Banks can enrich the data that sits behind the credit scoring model. Lenders can integrate internal customer data with broader and more innovative information retrieved from external sources (local socio-demographic data, web data, PSD2, etc.). This allows the bank to unlock financing for creditworthy but rejected SMEs and offers predictive, tailored solutions (using AI, ML and data analytics).
Scalable and open-banking technology
Leveraging APIs and the cloud allows banks to offer more complex and targeted services and be faster and cheaper to run.
If banks really want to digitally transform their lending, they must look at changing not only the customer journey but the underlining processes. Many digital enablers, applications and systems can accelerate digitalization, all through the credit process. The challenge for banks is finding a combination that most efficiently replicates their credit life cycle, making integration easier.
Leveraging the full power of the bank
Lenders should work with all business units across their products and services and tap into distribution channels and after-sales services. This helps build an agile operating model with clear governance to operate across the bank at high speed.
Customer experience first
Ensuring customers have a seamless journey across different products and services, with a clear end-to-end journey, builds satisfaction and loyalty, as well as lower drop-out rates as banks become more relevant.
Best in class
Working with third-party solution providers ensures a wide, deep and up-to-date offering in line with the banks’ long-term vision.
Working with organizations, EY teams have also seen some common problems they have faced on this journey. For example, many SMEs want to apply for credit on their phones, so any solution needs to be designed to be mobile-friendly. Also, given that loans are often negotiations (around term length, amount borrowed and rate), any system needs to be flexible enough to adapt without forcing customers to restart the entire process.
Digital lending – a revolutionary change for SMEs and banks
The pandemic showed SMEs the advantages and potential of digital banking services. How banks respond to that demand is key. While there are many interesting non-core services they can develop, they must not lose sight of getting lending right. A fully digitalized lending offer can allow banks to make fast decisions while giving a frictionless and easy process for time-busy SMEs. Critically, it also means banks can obtain rich, real-time data that can help them better understand SMEs’ needs and design new products accordingly. It can also be a step towards hyper-personalization that can create bespoke offers for each SME.
EY teams have seen several lenders (and even digital banks) look to enhance their digital lending and run into problems. The key to success is ensuring the underlying systems and the customer journey are changed. That means using the right digital tools at the right stage of the credit cycle, such as a credit decision engine.
Banks will need to understand where they can stand alone and where they may need to partner or use white label solutions. We are already seeing several banks partner with FinTechs to accelerate their digital transformation in this space.
It is a crucial time for banks to land their SME lending proposition. Many SMEs are looking to invest post-lockdown to either digitalize further or use their enhanced digital presence to expand overseas. At the same time, rising interest rates make lending more profitable and will attract non-bank lenders to serve this sector. With branches closing, those banks that can deliver digital lending for SMEs will have a clear competitive advantage.