The core predictions for business finance in 2022 have been forecast in the latest report from Trade Ledger, a prominent technology provider for the commercial banking and financial services industry. The report consolidated the insights of a variety of industry experts.
The report’s leading predictions believe that business banking is falling seriously behind where it should be, and as Martin McCann, co-founder and chief executive officer of Trade Ledger anticipates, the business model is set to be completely up-ended using componentised banking within the next three years.
“Business banking isn’t a cost-sensitive market – it’s an experience-sensitive market,” McCann explains. “Yet, currently the experience isn’t fit for purpose. A typical commercial loan takes 90 days to process today, and that’s if the firm even qualifies to apply. What we need to happen is for the banks to stop thinking about products and start thinking about the customer. To do that they need to componentise each aspect of their operation – from know your customer (KYC) and anti-money laundering (AML) to countering financing of terrorism (CTF) – and build an ecosystem of specialists to deliver those components.
“Think about the automotive industry: carmakers don’t make cars, they assemble them, with the engine coming from one supplier, the gearbox from another. The carmakers differentiate what they sell by how they specify the sub-assemblies to the sub-assembly providers. The cost advantages have been huge as each part of the supply chain has optimised its output and costs.
“The business banking industry needs to do the same. Specialist capabilities can be created by the people who do it best, and then supplied to the business banking ecosystem. Add to this a more data-driven service: a borrower simply connects their data to a bank or third party where it is analysed, coming back with recommended actions and even connecting them directly to the application process.
“Business leaders will no longer spend days researching the right borrowing product for their firm. Instead, new data sources, better decisioning systems and deeper insights will mean the headache of the loan application will become an altogether more positive experience.”
Predictions by other participants in the study aligned with McCann’s. Anna Jones, chief of product, managing director, Financial Supply Chain Strategic Advisory says: “In 2022 banks will own or invest in working-capital fintechs to support an advanced user experience for their clients.”
While Halvor Lande,CEO at Aprila Bank, predicts: “Instant gratification is a great value proposition. Data-driven, digital, automated business lending, using machine learning to predict risk, is a massive opportunity and need, because the SME sector is very much underserved.”
James Varga, founder and CEO at DirectID and Janet Jones, strategic client director at Microsoft, both agree with the proposition that specialisation will contribute to the advancement of business banking.
“Banks have historically been fairly slow at innovating. In the past, the risk of relying on third parties was too much,” shares Varga. “But digitisation has changed that, and there are now deeper engagements, with specific tasks being taken on by specialist suppliers.”
While Jones said: “There’s a pressing need for banks to change their business models to meet the evolving needs of customers and compete with new digital native challengers and fintechs. This change will, in part, be powered by the use of technology and data from broader sources, combined with deeper collaboration and partnerships.”
Contributing to global sustainability targets
With growing expectations for financial services to fund the transition to net zero, it’s no surprise that such a theme features heavily throughout the report’s predictions.
Chris Jaggard, managing director commercial banking at Accenture Australia, says: “We anticipate acceleration in the way commercial banks measure their sustainability initiatives, using different data sources, such as the carbon footprint ratings of their customers. The data exists; it’s just a matter of accessing and correlating it in a meaningful way. There is increasing pressure from the public, governments, regulators, and institutional investors for banks to address sustainability head-on. Research suggests firms with better ESG records than their peers produce higher three-year returns.”
On a similar note, Helene Panzarino, innovation pioneer, fintech and banking subject matter expert for Vacuumlabs and fintech partnerships lead for London Institute of Banking and Finance, uses her prediction to call for greater clarity into what sustainable finance looks like: “When it comes to ESG factors, we’ll need a data measuring and monitoring system that’s standard and universally accepted. Legislatures including the EU, Australia, US and UK are developing taxonomies that describe what’s sustainable, but apart from that, and some of the UN initiatives, we are still lacking clarity around measuring and monitoring, which dulls the teeth of regulators and advocates.
“It needs to be global and tie back into the UN Sustainable Development Goals (UNSDGs). It won’t go anywhere if no one knows what we’re actually measuring – that enables greenwashing. ESG matters to the next generation of financial services consumers who, as we have seen, are not afraid to speak out.”
Pete Murray, ASEAN head of financial services at Amazon Web Services, sees the use of fintech, and specifically cloud computing, as a viable and practical solution to meeting net-zero, something he details within his prediction: “We see cloud contributing to the sustainability objectives of boards and founders in financial services. A recent report from 451 Research shows how moving compute workloads from on-premises data centres to the cloud can improve energy efficiency and reduce carbon footprint by more than 78 per cent for customers in APAC.
“That’s a conversation we are having with boards and leadership teams in 2022, ensuring they’re acting in a long-term sustainable way. The discussion is turning to how cloud is helping them meet their sustainability objectives and this is hugely exciting as we look forward to the continued innovation this will release.”
Variable recurring payments and the future of e-commerce
The report also explains the coming impact of variable recurring payments (VRPs), that makes payments between accounts without the need for a card, as Ghela Boskovich, regional director/head of Europe for the Financial Data and Technology Association predicts: “This is a massive opportunity to change the way businesses manage their financial data and leverage it. For SMEs, it will transform e-commerce, the way payments happen (both incoming and outgoing), and cash forecasting.
“For banks, VRPs will enable the monetisation of open banking. They are one of the first viable premium API use cases, so banks will be able to recoup the investment in building APIs.”
Trade Ledger’s 2022 Business Finance Predictions Report provides a spectrum of insight into many differing areas of the industry, and has tackled such questions as the financial vulnerability and mental health of business leaders in the post-pandemic era, the growing footprint of Islamic Finance and the expanding chasms in the global lending market.