The Power of Using Data to Overcome Post-Pandemic Woes

As economies around the world continue to feel the pinch from Covid-19, small to medium sized businesses (SMBs) need more support from financial institutions. To ensure this happens, the financial sector needs to leverage more data into important decision-making processes, especially when it comes to lending. For myself, and most people in business, it’s hard to remember a time before Covid-19. Nearly three years on from the beginning of the pandemic, it’s clear to see how much the world around us has been changed by the global health crisis. Sadly, for SMBs the challenges of this new reality are particularly pronounced. The combination of growing economic uncertainty, supply chain disruption and limited government support has created a nightmare scenario for SMBs, which has left many of them fighting for their business’ lives. Unfortunately, these new concerns are only compounding an existing issue, which I’ve seen disproportionately affect smaller businesses for some time. Simply put, Covid-19 has made it even harder for SMBs to receive working capital when they really need it. The ramifications of this issue are serious, especially as countries around the world strive for progression and economic recovery. Now, there’s a clear need for platforms that overcome this problem in the business world, thankfully, such solutions might already be available. Facing the Facts Let’s start with the basics, before anyone had ever encountered Covid-19, SMBs still faced considerable difficulty accessing loans for working capital compared to their larger counterparts. To put this into some context, less than 15% of SMBs in emerging economies had access to the resources they needed to grow and create wealth before Covid-19 [1]. Similarly, the World Bank has previously estimated the unmet financing need of SMEs in developing countries to be $5.2 trillion annually, approximately 1.5 times bigger than the current lending market [2]. Why is this the case? Well, the methods currently used to underwrite SMB credit are largely to blame. Despite all the technological advancements of the past four decades, SMB credit underwriting still mainly relies on long-winded, manual processes to input information, which can be first traced back to the 1980’s. These systems may have worked for companies back then but are simply no longer suited to the demands and speed of modern business, especially within the context of our current economic climate. Understanding the Importance Clearly, the scale of the problem currently affecting SMBs is vast. Sadly, the knock-on effects that this issue could cause within national economies is similarly seismic. It’s no overstatement to describe SMBs as the backbone of most Western economies. In fact, almost 50% of the world’s population currently works for an SMB [3]. Therefore, there’s a huge global incentive to ensure such businesses have the tools needed to galvanize growth back to pre-pandemic levels. Thankfully, there’s now widespread consensus regarding what these tools would look like, and how they would help to make a difference. Moving forward, SMBs need to be supported by modern solutions, which can leverage alternative data sources when making decisions. Personally, I think this potential was best explained by consultancy leader, Deloitte, who declared such products as ‘key solutions to current lending gaps” [4]. These systems may soon help to make SMB lending more frictionless, and perhaps most importantly will dramatically shorten the timeframe on expected decisions. Taking the Next Steps Better still, it’s my belief that the introduction of these systems won’t only benefit SMBs. Instead, by leveraging alternative data within the credit decisioning process, modern solutions can help financial institutions to routinely make more accurate and reliable lending decisions when assessing SMB credit applicants. With banks, credit unions and other financial institutions looking to limit risk within their decision-making processes, in light of other market pressures, such products are an ideal solution. Therefore, it’s little surprise to hear there’s now considerable buy-in across the market for such solutions. However, as with any major technological advancement within an industry, I believe there now needs to be a transitionary period as solutions are onboarded, which will require action from both sides of the equation. Thankfully, this should be achievable in a relatively short timeframe, which in turn, will provide economies around the world with the support needed to foster significant economic recovery. Supporting SMBs As a SMB owner myself, I’m committed to supporting this drive by promoting new loan origination, decisioning and monitoring platforms that can help to fix the world’s broken SMB credit lending systems. It’s clear to me that now is the time for solutions that provide access to real-time, orchestrated SMB loan origination, data points and automated decisioning. Adopting these solutions will help SMBs to gain access to a more practical digital application process, and help lenders to make more accurate lending decisions. Nobody has enjoyed the Covid-19 pandemic, but with the most disruptive elements of the global health crisis now seemingly in the rear-view it’s time to assess how we can go about building a world that works better for all businesses, especially SMBs. Thankfully, data led technologies can make this ambition a reality. The priority now is to get these solutions onboarded as quickly and efficiently possible, a goal that we are working towards tirelessly. SOURCES: 1 - https://www.ifc.org/wps/wcm/connect/news_ext_content/ifc_external_corporate_site/news+and+events/news/insights/fintech-financing-smes 2 - https://www.worldbank.org/en/topic/smefinance 3- https://www.worldbank.org/en/topic/smefinance 4 https://www2.deloitte.com/content/dam/Deloitte/xe/Documents/strategy/me_bridging-the-sme-finance-gap-in-the-gcc.pdf