Is relationship banking about to be superseded? How can payments rails change the way lending is done? The answers can be found in a wide-ranging panel on platformification and embedded finance.
Roger Vincent, Trade Ledger’s Managing Director, UK & Ireland, explained:
Platformification is about the shift from traditional to non-traditional channels.”
Roger said: "Users are looking to engage with financial services in different places, at the point they need it. They can identify in their accounting package when they have a cashflow gap. Wouldn’t it be great if they could just click a button and get access to a working capital solution from their bank?
Platformification can be as simple as a bank partnering with an accounting platform, and delivering a product into that channel - but this use case only scratches the surface.”
Joachim Hermansson, Head of Alliances at Blackstar Capital, described an even broader picture:
"The future is to put financing, insurance and credit enhancement in one place, whether that’s an accounts payable or receivables platform.”
Banks will have to act, said Roger. “There will be a challenge in the market from fintechs that will cause large incumbent banks – who know lending products inside out – to reimagine their products and create opportunities to embed their products into other channels.”
Simon Featherstone, Non-Executive Director at Funding Xchange, said:
"It’s about embedded finance at the point of need, when an invoice is raised, giving the choice to take finance at that point. The work to pre-approve it is done already in the background, so that the small businessperson can say yes or no.”
“Everyone knows data is going to disrupt banking,” said Roger. “Receivables and inventory sitting on the ERP system has the most digital data. Historically it’s been difficult to get access to this data. If you look at what’s happening in the payments space, the payments rails are opening up the opportunity to deliver more detailed messages about what you’re actually paying for (or requesting to be paid for). They could have extensive messaging, with assets listed, and KYC already done. Payments rails are going to be a huge source of data and potentially the centre of the world for lending innovation.”
Is it the end for relationship banking? Simon believes so. “It’s just going to get taken out completely…[Lenders] will look more at the data for risk-based decisions. There’s a lot of learning that needs to take place in the receivables industry to trust the data rather than ‘I’ve met them and they’re nice people’.”
Roger challenged the industry to serve SMEs better. “Nine times out of 10, SMEs are probably ending up on a corporate or personal credit card or overdraft, but even these are being withdrawn by the major lenders. Banks should see it as a huge opportunity to expand the applicability of invoice finance, to tweak the proposition to make it more operationally friendly and more enjoyable by the customer.
“It’s all about the data, and that’s one of our biggest challenges, convincing a bank and its risk department that they can do this in an automated or semi-automated fashion, at exactly the same level of risk if not better, on a modern technology platform that gives you the ability to move into whichever area of the market emerges over the next few years.”
John Brehcist, co-founder of World of Open Account (WOA), agreed with Roger that the opportunity is huge:
"The average GDP penetration across Europe for receivables finance is around 11%. In the most developed markets it’s around 18% - there is still a significant opportunity for expansion. I don’t see this being cannibalistic – the scale of the opportunity is broadening.”
Watch the panel recording to hear the full story and find out:
Platformification: Embedded Finance as a growing trend in receivables finance was hosted by World of Open Account. Want to discuss it in more detail? It’s a favourite topic of ours – just get in touch.