A better customer experience is one of the key commercial lending trends to emerge from the panel of experts who contributed to Trade Ledger's Business Finance Predictions 2022 report.
A commercial lender's ability to deliver that improved customer experience — including quicker, simpler loan application processes, personalised loan products, and embedded finance — depends to a large extent on digital services and more sophisticated use of data.
Given the effects of the pandemic on business performance, lenders can't afford to rely on recent historical data for risk assessments; they need to pivot to using near-term and forward-looking indicators. Open banking data will be a key part of this, and the new data ecosystems and partnerships it enables will give greater insights into business health, for both lenders and borrowers.
Read on for a summary of a wide range of industry experts' predictions for business finance in 2022, or download the full report.
Digital-native entrants into the regulated financial services industry have increased choice for customers and are creating new competition for traditional banks.
"AWS is working with many banks to innovate the way they provide loans and payments, as well as improve the overall customer experience."
— Pete Murray, Amazon Web Services.
Data-driven, digital, automated commercial lending — using machine learning to predict risk — is a pressing need in the underserved SME sector.
"Evolution in open banking makes it easier to use the data to do better risk assessments and thereby offer credit more effectively. The resulting instant gratification will be a great value proposition for customers."
— Halvor Lande, Aprila Bank.
SMEs will look for a customer-led approach in lending, with more personalised and digitally enabled services and experiences.
"In 2022, personalised experiences for customers will show up in numerous ways: through more targeted and relevant messages, the launch of new propositions, and the creation of new channels to access our services."
— Lucile Knight, Bibby Financial Services.
"Thanks to open banking, lenders will be able to leverage new data sources in real time to support delivery of the services borrowers expect."
If borrowers are getting a better service and access to funding which enables them to grow, by sharing data, they’ll be keen to share their data even more
— Alexis Kopylov, DBT.
"Banks and alternative commercial lenders will need to adjust their business models for a post-Covid world, where the last few years of data can no longer be relied upon to make lending decisions."
— Conrad Ford, Allica Bank. Open banking data will give lenders insight into SMEs' finances to distinguish between those whose performance is back at pre-pandemic levels, and those which are unlikely to recover.
Open banking will also enable VRPs, which offer businesses the opportunity to change how they manage and leverage their financial data, and forecast cash.
"Borrowers will know what will be allocated to repay debt or run operations, so banks can refine their risk model and risk pricing. The real-time information makes a big difference for credit analysis."
— Ghela Boskovich, Financial Data and Technology Association.
"There’s a pressing need for banks to change their business models to meet the evolving needs of customers and compete with new digital native challengers and fintechs."
— Janet Jones, Microsoft.
This change will be powered by collaboration, partnerships and technology; but also by data, which will enable banks to serve businesses better through a deeper, real-time understanding of their requirements.
Current business finance trends suggest ongoing growth in embedded finance and BNPL for business for fast access to short-term funding; as well as the advent of Pay by Loan, anticipated by Simon Torrance of Embedded Finance & Super App Strategies.
This will be important for SMEs, given the likely post-pandemic wave of insolvencies, combined with a tightening of credit and interest rate rises that will affect the affordability and availability of money to SMEs in 2022.
ESG will be a key focus area for banks in 2022, reflecting growing pressure from the public, governments, regulators, and institutional investors for banks to address sustainability head-on.
But funding sustainable products can be challenging as it’s hard to predict their residual value, which makes them fundable or not. Ultimate Finance's Yvonne Balfour says that encouraging lenders to back these businesses ideally requires...
"...government support for a ‘green finance guarantee’, to help mitigate the elevated risk of products with uncertain lifespans of depreciation and obsolescence."
Find out more about our experts and read their 2022 commercial lending predictions in full. Download the Business Finance Predictions 2022 report now.