COMMENTARY: Here’s Why Demand Is Increasing for Digital Access to Short-Term Funds

The ongoing Covid-19 pandemic continues to impact consumer finances and financial habits. On the one hand, since the onset of the pandemic, the bank deposits of American households have been at a record high, partially due to limited spending on entertainment and travel, reduced in-person shopping, and the receipt of stimulus and other government funds. 

On the other hand, there are still occasions when consumers need quick access to funds. In a Fiserv consumer survey conducted in mid-2020, 35% of respondents stated they had a need for “emergency funds,” or short-term funds they don’t have when needed, at least once per year. By the time the survey was conducted again in September 2021, the need to access emergency funds had grown to 47%. It’s clear many Americans, more frequently and more often, are looking for easy access to short-term, small-dollar loans to bridge gaps in their finances. 

Emergency funds most often are needed to address unexpected expenses— nearly three-fourths (70%) of consumers needed the funds for unanticipated incidents such as car repairs, health care expenses, or home-appliance replacements—and are generally in an amount less than $1,000. Today, 29% of those needing funds are taking the route of asking friends and family to provide them, usually for just a few weeks. The remainder use credit-based bank products (including overdraft services) and payday/online lenders if their credit scores don’t support use of a bank product. 

Other than a punitive, credit-impacting overdraft, none of these solutions provides an in-app, in-session solution when funds are insufficient for consumers’ immediate needs. And we know consumers actually prefer mobile and digital financing options.

With inflation rising and wages not keeping up, the situation for many Americans is not improving. Food prices alone are up 28% over the last year. Stimulus checks, mortgage forbearance, and unemployment supplements are largely in the rear-view mirror, and supply-chain issues could lead to price increases on nearly all products used by the average consumer.

Many younger consumers are looking to live a credit-less lifestyle, yet still need access to a brief cash bridge if they get in a pinch. However, lenders may be reluctant to take the risk of providing short-term funds to consumers who lack a developed credit history. In addition, the pandemic did little to increase credit scores for those who were already struggling to repair damaged credit. Lenders slashed available credit, hoping to stem losses before they started, and are not likely to loosen credit standards any time soon. 

Now banks are beginning to realize they have many creditworthy accountholders who may not have a robust or stellar credit file. Solutions that eschew the traditional credit score to evaluate propensity to repay and instead focus on how the accountholder has managed their relationship will make more consumers eligible for these bridge loans, as well as reduce underwriting costs for lenders. Through their existing real-time, secure mobile-banking apps, institutions can offer an integrated, automated, short-term funding solution at the time that consumer determines the need for funds. And the solution includes the ability for accountholders to repay directly from their bank account. 

There is an opportunity for many to contribute and play their role in this ecosystem. I’m looking forward to the day all qualified consumers can enjoy a seamless, enhanced digital lending experience. All they need is a few weeks of bridge funds and sympathetic solutions.

—Victoria Dougherty is senior director of product management at Fiserv Inc.