A Reserve Bank of Australia (RBA) report highlighted that 50% of SMEs struggle to secure funding, particularly due to lengthy application processes. Meanwhile, non-banks share has seen a growth, now holding about 9% of business lending and challenging the norm.
 
This shift in the lending landscape sets the stage for deeper transformations. Businesses do not just want loans from their banks; they also demand digital accessibility, customized solutions, and online productivity tools, mirroring retail lending experiences. Other expectations of companies driven by market dynamics include transparent pricing, risk management advisory, and environmentally and socially responsible lending practices. 

In addition, fintech and other non-bank financial providers are raising customer expectations by automating customer verification, document population, and other tedious processes.

How are banks responding to these challenges? 

Banks trapped inside legacy systems and processes tend to struggle, unsure where to begin. In contrast, progressive banks across the globe are looking to first principles thinking to introspect what their customers really want. In other words, what jobs do they want to do? With customer jobs as the starting point, these banks are systematically—and with the help of technology—improving how they create, deliver and realise value for their customers.

Better lending products, services, and capabilities for creating value

A great example of value creation from Australia is Stream Working Capital from Commonwealth Bank of Australia which is a digital cash flow lending solution designed to help businesses unlock cash trapped in unpaid B2B invoices. This fully digital platform operates on a self-service basis, enabling businesses to select specific customer invoices against which they wish to borrow.

Another example across the globe with the embedded banking model is the partnership between Goldman Sachs and Amazon. By tapping SME sellers’ data from the Amazon platform, Goldman Sachs can better understand the businesses’ performance, sales cycles, product ratings, and other details to proactively offer suitable credit line to worthy sellers. Because the underwriting has already happened to some extent, even before a business applies for a loan, Amazon sellers are assured of faster approvals. As a result, lending is a seamless part of the customers’ (Amazon sellers in this case) primary journey (selling).

Instabiz from ICICI Bank in India is creating value with an aggregator model that serves all the financing needs of micro, small, and medium enterprises (MSMEs) through a single portal. Recognising that when an enterprise seeks financing, its primary need is not the loan per se but rather to run its business, Instabiz offers various services to meet that (primary) need, such as loans, payment processing, accounting and tax support, in one place. 

U.S. fintech Capchase innovated a niche lending product aimed at SaaS startups which could not meet their upfront financing needs because their customers paid according to a flexible schedule. Sensing an opportunity, Capchase created a revenue-based financing model where the businesses repaid loans not with interest but with a share of the revenue earned during the agreed period. 

Finding new ways of delivering value 

Progressive banks are digitising as many lending processes as possible, enabling everything from loan application to disbursement to happen online. Towards this, they are embedding corporate loans within their customers’ primary journeys and offering them on various ERP, e-commerce and accounting platforms, clearly understanding that regulatory compliance remains their (the banks’) responsibility. After creating many successful marketplaces for retail customers, DBS Bank has built DBS BusinessClass, a platform offering resources and support for SMEs and startups. Another example is eBroker that functions as a marketplace for small business loans in Australia. Here, potential borrowers can explore a variety of business loan options from over 70 lenders, including banks and non-banking institutions. The platform offers an array of loan products, catering to needs such as low-doc loans, short-term solutions, and options for those with less-than-perfect credit histories.

Realise value through better business models

Digitally advanced institutions realise greater value for their organisations and customers by lowering costs, improving experiences, and adopting new business models. For instance,  these organisations leverage cloud and application processing interfaces (APIs) to automate and reduce the cost of customer onboarding and artificial intelligence to improve various processes such as know-your-customer (KYC) and anti-money laundering (AML) checks, credit scoring, and others. Some lenders, like Capchase, are innovating lending models based on outcomes, while others, like DBS Bank, are using a marketplace model to realise value for all parties. 

Corporate banks that are still exploring ways to maximise value for customers could benefit by following an eight-step process:  

1.    Understand customers and the “jobs” they need done: Map out the "jobs” of your most important customers in running and scaling their business.
2.    Identify gaps and new opportunities: Identify opportunities at the intersection of your customers’ underserved jobs and the gaps in your competitors’ current and future propositions.
3.    Run design sprints: Define the features of a “minimum lovable product”—a product that does one thing that customers love around underserved jobs—that you can use to test the value you are creating quickly.
4.    Design the customer experience: Define the people, processes, and technology for helping you design an end-to-end customer journey. Review the technical feasibility of your proposition.
5.    Find the right partners: Adress the build vs buy question for products and capabilities. Look for partners with best-in-class digital capabilities, helping you create value and deliver better customer experiences faster and more efficiently.
6.    Develop the business models for creating, delivering and realising value: Commercial viability is impossible without customer desirability, so focus on developing something that your customers value because it solves an underserved need.
7.    Run beta tests to scale the service: Based on the lessons from a live product being used by real customers, regularly update, and reprioritise the strategic direction and roadmap.
8.    Iterate with customers to improve continuously: Don’t stop listening to your customers just because you have a successful proposition today. Keep monitoring the market and your competitors for new catalysts, like AI, that might enable you (or them) to create more value.

The landscape of corporate lending is evolving rapidly, driven by shifting customer demands and technological advancements. While challenges persist, forward-thinking banks embrace innovation to create, deliver, and realise customer value. By reimagining lending processes, leveraging data insights, and adopting new business models, these banks are better positioned to meet the diverse needs of businesses in the digital age. A customer-centric approach coupled with agile methodologies will be paramount in driving continued success and delivering meaningful outcomes in the corporate lending space.

About the Authors:

Rajashekara V. Maiya

Vice President and Global Head- Business Consulting, at Infosys-Finacle

Rajashekara Maiya is responsible for Business Consulting at Finacle, which includes Pre-sale, Solution Architecture, Account Mining, Digital offering. Previously he was responsible for charting the product strategy of Finacle, the flagship banking solution of Infosys. This role included responsibility for, defining the detailed product roadmap, Strategic acquisition & alliance partner identification & management, client engagement and representation of the company with external stakeholders such as analysts and media. He also was responsible for the Cloud Business for Finacle, including charting our strategies for Cloud Hosting, working with Cloud Infrastructure providers. Further, he was responsible for the Eco-system collaboration and bringing out point applications in the banking space and Fintech engagements. Maiya has been quoted in publications such as Forbes, The Banker, Banking Technology and the Economic Times. He is also visiting faculty to many universities, and speaks regularly at SIBOS, Asian Banker, MEED and others. He is on the expert panel of the McKinsey Quarterly, a member of the XBRL Abstract Modelling Task Force (AMTF) Group. He is also the co-author of book “SMACing the Bank” which was released in November, 2017.

Theo Albers

AVP & Head of Business – ANZ, Infosys Finacle

Theo heads the business for Infosys Finacle for the Australia and New Zealand market, supported by a team comprising of sales, business consulting, pre-sales, delivery and marketing. He comes with a strong technical background, and ample experience in complex multi stakeholder strategic delivery programs. From his many years of experience Theo has good knowledge of banking software functional capabilities, ability to design solution offerings and services to support customers strategic objectives by applying technology to address real world problems.