Governments around the world have responded on a scale not previously witnessed to protect people around the world from becoming a victim of COVID-19.
With many lockdowns still in place and now coordinated on a local level to respond to second COVID-19 waves, businesses have been taking decisive action to ensure the protection of their employees and to keep their businesses afloat.
Around a third of SME businesses in April went online and this figure will rise further – provisioning for remote working and requesting lending support. The economies across the globe are extremely weak and businesses are digging deep to stay resilient.
Businesses looking elsewhere for loans
In spite of all of this, small and medium sized businesses (SMEs) have found it difficult to obtain financial support both from the government and traditional banks. SMEs are integral to the global economy contributing a large amount of revenue every year and provisioning for livelihoods.
Unfortunately, if banks do not lend to these institutions - or more importantly have the ability to lend at speed – businesses will look elsewhere for lending provision and big business will follow suit with the emergence of challengers that can lend at speed.
So why are traditional banks failing to address the demand for lending among SMEs, and what can be does this mean for the future of banking?
Responding to instant expectations
Banks are not intentionally discriminating against SME businesses when responding to lending requirements. It is rather the ‘legacy’ of their own IT infrastructure, and a combination of nostalgic ways of working such as the combination of digital and paper onboarding processes.
COVID-19 has led to a world of remote working and it is very much here to stay. Within this environment, paper processes have no place from an efficiency point of view, and also as part of a sustainability agenda.
The challenge that banks must overcome is to create an IT architecture which is fit for customer demand and new expectations around banking products and services. Customers want a bank account or loan that can be accessed instantly, and not wait for weeks or months for it to be approved – especially if the business only has a week buffer before it goes bust – which will have implications not only on the profit margins but also the livelihoods of the people who work for the corporations.
The current technology in place at traditional banks is not fit for purpose to approve lending products and services for SMEs in a COVID-19 world. If we start to go deeper into why the technology is not fit for purpose, it is as a result of a high level of dependency on technology vendors; also known as ‘vendor lock-in.’
It’s important to note that the ‘lending lag’ at traditional banks doesn’t just affect banks in relation to SMEs, but big business will begin to realise the benefits of getting their loans faster from elsewhere.
For banks to survive they need to provide businesses with access to funding quickly, and onboard these businesses at speed. Banks must re-assess their digital processes in the context of this new normal.
Many financial institutions lack the flexibility and technology to be able to respond to the market at speed – especially if they are to prevent themselves from being outpaced by challenger and neobanks.
The future of banking: Micro-services
Banks can only provide their products and services at speed through building an IT architecture based on micro-services, responding to the changing lending expectations of each customer.
For banks to harness microservices they must open up their APIs via ‘Open Banking,’ connecting their core banking platform to third parties. And thus, enabling banks to plug in a core banking platform that can increase their product and services offering.
As a traditional bank, you might be thinking this will be a long and cumbersome process of ripping out and replacing processes or bolting on new processes to legacy systems – costing time and a serious financial investment. However, this isn’t required if a bank invests in cloud technology: specifically a core banking platform in the cloud.
Lending efficiency by removing tech-vendor dependency
Banks must not let their current technology vendors impact on their lending capabilities. A ready-to-use, cloud-native platform can modify existing processes and deploy new ones.
The advantage of cloud banking platform is that it can be configured and understood by the bank’s employees with a non-technical background. A core banking platform in the cloud removes the need for an external agency or vendor automating and thus speeding up the banks’ lending processes to provision for businesses of any size.
Banks can connect the dots with a digital lending platform that operates on a micro-services principle enabling banks to provision for any banking or lending requirement, rather than having to start from scratch each and every time a bank has a request for a new product or service request.
COVID-19: It’s not business survival it’s banking survival
A next-generation Core Banking System (CBS) platform in the cloud will help traditional banks retain and grow their market share by accelerating the end-to-end lending process from approval and onboarding, through to loan execution.
For banks and financial institutions to survive in a post-COVID-19 world, they must adapt and respond appropriately to the current market condition – it is not a time to base their operations on historical nostalgic ways of working. This will enable banks to be highly responsive when provisioning for the lending needs of businesses across the globe: generating loans in days rather than weeks and months.