched as well as a step-by-step guide to managing payments and protecting credit scores.
A new kind of crisis calls for new business models
“This economic downturn is unlike anything we’ve experienced,” said Lin.
The scope of COVID-19, which has impacted virtually every industry, is leading financial institutions to take unprecedented measures.
“Companies are having to rethink their business models to figure out how they can be successful in the long-term and still help their customers now,” said Lin.
Credit card companies like American Express and Capital One are offering eligible customers the ability to skip payments without interest. JPMorgan Chase is offering 90-day mortgage deferments with no late fees or reports to the credit bureaus. And mortgage buyers Fannie Mae and Freddie Mac have suspended foreclosures and evictions.
“You don’t always associate the word ’empathy’ with financial services institutions, but we’re seeing the industry provide an unprecedented amount of support for consumers, which I hope will persist,” Lin said.
And as the financial services industry looks toward recovery, Lin expects lasting changes in the way credit is issued.
“Right now, there are a lot of unknowns for lenders and, with unemployment fluctuating so much, lenders are finding it difficult to assess risk and are tightening their lending as a result,” said Lin.
That lack of clarity could be solved by more collaboration between lenders and tech-savvy fintechs that have consumer credit data.
“This is an area where I see an opportunity for banks and issuers to partner more closely with fintechs who can bridge the information gap by providing up-to-date information on consumers in real-time,” said Lin.
Fintechs like Plaid have been vocal about the importance of data transparency and sharing. And they’ve already stepped in to help lenders automate and streamline the process for small businesses to obtain Paycheck Protection loans.
It’s not far fetched to anticipate similar cooperation on the consumer side.
An unprecedented crisis will have lasting global effects
“Most of us will never live through something like this again, a moment in time that has such a profound impact on our economy, consumers, and companies alike,” said Lin.
And it’s put an unprecedented amount of financial pressure on everyone, he added.
“My hope is that this experience might be the event needed to change consumer behavior around being more conservative with spending and savings,” said Lin.
Credit Karma launched its first financial product, a high-yield savings account, in October last year.
“It is unfortunate it would take a pandemic to finally wake us up to the need for an emergency fund,” Lin said.
“But if there’s a silver lining, it’s that we will hopefully pay more attention to improving our money management habits, prioritizing savings, not spending beyond our means and preparing for the unimaginable,” he added.