With the constant advancement of technology, the requirements of people, in today’s tech-savvy era, are changing rapidly. From food delivery to bank loan approvals, people look for speed and convenience in every aspect of life. Digitalization, in this constantly-evolving era, is the key to an enhanced experience. Every sector, ranging from FMCG, tourism, food, grooming, medical, and transport, to banking, is trying to integrate technology with its business operations to embrace the digital revolution and meet its customers’ wavering requirements. Quite sometime after retail banks comprehended digitalization, corporate banks have recently started getting digital and incorporating technology with their credit offerings. When it comes to the SME (Small and Medium Enterprise) lending landscape, it is noticeably accelerated by technology. Today, what borrowers look for is access to faster credit. This includes quicker approvals and fund disbursements. Also, SMEs, these days, prefer a simple application process, backed with user-friendly technology, and ease of applying for loans through mobile-friendly apps.

Traditional lending institutions like banks are steadily inclining towards digitalization. Various factors are disrupting the SME lending practices of banks. SME customers, these days, look for financing options that offer instant approvals and quick funds, to thrive in today’s competitive business environment. Hence, banks need to streamline front, middle, and back-office activities using external data resources and enhance their offerings through data analytics, artificial intelligence (AI), machine learning (ML), and automation. Today, many banks have access to Application Programming Interface (API) enablement, which makes data transfer between bank and client servers seamless. This helps customers to make banking transactions much more easily. Also, API banking considerably decreases the turn-around time of banking transactions. Besides, customers no longer need to visit the bank or manually upload transaction files. However, banks are facing increasing competition from fintech companies and other alternative SME lenders, who are acquiring SME customers by providing same-day loans through digital platforms. But, till the pandemic hit the world, many SME customers preferred banks due to their comparatively lower interest rates. But, post-pandemic, most SMEs started going digital to reach out to maximum target audiences and felt the need for simpler and faster lending options, that will also offer personalized solutions to meet their unique requirements. Considering the revenue potential from the SME sector, banks are now integrating cutting-edge technology with their lending process to offer borrowers an augmented experience.

4 primary system and processes-related issues that banks can solve by going digital:

Slow process

Many banks still rely on their employees to review and manually enter data from physical documents, which is quite a slow process. Automating this process will make it faster as well as comparatively cost-efficient.

Poor user experience

Many banks usually require multiple documents on paper in different tranches and do not appreciate digital copies of the same. Meeting this kind of demands of banks often turns out to be distressful and time-consuming for the applicants, because people these days prefer keeping all documents in digital format to make sure they are not lost or damaged. Also, online submission of digital documents is always a simpler and time-saving process

Lack of data-driven processes

All SMEs are unique and so are their characteristics and requirements. Hence, banks often find it difficult to assess the creditworthiness of SME loan applicants, just by analyzing their profit and loss statements, financial forecasts, and business plans. As a result, the chances of default increase. By incorporating technology, banks can gather real-time and alternative data sources that they can use to enhance their credit models.

No personalization

The offerings of banks often lack customization, which SMEs require to thrive in today’s dynamic business environment. Hence, banks should consider using data from various new regulations and leveraging open banking to obtain detailed credit data, based on what they can modify their offerings.

Steps to embrace digitalization:

Banks can integrate internal customer data with information retrieved from external sources and open their doors to creditworthy SMEs that got rejected by many lenders due to various stringent requirements of outdated lenders. Besides, banks should use AI, ML, and data analytics to offer SMEs solutions, customized as per their specific requirements.

Banks should aim to enhance their customers’ experiences through various digital enablers, applications, and systems.

Banks can also consider working with third-party solution providers to ensure a state-of-the-art offering. Many SMEs, today, prefer to apply for loans from their phones. Hence, banks should invest in designing mobile-friendly solutions. A wide number of banks are partnering with FinTech companies, these days, to stimulate their digital transformation.

Banks should try to gain greater omnichannel capabilities, in terms of their credit process. This will help customers easily jump from one platform(mobile), where they started filling out the application form, to another(laptop/tablet), where they will finish and submit it, without any disruption.

Summary:

The evolving technological landscape is anticipated to reshape the banking sector in the coming years and offer SME customers a faster, personalized, more convenient, and transparent borrowing experience.