The digitisation opportunity in SME lending beyond client dashboards
Automation will not only help SME lenders automate manual processes but also remain relevant as distribution channels digitise
Many lenders to small businesses think that automation doesn’t apply to their business because of their detailed underwriting analysis and loan structuring processes. However, automation will not only help SME lenders automate manual processes traditionally performed by sales executives, credit underwriters and loan administrators but also remain relevant as distribution channels digitise e.g. online marketplaces and price comparison sites.
SME lenders’ attempts to automate their processes have, to date, largely focused on origination and implementing customer portals. However, these changes only provide marginal efficiency gains, because people within the lenders are still performing countless manual tasks. Meanwhile, borrowers regularly abandon these portals as they provide no additional visibility on the status of their facility.
Integration with SME accounting platforms and bank accounts provides an opportunity for far greater efficiency gains and enhanced borrower experience.
SME lending processes present a host of automation opportunities beyond customer portals, with outcomes that include:
- Increased speed to decision
- Improved loan data quality and integrity
- Cost reductions through efficient processing of data
- Increased distribution via new digital channels (SME marketplaces)
- Transformed loan origination processes
These outcomes can be achieved through integration and automation in the following areas:
1. Automating collection of borrower financial statements.
Most institutions still collect financial statements from SMEs manually and then input the data into their systems manually. Integrating with borrower accounting packages like Xero, Sage or QuickBooks means the data can be processed far more efficiently and the user doesn’t need to prepare reports at the end of each month.
In most cases management accounts, historical financial statements and bank statements can be captured on an ongoing basis (typically month-end) via a single one-time authorisation process (OAuth). Rules-based logic can standardise data and feed it into loan management systems in the same format irrespective of the underlying borrower accounting platform
2. Analytics designed to identifying credit requirements before the customer applies.
A regular synchronisation of accounting data enables lenders to identify large projects and cash shortfalls and proactively target customers that require credit in a timely manner. Webhooks can be used to query the data and alerts can be set up to notify relationship managers as certain criteria are met so that opportunities can be prioritised based on existing/prospective credit needs.
Data can also be used to identify for cross-selling opportunities e.g. when certain profitability thresholds are met, the directors of the borrower could be referred to the wealth management team.
3. Generating credit underwriting recommendations
Although automated decisioning is predominantly used in consumer lending, many lenders have been using it in small business lending for years. Near real-time data from a borrowers accounting package can be used to power predictive cash flow forecasts giving the lender the ability to add value and advise their clients on their decisions.
Payment performance data can be used to build proprietary debtor / counterparty risk scores. Lenders’ internal credit scores can then be pushed back to borrower accounting platforms for actionable insights e.g. whether a borrower is over-exposed to a risky debtor and therefore should not continue to trade on credit beyond an advised credit limit
4. Early problem loan identification.
Accounting platform integration can review company behaviours to identify red flags on potential loans. Examples include overdraft frequency/amounts/patterns, new/increased credit utilisation, past due financial reporting and significant score changes. Although largely still in its infancy, borrower accounting integration and digital automation based around this data is gaining momentum and already generating enormous benefits for fintechs and Tier 1 banks alike.
Banks embracing these changes and being open and transparent about borrower integration can change their commercial lending processes, realise significant gains in efficiency and, most importantly, portfolio growth.
5. New digital distribution channels
Business owners are becoming increasingly savvy around financial services. The consumerisation of SME finance means there are more options then there have ever been before for accessing funding. The heavily used accounting platform add-on marketplaces are increasingly being used to source business tools and funding.
Business owners know that add-ons within their accounting platforms marketplace will play nicely with their data and as a result, there is an inherent trust in these providers. SME lenders that identify this as an opportunity early will be well placed to capitalise on this new digital distribution channel.