Digital lending offers GCC banks effective inroads into the vital SME segment

Digital lending offers GCC banks effective inroads into the vital SME segment

Sara Hoteit, Regional Manager for the Middle East at Backbase, discusses how digital lending provides GCC banks with effective access to the crucial SME segment.

Sara Hoteit, Regional Manager for the Middle East at Backbase

The contribution of SMEs to non-petrochemical GDP in GCC nations varies. In the United Arab Emirates (UAE), it hovers around 60%; in Saudi Arabia it is around 30%; in Qatar it is 16%. And SME contribution to employment tends to be even greater. All these nations have their eyes on similar horizons – sustainable economic growth, knowledge-based societies, globally competitive industries — and they know that smaller businesses have a pivotal role in achieving these ambitions.

It follows that banks can do much to support these up-and-comers. However, long-term, meaningful relationships with successful SMEs requires matching their agility. Younger entrepreneurs are invariably digital natives who expect personalised solutions. Having done their research, they will likely know that businesses of their size are notoriously underbanked, so an institution that is willing to step up and help them secure their cashflow will quickly earn their favour and, over the long term, their trust and loyalty.

The rise of digital lending

None of these SME ventures are risk-free. Loans may underperform and there are always other lenders with which to compete, including BNPL start-ups, micro-financiers, incubators, VCs and peer-to-peer lending schemes. But over the long term, guided by due-diligence practices, GCC banks can become an integral cog in the engine of business growth, advising entrepreneurs on everything from the best path through lean times to techniques for cashflow management.

Surviving and thriving in this growing SME space calls for investment in digital solutions. Digital lending will be critical because SME customers are themselves mobile-first, meaning branch visits are not an option. Nor are long, drawn-out application processes or extended approval cycles. The modern entrepreneur is not looking for complex consoles and complex tools to manage their finances; they want fast, frictionless experiences.

The good news is that in catering to these exacting standards, regional banks enjoy a range of benefits beyond customer approval. Digital transformation in the 2020s inevitably weaves its way towards automation. This is an extraordinary cost-cutting measure. It reduces the need for expensive branches. It takes thousands of labour hours of paperwork processing off the plates of beleaguered human employees. And contact centres can optimise their resource utilisation and direct agents to use their time to be more proactive with customer communication.

The metrics system

Data from Backbase shows digital lending can speed up loan processing by as much as 90%, and application times by 30%. The entire lifecycle — from application to decision and beyond — is transparent, with customers receiving real-time updates at their whim, through an app. This makes digital lending a significant boost for customer satisfaction (CSAT) and net promoter score (NPS) metrics, while reducing the burden on call centre teams. Digital lending also opens the door to embedded credit, a segment that is expected to grow to US$15 billion by 2025.

Digital lending also presents an opportunity to reduce risk by introducing data-driven decision making. The region’s non-performing loan to gross loan ratios are as high as 7.5%. With the right analytics, loan assessment can be greatly enhanced, which is a boon in the higher-risk SME segment. Digital-lending platforms allow a 360-degree view of the customer. So again, data drives better decisions by providing financial histories and preferences that guide engagement. In the right circumstances, decisions can be automated so that stronger candidates experience even faster processing times. And when human intervention becomes necessary, trusty AI-powered virtual assistants are on hand to help with analysis.

Dashboards and toolboxes

As mentioned previously, digital lending platforms put banks in a position to become trusted advisors and true partners of SMEs. Personalised dashboards for financial health are indispensable to business founders in today’s digital economy. Instead of having to put time aside every day for managing finances, business leaders are able to see, on a single dashboard, everything to do with their business. The bank that offers them this service will be rewarded with greater loyalty and engagement.

A myriad cross-selling and upselling opportunities arise as digital lending elevates the bank from financial service provider to business advisor and trusted partner. Digital lending platforms place business owners in the driver’s seat, empowering SMEs to take control of their finances. From the convenience of a single digital interface, they can access a myriad of self-service capabilities. Instead of deep diving into brochures, or being inundated by phone calls and follow ups, time-pressed decision makers can easily self-identify and access the product that’s right for their business. And with a few clicks, they can get the application process underway. For SMEs seeking that elusive blend of personalisation and convenience, such platform capabilities will resonate strongly.

Just as important as the services delivered by digital lenders is the way those services are delivered. We live in the time of the Super App, a model tailor-made for the banking sector. GCC digital lenders could consider combining a range of financial services, such as payments, lending, and insurance, to give SMEs an easy-to-use toolbox of services that can be personalised to their needs. Many SMEs already rely on digital tools for managing working capital, including online invoicing, inventory management, and supply-chain financing. Why not place these capabilities in a single app in the palm of the customer’s hand? Banks that do so will have simplified financial management in a way that is personal to the SME customer. This is a winning proposition.

From service provider to advisor

We started by pointing out the obvious — that a younger generation of business founders needs banking services that fit the times. But we also saw that a well-implemented digital lending platform goes further. It serves the bank as well, reducing risk and reconfiguring the brand to ‘trusted advisor’.

Capital is undoubtedly top of mind for any small to medium enterprise. An effective digital lending offerings will enable a bank to address one of the most pressing issues that founders face. The confidence that this instils will lay the foundation for a long and fruitful relationship, opening doors to the successful positioning of more products and services, and transforming the bank into the trusted, one-stop-shop for all the financial needs of the SME.

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