Business lending is on the brink of a whole new digital era.
Within the next 3-5 years we will see a revolution in lending. A series of small changes will eventually become significant enough to cause large systematic transformation, and lenders should be prepared.
Lenders are not only forced to compete with other lenders for a slice of the market, but also (and more importantly) with customer experience standards of FinTechs, and the intuitive user journeys of the likes of Netflix, Apple and Amazon. The market is broadening and becoming more dynamic, so much so that businesses must adapt and transform to become truly digitally native, and this is a place where no high-street bank has been before.
How do lenders become digitally native?
It means rethinking the way your business operates. The key point here, is becoming digitally native differs from being digitised. It’s not for example, banks digitising their current distribution – while it may improve their products and services, innovation is minimal and the processes remain fundamentally the same. It’s not just improving a product with the addition of Robotic Process Automation (RPA) to reduce the manual labour, but instead a whole new way of thinking. It’s redesigning current models and processes the way you would if you were starting with a blank piece of paper. The future will pave the way for products and services to be initiated around predictive insights, AI and data with the customer always being the forefront of product development.
Don’t get left behind
As we prepare to fight our way out of a recession, many lenders will unfortunately get left behind. Those that flourish will be designing bold propositions that go beyond the initial product idea by providing services that genuinely support customers in all areas that are most important to them.
Commercial banking customers want a lender who understands them and will adapt to their specific requirements by considering what makes them unique as a business. Therefore, business lenders need to change their processes to ensure commercial clients are receiving the same quality of service they receive as a consumer. They expect speed, personalisation and flexibility when accessing credit and not an inefficient process that leaves clients jumping through hoops, often leaving them unable to access credit or to plan their finances accordingly.
The new expectations from such customers means that lenders need to react fast. They need to be more involved in the whole financial journey to fully support their client throughout the recession. To do this profitably means a completely fresh mindset and propositions using data-driven processes with the customer at the centre.
Commercial lending downfall
One area that needs focus is lending to large businesses. The borrowing experience for large businesses can be difficult, often lacking in personalisation and with less access to credit, perhaps as a result of FinTechs and incumbents focusing on making improvements to their consumer lending sector. Combine this with the closure of bank branches and the large businesses begin to get left behind, finding themselves in an outdated, slow and inefficient process.
If nothing is actually broken, why fix it?
Just because the system isn’t broken it doesn’t mean there aren’t better ways to do something – it is about being proactive and not reactive. An increase in dissatisfaction is created when customers’ expectations don’t align with the lender’s understanding of good service. If lenders can provide a more flexible and personalised service to consumers, then why can’t businesses receive the same treatment?
If you aren’t first to provide the sort of service that your clients expect, and you wait too long to get it right, other lenders will beat you to it and probably take a large chunk of your clients with them. Once you’ve lost clients, it’s well known that it’s a lot harder to gain their trust again.
Commercial credit complications
It’s easy to compare business lending to consumer lending but there are many differences between the two. Lending large amounts requires a myriad of processes. The process of extending a business loan becomes intricate and complex, especially with the addition of multiple third parties. Additionally, there is the added complication of the ever-changing regulatory environment.
However, it’s still clear that changes need to be made. Rather than viewing the change as a drastic move from current standards, it’s essential that such change is viewed as a natural progression to become more digital. Using existing data and leveraging the latest analytics and AI tools ensures lenders are staying relevant.
Designed for the user
When improving your lending model and leveraging the latest analytics you need to think about the user journey. Expectations for a seamless platform are being driven not by banks but instead by the likes of digital experts, Google and Amazon. It’s essential that the financial services industry ups its game to replace the old style of thinking with a new effortlessly flexible and bespoke platform. The only way is for truly digital services to replace the outdated digitised paper processes that have slowly evolved over the years. It’s paramount that lenders make these changes to ensure that they stay relevant in the future.
The user experience (UX) is what brings the proposition to life for the customer. Behavioural science is a must-have when approaching design. No matter how superior the back-end architecture, without a strong user interface to create a great UX, then the full potential will never be realised.
Lending at a critical point
Covid-19 has quickly exposed the differences between ‘the digitised’ and ‘the digital’ across many services, but most importantly across the financial services industry. Those who are quick to reimagine their lending strategy will excel, and further widen the gap with those lenders who choose to continue with a digitising strategy. What took banks from analogue to digitised will not take them from digitised to digital without a clear shift in mindset.
Lending is at a critical point, and if incumbents are too reserved and lacking ambition, then the FinTechs who are naturally digital could rapidly outgrow them.
It’s important to invest now to be prepared for the digital future.
Target is a leading provider of business process servicing and operational transformation for over 50 major financial institutions across the globe, including clients such as RBS, Barclays and Santander. Find out how we can help your organisation drive digital transformation.