In today’s fast-paced and digitally interconnected business landscape, financial institutions (FIs) face the imperative of optimizing their commercial lending process to better serve their small and medium-sized business (SMB) customers. Traditional lending practices often involve cumbersome paperwork, lengthy approval processes, and limited access to comprehensive financial data.
However, with the advent of open finance, a new era of opportunities emerges, empowering banks and credit unions to revolutionize their lending strategies. By embracing open finance, financial institutions can unlock the potential to streamline operations, leverage alternative data sources, personalize complementary solutions, and enhance risk assessment.
1. Embrace Open Banking
Explore partnerships and integrations with fintech companies to leverage open banking APIs. This enables seamless data sharing, reducing manual processes and improving the accuracy and speed of underwriting decisions.
Open banking “Open banking allows legacy financial institutions to leverage their existing customer base and data to develop new products and service [and] enables competition with FinTech companies and other new players in the market,” note the folks at paytech company, GoCardless.
By forming partnerships and integrating with innovative platforms, banks and credit unions can leverage technological advancements to improve their SMB lending process further. Collaborations can bring forth new insights, cutting-edge tools, and novel approaches to customer engagement, resulting in innovative loan products and a competitive advantage in the market.
Open banking enables your FI to streamline the lending process, reducing administrative burdens and manual tasks.
Leveraging open finance APIs allows banks and credit unions to seamlessly access and analyze relevant financial data from various sources. This automation leads to faster loan origination, underwriting, and decision-making, allowing financial institutions to serve SMB customers more efficiently and stay ahead in a competitive market.
2. Offer Personalized Solutions
Leverage open finance to gain deeper insights into SMB customers’ financial behaviors and preferences. Use this information to tailor complementary products and terms to their specific needs, increasing customer satisfaction and loyalty.
22% of SMBs are considering switching primary banks, according to PwC data, underscoring the importance of creating a relationship with your customers that leaves them happy to continue working with you.
“Banks are no longer viewed as simply places to store money, but as providers of a broad range of financial services that covers everything related to making payments, getting paid, and tracking money movements,” explains Itzik Levy, CEO and founder of vcita.
Translation: there’s more opportunity than ever to gain repeat business from your commercial clients. However, you’ll have to foster a true, holistic relationship with them.
And leveraging their data analytics can help you do this.
The availability of a diverse range of financial data through open banking empowers financial institutions to deliver highly personalized loan offerings to SMB customers. By understanding customer behaviors, preferences, and financial needs, banks and credit unions can design loan solutions that align with the unique circumstances of each business.
This tailored approach enhances the overall customer experience, fosters stronger relationships, and increases customer satisfaction and loyalty.
“As well as helping SMBs access vital working capital, this also encourages them to view banks as partners, rather than guards barring the door to funding,” Levy concludes.
Read more: 4 Ways Data Improves Your FI’s SMB Customer Engagement
3. Enhance Risk Assessment
Leverage open finance data to develop robust risk assessment models. Utilize machine learning algorithms and AI-powered analytics to evaluate creditworthiness more accurately, improving loan approval rates while minimizing default risks.
Open banking facilitates more precise risk evaluation and credit assessment.
With access to comprehensive financial data, financial institutions can leverage advanced analytics and machine learning algorithms to analyze an SMB’s creditworthiness with greater accuracy. This deeper understanding of a business’s financial position helps in identifying potential risks, minimizing default rates, and making well-informed lending decisions.
By effectively managing risk, financial institutions can strengthen their loan portfolios and maintain healthy asset quality.
Read more: Should Your Payments Company Monitor Its Customers to Reduce Business Risk?
Open Finance Is a Competitive Edge in the Commercial Lending Process
Open finance, particularly the concept of open banking, has paved the way for a more collaborative and data-driven approach to commercial lending. The ability to securely share financial information through open banking APIs facilitates seamless data integration, transforming the lending landscape.
Financial institutions can now tap into a wealth of alternative data sources, ranging from transaction histories to cash flow information from accounting software and online platforms. By harnessing this diverse data ecosystem, banks and credit unions gain a more holistic view of an SMB customer’s financial health, enabling them to make informed lending decisions with greater accuracy and efficiency.
Boss Insights is a single API to unlock hundreds of SMB financial insights that will transform your commercial lending process for the better.
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