The banking and finance landscape has changed considerably in the last couple of decades. At a consumer level, access to banking services has shifted to online and app, leading to the demise of high street bank branches. For businesses, ledger and paper-based systems are now a minority. The technology and systems behind business debt finance have also changed. Whether business or personal, banking today is far more automated and convenient, done almost entirely online.
The number of online and challenger banks continues to grow, increasing competition and driving down margins. It’s always a good idea to shop around for the best online banks in the market.
What is Digitisation?
Digitisation is the movement of information and records from paper-based to online databases. Digital data is transforming the banking sector because it offers the following:
- Reduced cost of data storage (online versus hard copies)
- Can be transferred easily between entities and parties
- Allows for rapid processing (e.g. online signatures, instant emails, rather than postal services)
Digitisation is efficient and saves time. Legacy infrastructure within banking institutions is often seen as a huge inefficiency and cost burden to businesses, and by looking at opportunities to seamlessly pass data between systems as well as use digitalisation to streamline processes, it can help save time, reduce costs and reduce mistakes.
Trade Finance Global took a closer at how digitisation has helped the commercial (SME) finance markets.
Finance Applications for SMEs
Historically, SMEs spent several weeks filling out paperwork for loan applications; a rather laborious process. Often documents would be physically posted, signed and passed around the bank before completing the loan application.
In some cases, funding was needed quickly, so the old walk into the bank to start the long paper-application process for a loan, just wouldn’t cut it. For some businesses, the answer was to go find alternative lending options that usually resulted in ridiculously high rates of interest. They would, however, have the money they needed faster, so they were willing to accept the higher interest rate in order to secure the essential funds.
Nowadays, small business loan applications can be completed online or via an app, using credit reference agency data, companies house APIs and various other credit scoring instruments to automatically assign credit based on the risk of an SME.
Challenger banks in the UK (infographic)
Online Banking For Everyone
Digitisation has changed the entire banking and financial industry, not just for businesses, but also for consumers doing their personal banking. The emergence of banks that provide services completely online has changed the game for existing banks with traditional physical branches. These newer challenger banks often try to compete on a fast application process, online 24/7 customer support and competitive rates.
In response to the outburst of challenger banks in recent years, other banks have had to up their game and develop an online presence that can compete with what the new challengers offer. What does that mean for businesses? The whole industry has had to step up, raising the benchmark and expectation for excellent customer service, 24/7 facilities, easy access to finance and quick application processes.
The advent of Open Banking has opened up the market to challenger banks, allowing customers to consolidate services.
Choosing a Bank
There are a lot of online banks to choose from. So, how do you know which ones are the best? Financial experts often look at different accounts and compare fee structures, interest rates and other factors consumers would look at in their searches for new accounts. For business finance and accessing debt, it’s always advisable to research some of the potentially hidden fees. We put together a factoring fees guide which outlines some of the transaction fees associated with invoice discounting and factoring.
Digitisation has and is taking us through a period of immense change, driven by automation and robotization. In the banking industry specifically, we’ve seen processes go from having to fill out long paper forms at the bank during normal operating hours, to a process that can take place entirely online.
At Trade Finance Global, we’re keeping an eye on the following trends in 2019:
- Robo advice and automation
- Blockchain / DLT related technology being implemented in banks
- API innovation in payments (SWIFT gpi)