Two Surprising Statistics in Commercial Lending

Why Is Onboarding a Business so Difficult, and Why Are There No Providers for This?

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Every day, all day long, financial institutions worldwide make hundreds of thousands of risk decisions. The main question is always the same: Can we, as a bank, do business with the person or company on the other side of the table? Last century, the entire process was done through face-to-face meetings in the bank branch, but with the rise of technology, customers doing business with the bank has changed. Now, your bank makes decisions based on objective data, with fewer humans involved, and that needs to be balanced with the stricter rules governments have added concerning how a business is conducted with clients. 

 

Five years ago, when a retail customer opened an account at the bank, their onboarding experience was dramatically different from the one they'd engage in today. Their personal banker at their branch has been replaced with an app. The certified photocopy of their passport or government-issued ID has been replaced with a simple snapshot of their ID and a selfie they took on their living room couch. 

 

So, why does someone still have to show up in person at that same branch if they want to open an account for a big business today? Where is that digital experience for the CFO of that US business?

The evolution of the banking landscape

To understand the difference between the state of retail and business onboarding, we need to take a closer look at the worldwide banking landscape. Over the last ten years, technology companies have invested significantly in building financial products for retail businesses and small business clients. Companies such as Revolut, N26, Chime, and countless others have disrupted large banks, making it easier for consumers and small companies to open accounts and perform their everyday banking activities. 

 

With this rise of retail FinTechs came an entire ecosystem of peripheral software services tailored to these same FinTechs, offering solutions for payments, risk management, document management, and countless other fields of expertise. 

 

A dominating sub-sector in this category is identity and onboarding platforms that allow banks and Fintechs to easily identify clients, collect documents, extract data and consult open-source data. The software developed so far works great for retail and small business use cases. But as the FinTech revolution has not arrived yet for larger corporations, neither has the technology supporting these clients. The average middle market business still has to deal with the same slow incumbent banks powered by lagging technology and behind-the-times products.

 

Verification processes for small and large companies

There is a significant difference in the complexity and verification level your bank needs to handle when dealing with a larger business versus a smaller one. When contracting with you, a retail customer only has to prove a few things. Who are they? What is their address? Do they appear on any watchlists? Do they have any reputational issues or negative media attention? All these questions can be answered nowadays through an extensive suite of software products already on the market. 

 

For a large business, the verification becomes more compound and multifaceted. Let's say you’re trying to onboard a company that manufactures steel. The company might be owned by a venture capital firm that recently acquired the group. In turn, the VC might have a layered ownership structure to optimize its tax efficiency through companies abroad.

 

However, the bank still needs to be able to answer some questions about the potential client. Who are the ultimate beneficial owners of this steel manufacturer? What is the registered address of the company? Who are the people that have direct and indirect control over the daily operations of the company? Do any of the companies associated with this company appear on watchlists, or is there bad press about them? Are all of the associated companies actually registered in their respective countries? Are there any discrepancies in the financial statements provided by the company? 

 

All these questions are relevant and critical if your bank wants to make an informed decision about providing services to the steel manufacturer. The problem is that no software exists that makes it easy for you and your potential client to streamline this process. It is not as easy as John Doe, the retail client, submitting a selfie and picture.

 

A step forward for banks

Providing services to businesses is still an essential function of financial institutions around the world. It will take some time before there is a healthy market of FinTechs that develop tailored financial services for such clients. Until that happens, there will be a lack of software providers offering services to financial institutions to make the life of corporate clients easier. 

 

If not for AIO, most CFOs at large companies would still have to accept the antiquated process of going into your branch, sending physical paperwork, printing and scanning documents, and waiting a long time for approval, even as retail customers at your bank enjoy the benefits of a fully digital experience.

#aio #banking #commercial #credit #lending #futureofbanking #financial #decisionmaking

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