2023

Four ways in which banks can support their corporate customers embrace digital transformation in their treasury operations.

By Rahul Wadhavkar, Head of Product Management – Commercial Banking Products, Infosys Finacle

The treasury is a significant source of value for a corporate. Hence any plan aimed at serving corporate customers better must necessarily factor improving the efficiency of treasury operations and transforming that from a cost center to a value center.

By and large, the corporate treasury function tends to trail most areas on the digital journey vis-à-vis other functions. Hence there is considerable scope for transformation. For banks keen on lending support to corporate customers, digitization of treasury operations is a good place to start.

Broadly, they can help their clients with the following:

• Make the difficult transition to adopting the latest technology across the treasury business
• Build a digital treasury that can interact seamlessly with the banks’ environment for efficient operations
• Go from a “data approach” to an “information approach”
• Improve risk management

Adopting the latest technology across the treasury business

Even today, a staggering number of businesses use Excel as their primary treasury management tool. A financial services industry analyst firm reported that 51 percent of companies earning annual revenues of less than US$ 250 million primarily (or exclusively) used spreadsheets for managing treasury operations¹. This is inadvisable for several reasons: it takes a huge amount of effort and time to gather and manipulate data in a spreadsheet, which gets worse as the number of banks and bank accounts increases; there’s a greater risk of errors due to “fat finger” typing, breakdown of macros and formulas, or simply, manual oversight; last but not least, spreadsheets are a serious security risk since they lack strong authentication². Migrating to a modern treasury management system may be easier for some firms, and harder for others, but almost all will require their support from their banks’ to see it through. The transition is also desirable from the banks’ perspective, because they will no longer have to struggle to support clients at vastly different levels of technical maturity.

The SME (small and medium enterprises) segment is in focus for most banks globally. Steadily growing in importance, these businesses are demanding treasury solutions suited to their unique needs, for example, tools that can be run on mobile and tablet devices. FinTechs are responding by creating specialised products for SMEs; even as banks help small businesses adopt treasury management solutions, they will themselves have to invest in some of the innovative FinTech offerings in order to align with their clients.

Building a digital treasury that can interact seamlessly with the banks’ environment for efficient operations

Open Banking regulations, such as PSD2, are enabling innovation and interoperability across various banking ecosystems. While open banking action is seen mainly in the consumer context, APIs are finding their way to the corporate side to create an interactive environment between a bank and its clients. It is almost like there is a virtual ecosystem between the bank and its corporate customer, with clear data and information tracks, and everything working seamlessly together. This improves operational efficiency and gives corporate treasurers access to near real-time information that they can use to make better decisions while managing cash flow or risk.  The good news is that a recent survey of 200 treasurers in Europe found that 35 percent were already using, or planning to use, APIs to enable integrations that would allow on-demand or real-time data exchange³. Strong API connectivity would also enable banks to extend traditional liquidity management services with investment analysis – something that only a few sophisticated banks offer at present.

Going from a “data approach” to an “information approach”

The true value of data comes about by turning it into information. A number of leading banks have evolved from offering mere data management services to providing better insights through information management. For example, instead of simply managing a client’s payments data, they are offering structured information reporting enabling the client to reconcile accounts faster and directly impacts the company’s bottom line.  Corporate customers will push their banks to provide better, more competitive solutions in this area in the years to come. The abovementioned survey hints as much with 52 percent of respondents expressing their interest in exchanging information in real-time, and 47 percent being keen on  real-time liquidity and real-time payments and collections⁴.

Improving risk management

Managing risk is another one of the bigger priorities for corporate treasurers. There are many ways in which banks can assist them in this area. For instance, there is an opportunity for banks to help clients manage counterparty credit risk – which they’re largely doing on their own – by enabling better tracking and monitoring of counterparties based on past behaviour, economic conditions, and market news and developments. Banks can leverage technology to convert this data – that in many cases they already have – into actionable information.

In addition, banks can offer specialised liquidity management products to the broader commercial client base but more specifically to the SME segment. With accurate timely liquidity forecasts, complete with investment options they can help these businesses not only avoid a cash crunch, but also explore avenues to earn higher yields on surplus cash.

Endnote

The fundamental goals of corporate treasury have not changed over the years. However, what has changed is that treasurers are able to achieve their objectives more effectively thanks to the treasury management solutions available to them from their banks. Treasury products tend to be very commoditized, but banks can create a competitive advantage for themselves  by building a support structure for clients across a spectrum of technological maturity,  and helping them embrace the tools of digitization faster. Not every client will adopt these changes at the same speed or intensity, but the endeavour should be to take all, big or small, forward in their journey of digital treasury transformation.

Sources:

1) https://treasury-management.com/blog/excel-in-data-management-why-it-still-has-a-role-to-play/

2) https://hazeltree.com/whats-the-big-issue-with-spreadsheet-based-treasury-operations/

3) & 4) https://www.journeystotreasury.com/treasury-insights-2020

A webinar in partnership with Infosys Finacle, held on February 11, 2021, with 150+ participants.

The blurring difference between retail and wholesale banking

The digital transformation journey for corporate banks has been in some ways similar to that of retail banks. In the last 4 years, the one factor that has really helped retail banking to scale on the digital transformation journey is the emergence of FinTechs, RegTechs, and InsurTechs trying to get into the banking business. At one particular time, they were gobbling up 30% of the banking deposits, 25% of the banks’ revenue and in cases such as niche payments or peer-to-peer wallet-based transactions, they were taking away almost 50% of the transactions. In India alone, more than 2 billion transactions in the retail space happen through the Unified Payment Interface, of which, over 60% of transactions are carried out by non-banks like Google pay, WhatsApp, PhonePe and Paytm. While this is happening in retail banking, BigTechs like Amazon have begun unbundling corporate banking as well.

Amazon has started to offer corporate banking services to its partners, including lending, insurance, extending revolving credit lines for vendors, and end-to-end supply chain financing for its network. It has already granted over $10 billion in loans to more than 20,000 SMBs but this is just the start. It is seeking to take the challenge to banks with better user experience, simplicity and ease of doing business. In different pockets of the world, Amazon has started creating a marketplace with their seller network, targeting almost 340,000 SMBs tying up with organizations like Flexiloans. They plan to scale this globally, through their access to the supplier network, which speeds up loan approvals. Amazon will soon lend at 150 to 250 basis points lesser than market rate because they don’t have infrastructure investment or branch network and everything is digitized, which are very attractive terms for SMBs.

In parallel, the debilitating impact of the pandemic from last year, is taking its toll on revenues for corporate banks. This is forcing banks to look for newer sources of income, while dealing with shrinking profitability and rising bad loans. The biggest risk, however, lies in the unprecedented twin challenges of liquidity and solvency due to the pandemic. The impact from all these challenges is forcing a business model reimagination in banks, making them accelerate their digital transformation agendas on an urgent basis, at scale.

The differences between retail and wholesale banking are blurring, except for the clientele that they service, in the sense of both moving towards a marketplace model. By setting up digital marketplaces or platforms, banks can be far more involved in client journeys that put them in a better place to service their customers in multiple ways. An overwhelming majority of unicorn companies across the world have platform business models, and it is time for banks to move from pipeline-based models to platform-based ones, like DBS Bank in Singapore.

EXCERPTS FROM THE PANEL DISCUSSION

Speaker 1: Manish Dhameja, Chief Wholesale Banking Officer, Sohar International

Speaker 2: Raju Buddhiraju, EGM, Chief of Wholesale Banking, Commercial Bank of Qatar

Speaker 3: Rajashekara V. Maiya, Global Head of Business Consulting Group, Infosys Finacle

Moderator: V. Ramkumar, Senior Partner, Cedar Management Consulting International

Effect of pandemic on the accelerated of digitization in Corporate Banks

Manish: The pandemic had indeed accelerated the digital agenda, both for imbibing technology by individuals, and corporates. This has also actually helped banks to use this opportunity to partner with FinTechs, to try and create a much more convenient value-added experience for the client in such a way it becomes cost effective, as well as value accretive.

The right strategy for corporate banks to prioritize and sequence the digitization agenda

Raju: One thing the pandemic has taught businesses across industries and sectors is that you really need to run a very thin cost architecture, if you want to succeed under different conditions. Thin cost structures are only enabled by technology-based solutions. Technology empowers institutions to provide a standardized customer experience to various customers and technologies like the cloud helps companies in moving to an operating expenditure model and scale quickly, which is necessary in disruptive times. With the earlier concerns on moving data to the cloud now cleared even by banking regulators, it is now inevitable that banks move to cloud-based solutions.

Changing expectations from a customer standpoint in corporate banking

Manish: The FinTech revolution has led to increasing customer expectations in a significant way, which has also led to raising the bar for banks to perform in a big way. For corporate banks to be successful, they need to move from a pipeline-based model to a platform-based one, following the principles outlined in SATS – Speed, Accuracy, Transparency and Secure environment. All wholesale banking transactions should pass the SATS test, to have a retail banking like experience. The second principle for corporate banks to consider, is going beyond just lending and being growth partners to their clients, especially in testing times.

This principle can be further extended by providing clients with technology tools, like forecasting tools for liquidity, so that their working capital needs can be reduced. Being a growth partner for a larger customer means not just financing the company, but also financing the company’s ecosystem, including its supply chain and vendors. The final transformation principle would be to become trusted advisors to corporate customers, using the vast storehouse of historical data combined with technology tools available to the bank. Doing all these things would add value to a client and help them leapfrog into actually creating a differential competitive advantage.

Role of blockchain in changing the landscape of corporate banking and digitalization

Raju: International trade is a $16 trillion market per year, but it is mired in bureaucracy, paperwork and multiple other bottlenecks, but the messier the problem, the better chance for disruption. This is where technologies like blockchain and distributed ledgers have potential in speeding up complex transactions, and it also feeds into the need for instant gratification amongst customers.

Getting your corporate customers to walk with you, in your digitalization journey

Manish: How do you align the organisation mindset to the client mindset? I think one first starts with what’s the purpose of the digital agenda and how do I make my business and IT strategy based on the type of client experience I want. For truly successful digital transformation, while employee IQ is important for implementation, employee EQ is more important for servicing client needs.

CLOSING NOTE

Digital transformation in corporate banking has for the most part trailed behind retail banking – but not anymore. It is evolving at an unprecedented pace, thanks to the pandemic catalysing digital transformation across business models, and accelerating technology adoption. The rise of digitally nimble BigTechs and FinTechs offering corporate banking services have further brought in a paradigm shift in digital disruption. Partnerships with FinTechs will remain critical for banks in providing value-added experiences to its corporate clients. Mainstream adoption of advanced technologies such as APIs driven corporate connectivity, Cloud, Blockchain etc. will be crucial to gain flexibility, speed to market, operational efficiencies, and a competitive advantage.

By Ian Yates, CTO of treasury management FinTech Neo

Relentless phishing emails, fraudsters impersonating healthcare officials and organisations, exposed networks – the rapid pivot to home working and the resulting cybersecurity threats continue to be a headache for small businesses. Yet, while the pandemic exacerbated a number of these vulnerabilities, most have been present long before the COVID-19 era.

Setting the scene: Cybersecurity before Covid-19

Even in the years before the pandemic, SMEs were often just one click away from a cybersecurity breach, largely as a result of their often-weak technological defences. This is due to a combination of a smaller awareness of the threat as well as limited resources to put into cybersecurity. Consequently, cybercriminals and would-be fraudsters are able to take advantage relentlessly – a recent report suggests that small businesses are the target of over 40% of cyber-attacks with an average loss per attack of more than US$ 188,000.

The often-limited cybersecurity tools many SMEs use to protect their operations mean they are the “weakest link”, and criminals can use this to exploit their connections to larger companies in the supply chain.

In 2019, it was estimated that one out of five SMEs had fallen victim to a ransomware attack. Phishing attacks have also reached their highest level in three years with small organisations receiving malicious emails at a higher rate. While SMEs are juggling a number of issues and priorities, they cannot afford to cheap out on cybersecurity.

The perfect storm: Covid-19

There’s a common assumption among small business owners that their company is too small to be targeted by a cyber-attack. Unfortunately, this is not the case. The pandemic has provided cybercriminals with an unprecedented opportunity to exploit confusion, uncertainty and hastily put together security measures as the workforces hastily pivot to remote working.

A recent study from the legal firm Hayes Connor Solicitors shows that many firms are not doing enough to protect their businesses. For example, one in five UK home workers has received no training on cyber-security, and two out of three employees who printed potentially sensitive work documents at home admitted to putting the papers in their bins without shredding them first.

With hundreds of millions of people around the world forced into managing sensitive data while working remotely, 2020 has proven to be a turning point in terms of attitudes to cybersecurity. Most technology and software systems were built to be accessed primarily on-site, so their security systems are geared accordingly.

But the shift to remote working has led to workers increasingly using personal devices to ensure business continuity and many communications are now taking place outside company firewalls on novel applications. This can significantly increase cybersecurity risks for SMEs as applications for remote working are often the target of malicious actors.

In 2020, there was a 400% increase in cyber fraud in the USA alone, with statistics reflecting that small businesses – and especially the sole traders, and self-employed – were the most vulnerable and while also lacking good access to relevant security services.

It goes without saying that the pandemic has strained the finances of most businesses and increasing investment into security can be difficult for SMEs at a time when many struggle to keep their cash flowing.

How technology can help – if used strategically

There’s a number of simple things businesses can do to protect themselves by taking advantage of available technology. It is widely known that human error is the weakest link when it comes to cybersecurity, so the bigger challenge for companies is to prevent unauthorised access, hacking or fraud arising from multiple access points that now exist.

An achievable starting point is simply setting out a clear cybersecurity policy and ensuring everyone in the business is well aware of protocols and best practises. This would also involve establishing clear rules on how devices are used, how teams share documents and so on.

Tailored and controlled access can be another effective way of improving cybersecurity. By making this as granular as possible, senior managers can control the features their team members can access. If unauthorised access were to occur, it would make it easier for the security team to identify and address the source without the risk of system-wide contagion.

Any system needs to incorporate the latest security and encryption protocols, even if a business feels it is too small to be worth a cybercriminal’s time. This can include multi-channel two-factor authentication, four-eyes checks, a complete audit trail of all activity, continuous backups and much more. These protocols need to be reviewed thoroughly, tested, challenged, and updated regularly to ensure SMEs are less likely to become easy pickings.

Ian Yates
CTO
Neo

The Covid 19 pandemic has made a profound impact on people and industry worldwide. In the case of banks, in addition to managing their own businesses, banks have had to assume a social responsibility to help customers and communities get through the crisis. Be it transmitting massive government relief packages, deferring loan repayments, or encouraging digital consumption, banks have had to rise to the occasion, even while having to manage their own challenges around rising NPAs, shrinking growth rates, and declining valuations.

The pandemic has essentially accelerated the multi-dimensional disruption banks have been facing due to a confluence of several forces. On the economic front, banks have had to operate amidst shrinking GDPs, low to negative interest rate regimes, unemployment, and a slowdown in private investments, among others. On the political front, geopolitics, protectionism, and uncertain global trade dynamics have impacted the trade finance business. On the regulatory front, things haven’t been easier for banks either, with higher capital adequacy norms, new Open Banking regulations (such as PSD2), and a host of other laws covering consumer rights, data privacy, security, anti-money laundering, and terror financing, which imply massive rise in cost and compliance burdens on banks.

Further, new digital technologies such as Cloud, API, AI, and Blockchain are enabling new competitors to enter with innovative, low-cost, disruptive models to threaten incumbent banks that are still on legacy technology. As a result, banks are facing increased competition, especially from non-traditional players such as challenger banks, FinTechs and technology giants like Apple, Google, Alibaba. From a social perspective, the dynamism of customer expectations, their access to information, and ability to vocalise demand is unprecedented; add to this varying demographic and population shifts across markets, which present challenges and opportunities to banks.

Clearly, things are poised to get more challenging, as the Covid-19 led economic contraction aggravates many of these forces. And, banks have to do a delicate balancing act between customers’ credit needs, employees’ safety concerns, government directives, and societal expectations. At the same time, they are required to keep their costs under control while providing for future investments. In fact, McKinsey¹ estimates that the banking industry will lose cumulative revenues worth US$ 1.5 trillion to US$ 4.7 trillion between 2020-24 and may take up to 5 years to recover to pre-pandemic ROE levels.

These conditions are making it exceedingly difficult for bank executives to take decisions with conviction. Leading consulting firms have recommended several frameworks to guide action in these times. But banks will need to consider these frameworks in their unique context before expecting any value from the frameworks. They need to embrace first principles thinking, which helps to break a complex problem into its basic elements to achieve clarity and remain certain, amid all the uncertainty. Every bank should apply this thinking in its own context, a context that is defined by its purpose. Revisiting and aligning closely with the organization’s original purpose, thus, would be a more sound way to guide a bank’s decisions.

Interestingly, a recent KPMG CEO survey conducted in the pandemic period supports this view. As per the survey², 79 percent of CEOs said they felt a stronger emotional connection to their corporate purpose since the crisis began. So, what then, should be a bank’s ideal purpose?

Consider, for a moment, the purpose of three banks from three different regions. ANZ Bank states, “Our purpose is to shape a world where people and communities thrive.” The NatWest Group states, “Our purpose is to champion the potential of people, families, and businesses.” And Bank of America says, “Our purpose is to help make financial lives better through the power of every connection.”

Clearly, most banks have rather similar purposes across the world, at the core of which is a genuine intention to improve the way their customers and communities manage their financial lives. That is, to enable their customers to bank better or to save, pay, borrow, invest, and insure better.

Therefore, as banks revisit or strengthen their purpose to drive balance across stakeholder expectations, there are four evergreen priorities that they would do well to focus on. These are –

• Engage customers and employees constantly, to drive purposeful growth for their customers and themselves
• Maximize operational efficiencies, to reduce costs of servicing and be more sustainable
• Innovate continuously, to create new value and be competitive
• Drive continuous transformation, to stay relevant to evolving dynamics

Banks would be best positioned to achieve the above by – leveraging the power of modern technologies to unlock new possibilities and leveraging talented teams and purpose-driven culture to unlock true potential.

The pandemic has no doubt, deepened an array of challenges that banks have been facing prior to the crisis – depressed economics, uncertain geopolitics, tightening regulation, threat from new digital-attacker models, and changing customer expectations. But a black swan event of this magnitude also provides opportunities to clear obstacles like normal times cannot. Banks that have a clear focus and strategy built around the above priorities will be better able to manage diverse stakeholders’ expectations and will be on the road to recovery and growth, much earlier than others.

In summary, these are difficult times, but by adopting a purpose-driven path to transformation, banks will be able to recover in the short-term, thrive in the long run, and help create value for the communities they serve.

Sources:
1. https://www.mckinsey.com/industries/financial-services/our-insights/global-banking-annual-review
2. https://home.kpmg/content/dam/kpmg/xx/pdf/2020/09/kpmg-2020-ceo-outlook.pdf

By Adam Matuszewski, Head Equity Products, The Swiss Stock Exchange, SIX

Throughout 2020, European MTFs were unable to trade Swiss stocks – because the EU had denied the Swiss Stock Exchange equivalence in mid-2019. So, when the COVID-19 pandemic caused highly volatile stock price movements that lasted for several weeks, the Swiss market felt the full brunt of trading in Swiss shares, setting us up for an extraordinary 2020.

Despite the uncertainty, fair and orderly trading was ensured at all times within the Swiss ecosystem while managing to keep spreads tighter and recover more quickly than many European markets. Investors of any size and provenance could swiftly adjust their positions in Swiss shares based on their strategies, ultimately minimising the damage for the economy as a whole. This reliability and resilience allow financial market participants to be optimistic, should volumes surge again during a potentially sudden and vehement recovery in 2021.

An unpredictable 2020
Stock exchanges have traditionally been subject to – and designed to handle – fluctuation depending on external variables, but 2020 took this to new heights. COVID-19, international panic around geopolitics, and general uncertainty in global markets hit Switzerland like we hadn’t seen since January 2015, when the Franc was de-pegged from the Euro. Six years ago, the shock only lasted a day, whereas the impact from the pandemic has lasted months, albeit including unprecedented volume spikes in March.

Last year, some exchanges have tried to sit out the storm by closing their market and suspending trading. However, when they re-opened, all the temporary closure brought was further uncertainty in a time when investors were looking for open markets able to cope with crises. We saw this in the Philippines when the PSE closed for two days only to be followed by stock prices tumbling 30 per cent immediately after reopening. This is why scalable infrastructure has become increasingly important; it allows for a more seamless response to unforeseen circumstances, and is one of the reasons why ensuring functional market infrastructure continues to be a key focus for us in the coming year.

Lessons learnt
Besides offering the Swiss Financial Centre a chance to prove its stability and resilience, the extraordinary circumstances caused by the pandemic against the backdrop of non-equivalence also provided a unique opportunity to investigate the impact of liquidity consolidation on the market quality. Ever since the Market in Financial Instruments Directive (MiFID) entered into force in 2007, liquidity in equity trading was fragmented across several trading venues; now the effects of liquidity consolidation could actually be assessed on key areas such as trading activity, order book quality and prices. The results clearly show that spreads have been largely unaffected, and depth of liquidity has actually improved. Further, trading became more efficient as evidenced by lowered Order-to-Trade ratios and less ghost liquidity spread across venues.

So, despite the undeniable benefits of competition introduced with MiFID I and MiFID II, what has been clearly confirmed by our research last year is that liquidity consolidated in one place tends to be more resilient to volatility shocks than liquidity that is fragmented over several venues; and obviously, search costs are reduced to zero. Based on these facts, I think we should embrace a new debate on market structure that addresses the question how much competition is beneficial for the market and at where we might reach the tipping point where its downsides outweigh the benefits.

This debate about the future of trading should include the perspective of exchanges and all market participants, including the buy-side, mid-tier and smaller market participants.

Outlook for 2021
When looking back at 2020, it makes it hard to predict with accuracy what’s to come in 2021, as the past year has shown that anything can happen. But despite all the new uncertainties that Brexit might bring, it could end one – by reigniting competition for market share in Swiss stocks in 2021, even if the equivalence status of the Swiss Stock Exchange will not be reinstated by the EU. The reason is simple: most MTFs where Swiss shares could be traded are located in the UK, so we expect the market will start finding its new balance between liquidity on the primary exchange and alternative trading platforms.

Ultimately, we hope to see a return to normality within the trading ecosystem, and more healthy competition for stock exchanges. We know 2020 has been a difficult year. However, opportunities await, and we’re optimistic for the future developments in Swiss and European equities for the years ahead.

Adam Matuszewski
Head Equity Products
The Swiss Stock Exchange, SIX

As the last few days of 2020 played out, one looked back at the year with just a tinge of “good riddance” in the heart. After all, the year had begun with much promise; this was the year that ‘Vision 2020’ would come to fruition and all the ‘Trends for 2020’ would become everyday reality. Oh, 2020 had such a nice ring to it!

Little did we think that hoodies would become the hottest business attire of the year, or that we would learn a new term, “Social Distancing”, the inherent irony of the oxymoron notwithstanding. And we were signing off emails and calls with “Stay Safe”!

But dark clouds do indeed have silver linings. What 2020 did achieve is to bring digitalization of financial services delivery front and center and make it the #1 priority. After all, if customers can’t come to the bank, then the bank must go to the customer – even the non-Millennials.

2020 also heralded the era where we are all inextricably tethered to our devices and AI drives what we watch, who we date and indeed, how we engage with the world.

So, what does this all mean for lending and asset finance companies? How do they address the traditional challenges as well as the new ones brought on by the “new normal”? Most importantly, how do they survive in this age of Instant Gratification?

It’s about the Experience

Ownership of a product holds less meaning to today’s consumer than it did a decade ago. Having witnessed firsthand their parents struggle to come to grips with their assets losing equity during the global financial meltdown, they believe that things are momentary, whereas experiences are timeless. A product sold does not automatically translate into a happy customer; but a ‘wow’ experience at various moments of truth would almost certainly turn a customer into an advocate for the brand.

For lenders, this means an opportunity to transform the overall journey from a transaction to a lifecycle, by converting every interaction with the customer into a memorable experience. Interactivity, intuitiveness and customization are the topmost criteria for most customers today. Since the origination process is the first touch point to the customer, lending institutions need offer a personalized origination experience taking into account customer relationship as a whole rather than one product or service at a time.

The need of the hour is for a robust servicing platform backed by futuristic technology. Do away with the lengthy processes and cumbersome offline protocols. There is a need to accept, process and decision credit applications in a paperless mode, with a single data entry process. Lending and leasing institutions should be able to provide seamless channel integration to ensure an application can be started and closed on different channels of customer choice.

It’s about ‘Here’ and ‘Now’

“If my ride can arrive at my doorstep in 5 minutes; if my food can be delivered in 30 minutes; and if my e-commerce transaction can be fulfilled on the same day, all of this with the click of a button, then surely I don’t need to wait for days to get a loan or go to a branch…”

If that sounds familiar, it’s because traditional lenders haven’t embraced technology like their peers in other industries have. Uber wasn’t built in a day, but today ‘Uberization’ personifies Instant Gratification. Waiting is not appreciated and instant servicing is the greatest differentiator.

Lending platforms need to talk the language of their consumers. This means that from credit decisioning to the processing and fulfilment of the application, the entire procedure needs to be lightening quick – at least quicker than the closest competition. This is only possible if the underlying technology facilitates fast processing with smart business insights and real time reciprocation of consumer choices. And this should all be done in a manner that the consumer still sees things as if they were just one touch away.

It’s about “Know me, Empower me”

Traditional lending practices have placed credit history above all else, which means that entire segments of potential customers have fallen outside the net due to a lack of proper credit history. Compare that to today’s FinTechs who have aggressively used any and all available data to not only create a whole new segment of customers, but also poach them from the existing lenders.

Consider this: Many FinTech lending platforms assess borrowers not just on their available credit history, but also by looking at other credentials, such as the pedigree of their educational qualifications, and leveraging Machine Learning to analyze purchase and payment transactions and in some cases also the reviews that customers of businesses leave on social media like Yelp or TripAdvisor.

The right use of customer information should occur at the right time and this is only possible with digitalization of processes. Lenders not only need to offer the right mix of products and services at the right time, but also keep the customers informed about the entire process on their channels of choice while making the process interactive. This should be topped with the best prices based on the customer relationship and previous records. Digital technologies can also facilitate the minimization of delinquencies through better business intelligence and insights from consumer data gathered over the course of the relationship with the lender.

Any kind of negotiation, resolution or pay back can happen with the proper bucketing of customer data. This can potentially change a process that is perceived as painful and uncomfortable by many to a memorable brand experience that can increase the net promoter score for lenders.

It’s about Servitization

Servitization is the delivery of a service component as an added value, when providing products, and is a growing trend in Asset Financing. It has the potential to radically alter the way manufacturers go to market. In some servitization models, the customer owns the product and takes advantage of related services; in other models, the product itself is provided as a service. The servitization trend capitalizes on consumers’ growing comfort with subscription or ‘as-a-service’ offerings and buyers are beginning to expect the same experience in their B2B interactions.

With servitization, manufacturers can deliver the high-quality, personalized experience that customers want, with a complete service offering – from product selection to installation, maintenance, upgrades, insurance, and consulting. By improving the customer experience, manufacturers foster longer relationships with customers, increasing profitability, and customer loyalty.

To capitalize on the servitization trend, asset manufacturers need a lending and leasing system that can accommodate flexible terms, such as pricing per mile or hour, or a combination of traditional rental and usage fees. Internet of Things (IoT) is a crucial enabling technology underpinning the rise of servitization. IoT enables products to automatically communicate data about product usage, location, condition, and performance between all parties’ systems and devices, facilitating usage-based payments and superior customer service, from managing and planning maintenance to upgrade opportunities.

Servitization also enables customers to enter into a flexible lease based upon actual use of the product. If customers use the equipment for less than the contracted timeframe, they pay less. If they use the equipment more, they spend more or return the equipment at a predetermined product lifecycle threshold. This is a win-win for both customers and manufacturers as the customer only pays for what is used and the manufacturer doesn’t have to recoup a depreciated asset.

And finally, it’s about keeping it Simple

Interactivity, intuitiveness and customization are the topmost criteria for most customers today. This means an intuitive process with data based underwriting and centralized documentation of customer details. On top of it, all of these features need to reflect in a truly user-friendly user interface.

Digital ways of consumption of products and services are clearly here to stay and it is only going to get more sophisticated in future. As automation becomes imminent across lending products, a digital platform becomes an obvious choice for the aspiring leaders in the industry and a sturdy lending and leasing engine with a modern architecture, complete with support for IoT and the flexibility to adapt products to a subscription-based offering can go a long way in this context.

****************************
An article by Vijay Kasturi, Head of Sales & Business Development – Western Europe at Profinch Solutions