In 2012, it was clear that traditional banks were under pressure to rebuild capital buffers and were unable to provide SMEs with the finance they needed. A move towards centralisation and continued dependence on clunky legacy systems meant that banks weren’t best placed to serve this market. Now, a range of alternative lenders have moved into the space, offering a competitive advantage over traditional incumbents by using financial technology to make more informed lending decisions and provide seamless, flexible access to finance.
While these do compete with the traditional players in the financial services industry, that’s not to say young innovators will replace them – the sheer size and scale of the big banks’ business lending is going to continue to dominate the sector. However, alternative lenders embracing FinTech will increase market share with a faster and more customer-focused service for SMEs looking for the finance they need to invest and grow.
The technology we use, for example, enables us to give businesses an initial qualifying decision for our finance facilities in just over six minutes – something that can currently take traditional banks weeks to do. In addition to the credit data information that traditional lenders mainly focus on, FinTech helps us review a wide range of open data sources such as Facebook and LinkedIn. This means we can reward positive behaviours such as having a large group of engaged connections or endorsements for a company or particular product.
Clever use of technology importantly means more time and energy can be spent on understanding customers’ plans and needs. Over the years, the role that human relationships play in the banking and customer exchange has been somewhat forgotten – as a recent Accenture report showed, 57 per cent of SMEs are looking for closer engagement with their banks and recognition that their needs may be different from that of other businesses.
Ironically, rather than this being disruptive, FinTech is enabling a return to how business banking used to be – the bank would have appointed someone to manage your account who was genuinely interested in your business and had the time to give you guidance.
FinTech helps you quickly identify if a business is ready to take on finance and the commitments that come with this. If the answer is ‘No’ then the time saved can be spent on giving SMEs guidance on how to improve their credit worthiness for future applications. It is not good enough to simply say ’No’ anymore – lenders should be looking to provide SMEs with guidance or referrals to other funding sources.
We are on the brink of huge transformation in the banking sector leaving space for challengers and alternative lenders to drive major success through technology, offering an enriched service for SMEs. FinTech is and will continue to make a major difference in the financial world, and we’re only at the beginning of what can be achieved for the sector, as well as end customers.
John Davies is the founder and CEO of The Just Loans Group PLC, an alternative lender embracing new financial technology to service SMEs.