The transformative role of ecosystems in SME lending

Published on: June 22, 2023

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Partner ecosystems empowers SME lenders to offer outstanding customer' service and products.

In the rapidly evolving financial service landscape, core banking holds significant importance. It enables banks and lenders to deliver customer-centric products and services more efficiently.

One key driver behind this transformation is the emergence of technology ecosystems. But what exactly are they, and how do they impact one of the crucial elements of economic growth—SME lending? Let's delve deeper into the power of ecosystems in SME lending.  

Understanding the importance and significance of technology ecosystems. 

A partner technology ecosystem is a joining of forces that creates a comprehensive tech solution for banks. This allows them to easily leverage and integrate best-in-breed fintech solutions without building their own infrastructure. Doing so, reduces time-to-market, fosters innovation, and collaboration, and provides scalability and flexibility. Ultimately, these benefits enhance the overall customer experience, leading to enhancing customer experience.  

To fully harness the potential of ecosystems, it is vital to adopt a robust and scalable core banking platform. The platform should exhibit flexible and cloud-native characteristics with composable architectures that facilitate the seamless integration of components. Here, the main goal is to extend functionality beyond a bank’s core competencies by integrating with various partners offering niche services or innovative solutions. For a comprehensive understanding of critical technologies in core banking, read more. 

Open APIs: Key to Integration. 

Open APIs are pivotal in integration, enabling interoperability and data exchange between systems, components, products, and third-party services. They facilitate seamless communication between various elements such as risk assessment, credit scoring, compliance, and loan origination, among others. 

Accelerating Digital lending  

SMEs account for 99% of enterprises in the European Union, making efficient funding of this sector crucial. Ecosystems play a vital role in accelerating digital lending by:    

  • Improving Loan Origination: : Ecosystems grant banks and lenders access to companies providing digital loan origination services. This allows lenders to streamline administration by implementing digital submission of application documents, reducing paperwork. Consequently, credit evaluations become faster, leading to quicker loan approvals. SMEs can access funds promptly when needed
  • Expanding Lending: Through ecosystems, SMEs lenders can integrate additional broker channels as required, expanding their lending capabilities.  
  • Boosting Credit Scoring: Ecosystems provide the necessary technology and analytics capabilities to unlock data. This includes lenders' internal data, such as financial statements, transactions, and credit histories, and external sources like web and socio-demographic data. Sophistic credit assessment models can be developed by leveraging data analytics, machine learning, and artificial intelligence. These capabilities can be derived from ecosystem partners, leading to better-informed lending decisions, increased loan approval rates, and reduced default rates.  

Enhancing business oversight. 

Ecosystems also support lenders in offering:

  • Better Cash Flow Analysis and Forecasting capabilities: By leveraging historical data, market trends, and predictive modeling, lenders can assess the borrower’s cash flow situation and predict future cash flows. This helps lenders better plan their own cash flow requirements more effectively.  
  • Improved Business Insights: Collaboration among ecosystem participants allows lenders to better understand the borrower's business operations, supply chain dynamics, and cash flow drivers. By accessing shared data and insights, lenders can tailor their lending solutions and working capital offerings to meet the specific needs of SME borrowers, improving overall cash flow management.
  • Enhanced Customer Experience: Lenders can use the above tools to enhance customer experience. For example, they can use insights to provide timely-follow ups when a payment is missed, or offer lending via another one of its products or services when it could be useful to clients. Lenders can further inform SMEs of the state of their cash positions, increasing their value to customers.  

Unlocking the Power of Ecosystems for Banks

Ecosystems give banks, and lenders access to best-in-breed solutions to improve efficiency and enhance customer experience. These capabilities are crucial in a rapidly evolving industry where banks may struggle to keep pace with change on their own. 

In short, ecosystems give banks the options they need to thrive. However, unlocking ecosystems' true potential requires lenders to comprehensively understand their needs, target markets, and position among industry peers.  

Having this knowledge will enable them to design tailored ecosystems and collaborate with third-party providers, enhancing efficiency, improving the customer experience, and future-proofing their business. Embracing ecosystems is the key to unlocking opportunities and driving sustainable growth in SME lending. 


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