How ESG Factors are Reshaping the Digital Lending Landscape

Fintech companies, banks and non-banking financial players have exhibited traction for digital lending to streamline seamless loan disbursement, approval, recovery, credit assessment and other credit services through remote and automated lending processes. On the heels of the COVID-19 pandemic, banks are scampering to play their part in the environmental, social and governance concerns. In a bid to help transpire a greener, transparent and resilient world, digitization of the lending process could bring a tectonic shift, such as enhanced customer experience, and better decision-making. Prominently, an uptick in collaboration between investors and firms taking ESG into account has provided an impetus to banks and fintech players. 

Digital lending has added a fillip to financial inclusion, particularly assisting borrowers who may not reap benefits from formal finance sources. Banks are exploring opportunities in ramping up and automating credit processing, including digital lending and imbibing ESG considerations into lending decisions. The trend for end-to-end e-invoicing and payment solutions to help businesses with easy digital transactions has become pronounced among fintech and banks. Giving and recovering loans through apps and web platforms have become popular. A surge in mobile money accounts has expedited the advanced financial services that can reduce cost, boost transparency and streamline services. However, the prevalence of micro-financial risks and chances of spillovers to the economy have warranted regulation. In September 2022, the Reserve Bank of India issued guidelines on digital lending and emphasized that regulated entities should ensure the lending service providers and digital lending apps adhere to the guidelines mentioned in the circular. Investors are likely to prioritize environmentally sustainable strategies amidst a data-led credit process gaining ground globally. 

Key Companies in this theme

    • Ellie Mae, Inc.

    • FIS; Fiserv, Inc.

    • Newgen Software

    • Nucleus Software

Environmental Perspective

The need for an organic financial model that is in line with the environmental paradigm has become paramount for an organization to be truly sustainable. At a time when fintech lenders are navigating opportunities in state-of-the-art technologies, including AI and machine learning, investments in environmental pillar could give them an edge in the competitive ecosystem. For instance, ICE Mortgage Technology is committed to a 50% reduction in scope 1 and 2 emissions by 2032. It has also implemented data center air management, optimal thermal stratification, automated lighting control systems, and high-efficiency HVAC facilities, playing a vital role in its Power Usage Effectiveness (PUE) outperforming the base building design by around 14%. The company has also purchased renewable energy credits for electricity consumption in data centers and offices. A bullish approach towards sustainability will foster their brand position in the global landscape.

Social Perspective

Of late, an inclusive financial ecosystem has come on the horizon for social progress with access to borrowing and capital opportunities. Companies are offering competitive and comprehensive upsides to foster employees’ well-being, health, financial security, diversity, and inclusion. In essence, Fiserv has formed a solid partnership with Black colleges and universities and the National Black MBA Association in the U.S. In 2021, the Fiserv Back2Business initiative augmented its commitment to USD 50 million which initially stood at USD 10 million for minority-owned small businesses affected by the COVID-19 outbreak. Furthermore, the company has invested in workforce diversity as it asserts that 34% of employees are diverse in race or ethnicity. Companies have increased banking on social strategies as an integrated part of their business process. 

Is your business one of participants of the Global Digital Lending Industry? Contact us for focused consultation around ESG Investing, and help you build sustainable business practices.

Governance Perspective

Fintechs and banks have been championing the significance of ESG for the sustainability of the business. Assessment of ESG-related opportunities and trends has largely been fueled by the governance aspect. The operation of companies in an ethical manner to dissuade corruption and bribery has become pronounced. Notably, Newgen Software has furthered its commitment to a high level of transparency, accountability and integrity. With a two-tier governance model, the company comprised 7 directors (as of March 31st 2021), out of which 4 directors were non-executive directors (independent), while three were executive directors. The Board has prioritized innovations in business strategies, diversity, strategic planning and analysis and compliance requirements for transparency, accountability, and safeguard of shareholder interest. Given the risk of a data breach, stakeholders have also emphasized risk management to provide state-of-the-art security of operations and curb business disruptions. 

Concerted efforts in risk oversight, business strategy, succession planning, ESG and financial reporting could provide an edge to key players. The digital lending market size stood at USD 5.84 billion in 2021 and could register an impressive CAGR of 25.9% from 2022 through 2030. Strong demand for quick access to working capital for daily operations will provide impetus to the growth of the advanced lending process. 

About Astra – ESG Solutions By Grand View Research

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