There’s an estimated credit gap nearing US$10 trillion.
When lenders take steps to modernise their technology and the way they share and process data, they see a significant impact on their bottom line.
This impact goes far beyond a drop in abandonment rates and the cost to serve.
API-first infrastructure, coherent data schemas, regulatory parameters on messaging and data ownership [that enable embedded finance]… may not be visible to customers, but the benefits are. It enhances security, stability and identity protection. It enables scalability, hyperpersonalisation and reduces cost. It’s good for the customer, it’s good for the bank (once the journey of getting there is completed), and good for the ecosystem.
- Leda Glyptis, Chief Client Officer, 10x Banking
In this article we explore multiple ways lenders can unleash the full potential of their loan book:
Although some lenders offer a form of invoice or receivables finance, they have rarely been openly promoted. Now that these products can be delivered digitally and more cost-effectively, lenders can actively offer these newer forms of working capital to borrowers.
We explore this in detail in A golden age for invoice finance.
Lenders can also begin to offer more niche types of finance by plugging in data from specialist providers. For example, lenders can offer green finance by bringing in sustainability data from vendors like Doconomy, which analyses transactional and financial data to assess the carbon impact of corporations.
As mentioned above, there is a global multi-trillion dollar funding gap experienced by SME and MidCap organisations. With a drop in the cost to serve - through reduced technology cost of ownership, operational efficiencies and better risk mitigation - it is now sustainable to offer financing to this segment that makes up almost 50% of the market.
For many lenders, almost half of their business finance applications fail. This is either due to drop-off from the lengthy manual process for businesses, or risk assessments aren’t fit for our more modern economy.
Far more data is available today, and much of it is real time. This means risk assessments can be vastly more sophisticated, enabling lending in a much wider set of circumstances - quickly.
Lenders can now understand the nuance of each business, and the type of working capital they need. Those who offer this level of customer experience will win loyalty from business owners.
Today, the two are embedded product categories that are very well established; payments and accounts/wallets. It’s widely accepted that lending will be next.
There is an opportunity for lenders to partner with other businesses, and use cloud and API technology to supply working capital via the partners’ channels.
Early Adopter Example: a Trade Ledger customer in Asia originates 70% of their Receivables Finance (RF) through brokers. It offers aggregators a single API to embed RF into the existing broker portal resulting in origination growth rates of 300%.
But this use case only scratches the surface.
Finance can now be embedded everywhere money changes hands.
With the right technology lenders can become a Working-Capital-as-a-Service provider and embed their lending journey in a couple weeks rather than months or years. The beauty of running your lending journey on a platform that is API-driven allows lenders to embed working capital products within the systems that businesses use every day. Below are just a handful of opportunities open to lenders:
By moving towards a single customer view, it’s much easier to identify upsell and cross-sell opportunities - whether it’s across departments or new products, or even products offered by a third-party e.g. bad debt protection.
Banks can use [new] credit models not only for instant decisioning but also for cross-selling opportunities
- McKinsey & Company
But this is just the first step. Modern lending ecosystems will allow you to reach across the supply chain to access new customers - offering financing solutions to the suppliers and customers of your customers, and beyond.