Three ways banks can serve their SMB customers better

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At Sibos 2019, we will explore how banks can embrace digital technologies and technology-led business models to enhance their value propositions. Our consultants and experts look forward to meeting you at Sibos 2019 to discuss how your bank can accelerate technology-led transformation. Discover how a leading global tier 1 US bank is transforming cash management with Finacle. We also have an engaging array of solution demos lined-up for you. Meet us at Stand Y141.

In line with the theme at Sibos, our corporate banking blog post series explores innovative solutions for banks looking to empower their business clients to do more. In this short blogpost we shine the spotlight on how banks can serve the underserved SMB segment more efficiently.

When the respondents of a recent survey by EY and Dun & Bradstreet for small and medium enterprises (SME) were asked if they are open to non-traditional lenders for their capital requirements, about 68% responded in the affirmative. A fast loan process and alternative lending options with real-time underwriting capabilities emerged as the key reasons for the growing preference.

The challenges small and medium businesses face are very different from those of their corporate business peers. These time-strapped businesses, where one employee wears a minimum of two hats on an average need omnichannel banking solutions and fast, user-friendly processes. What’s more, since small businesses do not mandatorily have to go through financial audits, they often struggle to provide the statements and documents required for loan applications at traditional banks. These reasons explain the steady rise of alternative marketplace lenders in the SMB finance space.

  1. Marketplace lending

By putting the lender and the borrower in direct contact on a platform, the marketplace model brings in extreme flexibility to the lending process as it allows both the lender and the borrower to choose their risk portfolio. Progressive banks looking to explore a partnership model with alternative lenders to offer advantages of quick and easy loans to their customers can do it in more than one way:

  1. Partnership with marketplace lenders: Banks can adopt the distribution model to offer loans from leading marketplace lenders. In the event that a small business customer fails to meet the documentation or credit score requirements of a bank, the bank can direct the customer to a partner alternative lender. In what’s a win-win for all, the customer gets access to capital, the marketplace lender wins a customer, and the bank gets to retain the customer while earning a fee from the partner lender.
  2. Partnership for product integration: Partnering for joint lending products is another model banks are adopting to increase availability and access to capital to their SMB customers. In this model, if a customer meets a bank’s eligibility criteria partially, the bank provides a part of the total loan amount requested. A partner bank or alternative lender finances the remaining loan.
  3. Partnership for credit analytics: Collaborating with marketplace lenders and retailers such as Amazon for data can serve to greatly enrich credit algorithms. A richer data set and enhanced algorithms help banks make informed decisions about relaxing eligibility criteria for customers that do not meet a bank’s stringent requirements but have no history of credit / loan default elsewhere.
  1. Integrated software solutions and applications

Banks focusing on the SMB market are augmenting their banking solutions with ERP and CRM integration. Their user-friendly dashboards about transaction data and insights across purchase, sales, and other functions provide a unified view of transactions, balance and working capital. In addition to efficient working capital management, in select cases where SMBs don’t have very many assets that can be collateralized, insights across purchase and intellectual property can be employed for informed decisions about credit financing.

Most FinTechs have adopted the cloud extensively. They demand banking solutions that integrate seamlessly and allow them to work with ecosystem partners. Most banks are integrating cloud-based capabilities in their SMB solutions by partnering with cloud-based account management solution providers such as Xero, software solution providers such as Zoho, and others.

  1. Business finance management

After AI-based solutions for personal finance management, innovative FinTechs are introducing business finance management (BFM) solutions for cash flow management, invoicing, budgeting, and other capabilities. Some banks are collaborating with FinTechs offering technology solutions for BFM. For instance, MasterCard and Strands Business Financial Management have joined hands for an AI solution enabling SMEs to forecast cash flow, analyze finances, and benefit from contextual recommendations for services from their banks.

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