Banking mustn’t just put up with tech, but embrace it
The COVID-19 pandemic has brought new challenges to the world of business. Arguably, the most pressing being how organisations, unable to operate in their usual capacity, can access funds to remain afloat. To put the scale of this issue into context, it is predicted that if not supported correctly, a fifth of all UK SMEs will likely run out of cash during the lockdown.
Although banks are doing all they can to help businesses through the pandemic, standard lending solutions and practices are not geared towards SMEs, or the current climate. For example, identification checks can take months to complete, and funds distributed to successful applications may take even longer.
In order to ensure the survival of the UK’s SMEs, the backbone of our economy, the industry needs to change its practices to make financial inclusion and lending for them a priority.
Read more: City A.M. launches new Save the SMEs campaign
Age-old problems
One of the primary issues facing SMEs looking to take out a loan is the time it takes to become verified and accepted. The general industry average for clearing a loan is 60 days, and this is a pre-COVID-19 figure, where applications were significantly lower than they are today.
The issue is that many traditional banking players simply lack the underlying technology infrastructure required to increase the number of applicants they can process, or the speed in which it can be done. This means that even if they wanted to ramp up their SME loan support, they are unable to do so.
Faster funding, flexible technology
What’s needed to solve these challenges is a shift in focus for banks and payments providers towards a more customer-first approach. This requires legacy infrastructure to be updated or replaced with more modern, flexible alternatives that are better able to meet the needs of the SME.
But, with Euromoney estimating that the total cost of maintaining legacy systems, investing in new systems and paying IT staff amounts to anywhere from 15% to 25% of a typical bank’s annual budget, this is not something many banks can afford – especially in the current climate. To overcome this challenge, we’re seeing a shift towards a utility model, where financial infrastructure providers give banks and payments companies access to the cutting-edge technology that enables them to focus on better serving their end customer.
Importantly, this enables banks and payment providers to come up with innovative solutions for SMEs, knowing they now have the underlying technology to execute it. This can include lending propositions that are built and designed with the flexible requirements of the modern-day small business in mind. Enabling the ability to calculate loan requirements, receive confirmed offers (and then funds) in just a matter of hours.
This flexibility, for example through being able to repay money based on their cashflow, is extremely important for SMEs. Especially at a time where their income may be significantly lower than normal.
A road to greater financial inclusion
Although SMEs have traditionally found it harder to be financially included than their larger peers, the current environment provides a great opportunity for the payments and banking industry to evolve its position.
There are 5.9 million SMEs in the UK, and losing even just a small proportion of these over the next few months could significantly hinder the wider economy. It’s therefore in everyone’s interest that the technology processes are in place to ensure that a business, no matter its size, has access to the funds it requires to keep operations going. This should not just apply to the current climate, but become standard industry practice.