Dive Brief:
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Government aid is especially effective when allotted through digital payment channels using digital IDs and simple data on businesses and individuals, McKinsey said in a study of 12 government disbursement programs in seven countries — the U.S., U.K., Brazil, India, Nigeria, Singapore and Togo.
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Before the pandemic, McKinsey estimated that a country that adopts digital ID to a wide range of contacts between individuals and both government and nongovernment institutions could increase GDP from 3% to 13% by 2030.
- "The potential economic gain from building robust digital financial infrastructure is about 20% greater now than it was before the pandemic," McKinsey said in its report, noting IMF estimates of pandemic rescue aid totaling $11.7 trillion worldwide as of September 2020.
Dive Insight:
"The crisis has underscored the resilience and flexibility that a robust financial infrastructure for SMEs [small and medium-sized enterprises] and individuals provides, and thus its importance as a critical tool for responding to unexpected and potentially catastrophic events," McKinsey said.
Digital finance in the U.S. helped CFOs obtain pandemic aid last year, speeding the disbursement of rescue loans under the Small Business Administration's (SBA) $525 billion Paycheck Protection Program (PPP).
Soon after the onset of COVID-19, Kabbage Inc., a fintech lender to small businesses and consumers, retooled its operations to handle PPP loan applications.
Kabbage quickly became a top PPP lender and, in August, announced the acquisition of its fintech products, data platform and internet protocol for small businesses by American Express.
Also, Citizens Bank of Edmond, a community bank in Oklahoma, linked up with billionaire entrepreneur Mark Cuban to create a payment advance program that allowed customers to immediately tap their federal pandemic aid checks. Citizens shared the program with 400 other banks.
Citizens and Cuban also joined Teslar Software to launch ppp.bank, a free website that automates the PPP loan forgiveness application. Many bankers and small business owners had found the 11-page SBA document burdensome and confusing.
PPP loans cushioned the blow from COVID-19 last year by helping 5.2 million small businesses maintain employment for 51 million U.S. workers, according to the SBA. Congress in December approved $284 billion in additional PPP loans.
