Business lending is becoming commodified
Lenders must differentiate via customer experience before it's too late.
Technology advancements have equalized the lending marketplace. Great customer experience is the differentiating factor that lenders should leverage to attract and retain customers. It’s expected that lending services are fast, elegant, and reliable; this attitude will only continue to grow in B2B environments. How to achieve a compelling customer experience remains undefined.
As fintech becomes more accessible, the pressure of price will continue to grow. Data-enabled financial services will become more commoditized — fueled by the events of 2020. Borrowers are prompted to become more transparent with their banking partners, and data-sharing will accelerate the rate of software innovation. This will influence not just the necessary upgrades to infrastructure but also internal practices in response to structural shifts within the lending space.
The impact of globalization
SMBs favor lenders that share a similar geographic footprint. This trend has sustained community banks the world over, making it much easier to cultivate a deep working relationship. As a new generation of leaders emerges, however, traditional attitudes such as this are vulnerable to disappear. You no longer need to live in the same area or continent to deliver compelling customer experiences. This growing capability and increased engagement in virtual environments stresses the importance for lenders to retain customers before a competitor takes them.
The open banking movement
These collective shifts fall under the open banking movement, a collaborative model where banking data is shared between two or more parties to deliver a greater service (McKinsey, 2017). While still in its genesis, open banking is picking up speed as regulators warm to the benefits of greater collaboration. The Reserve Bank of New Zealand (2018) is already trying different models. In Asia, the appetite for open banking experiments has been particularly ambitious: GoPay in Indonesia and Vietnam, AliPay in China, and GrabPay in Malaysia and Singapore.
The implication for lenders is that existing systems will begin to revolve around ecosystems outside of their control. All the players in the lending space, from fintech firms to banks, are converging into a virtual hive of interactions and engagements – occurring with greater efficiency than ever.
Three tenets to lending
Given these trends, it would be wise for lenders to develop their technology architecture into more open and extensible systems. Roland Berger (2020) believe that there should be three main tenets to a lender’s strategy in adapting to the future of SMB (small and medium business) lending:
- customer centricity
- straight-through processing
- open-system architecture.
Customer centricity involves putting the customer at the heart of the conversation and keeping the focus there. Lenders that compromise on putting the customer first will put themselves at a competitive disadvantage.
Straight-through processing encapsulates the lender’s ability to make the omnichannel experience as seamless as possible. A critical focus area will be ensuring a consistent customer journey. Instead of viewing experiences from specific touchpoints, lenders need to focus on a larger continuous interaction that starts from first exposure to final engagement with the bank.
Open-system architecture is a sticking point for many in the industry; it’s a big departure from legacy processes. The movement towards open banking requires transparency. This is something even the largest financial service providers are unable to avoid.