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Digitalisation in lending – Realising potential in ABF

COVID-19 has catalysed the transition towards digitalization across many sectors, driving the digital agenda to increase efficiency, improve data quality and deliver improved customer experiences.

At the same time, the pandemic has spurred an increase in borrowing from SMEs. UK firms borrowed more than £100bn last year throughout the pandemic and while this was predominantly driven by government guaranteed term lending, demand is likely to remain strong in the months to come.

To no surprise, invoice finance and asset-based lending volumes and values fell in 2020. British Business Bank’s Small Business Finance Markets Report suggests this drop has been underpinned by lower economic activity, SMEs likely switching to term lending (majority of these government guarantee schemes) and in some cases due to the challenges lenders have found in reconciling their funding models with the operation of the government schemes. However, there is already promising growth in 2021 and, as government guarantee schemes become less dominant, demand for finance is likely to remain strong in the months to come.

Invoice factoring will be important in the economic recovery but, as SME investment increases, the need for asset-based lending will play a significant role as it offers a viable solution to efficiently leverage assets. The challenge lies in meeting demand, and the accelerated digital evolution we are experiencing offers the chance to streamline customer journeys, improve risk mitigation and enhance transparency between lender and borrower.

However, digitalisation must be a truly holistic transformation if lenders are to avoid risks and seize opportunities.

Frictionless customer journeys

With the pandemic reducing the amount of face-to-face time banks and borrowers spend together, there is a greater need for lenders to create seamless digital journeys for their customers. These foster efficiency and better lines of communication between lenders and their customers and provide benefits to borrowers and lenders alike.

The former benefit from faster lending decisions and lenders can make better, more informed decisions about the businesses they choose to lend to. Additionally, lenders can improve the quality of their data and borrowers receive superior service – potentially leading to more business in the future.

Open Accounting driving greater visibility

Furthermore, in an ever more digital world, the need for greater visibility on the financial performance of the businesses to which banks are lending is increasing.

Banks are beginning to look towards open accounting to provide a solution to this problem. Open accounting is the practice in which businesses provide consent to financial institutions to access their accounting platform (think Xero, Sage or Intuit Quickbooks) to provide full transparency of sales, purchases ledgers and cash movements.

New open accounting platforms on the market can offer lenders and businesses features such as real-time data access to creditor information which helps improve anti-fraud and risk profiling, in addition to speeding up lender services, which historically relied on partial information.

A modern solution to a modern problem

By utilising solutions that not only allow clients to self-serve their funding needs but allow for excellent operational efficiencies and high levels of customisation, asset-based lenders can ensure the delivery of holistic solutions to meet their needs and customer demands.

Reliable, secure, and flexible solutions which complement your entire digital infrastructure will not only deliver speed and scalability but offer customers a better overall experience and finance solutions they need in the short or long term.

To meet this need, leading lending solutions providers are developing web applications that communicate through secure digital gateways allowing lenders’ clients to self-serve their funding needs. 

Overall, although digitalisation was well underway, it is clear the pandemic has accelerated the trend. With it, banks and lenders are beginning to engage in modernised practices such as open accounting to ensure visibility and accurate data is shared between lender and borrower. As a result, the lending process has been streamlined and made more efficient, and lenders must continue to find ways to drive efficiency and provide dynamic solutions in an ever-evolving digital world.

As Justin Trudeau observed in his Davos Address, "The pace of change has never been this fast, yet it will never be this slow again. There's an enormous opportunity, and enormous potential, in that realisation."

 

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