The business-lender paradigm

Lenders of all sizes believe a key differentiator is their customer relationship management capability. The pandemic has thrown that in disarray, and volatile economic conditions make the need for access to regularly updating customer data increasingly pertinent to inform lending decisions.

The FDIC (2018) found that lenders, both large and small, believe that their approach to customer relationship management is paramount. The events of 2020 put this under the ultimate stress test; both lenders and their customers had to adapt or otherwise risk insolvency. While an effective customer engagement strategy can prove a good differentiator, its potential value remains untapped without the lifeblood of customer data feeding into it. Moreover, lenders require access to regularly updated customer data to inform decisions, e.g., origination and management.

Real-time data enables lenders to respond with greater agility

The pandemic has affected all businesses. Some for the better, but many for the worse. This economic shock reverberated to lenders as many turned to vehicles like invoice factoring to appease desperate SMBs seeking working capital (PwC, 2020). To deliver these more esoteric financial products, lenders need richer data. Things like inventory, receivables, and payables data that were previously undesired now have grown heavily in importance (Deloitte, 2020).

Any view or perspective a lender has on their business customers was rendered redundant as lockdowns changed the status quo. It demonstrated the pressing need for lenders and businesses to sit in closer proximity. When working capital dried up in the initial lockdowns, lenders saw a rush of loan applications. It was no surprise that the number of businesses actually granted loans was significantly lower than the same period in 2019 (Biz2Credit, 2020).

Trust: a data-powered future with fintechs and lenders

If we imagine the scenario where lenders had real-time views of their business customers, the narrative would be one of solace instead of desperation. Real-world shocks, pandemic or otherwise, would be momentary footnotes from an economic perspective. Businesses and their partners would have enough structural resilience to weather these storms. Lenders would have more data to reduce uncertainty in their models, and businesses would have greater clarity on their chances of receiving loan injections.

Lenders can empower their engagement strategy with customer data to allow for a hyper-personalized approach with each customer. Unlocking data feeds will yield an outsized benefit for the lender. Once they can prove their value as a trusted advisor, it would prevent a customer’s likelihood of looking elsewhere. Even considering the growing prominence of banking-as-a-service (McKinsey, 2021), trust remains an elite competitive advantage.

McKinsey (2020) found that trust was growing for fintech’s in the US, considering the pandemic. The trust advantage of legacy financial service providers is fading quickly. Cut through with Gen Z and millennials has increased significantly. That said, the crisis has strengthened the resolve of both existing fintech adopters and the non-fintech population. Only 7% of the latter have come out of 2020 with a stronger desire to adopt these technologies.

Looking forward

Open banking, and its sibling open finance, are movements that are making data-sharing a reality. The need and potential value to both businesses and lenders are clear. What is not are the players that lean into this change in the market and those who choose not to. Which side will you fall on?

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