Banks should consider helping businesses lend to their customers, according to research from IDC Financial Insights.
A new IDC Financial Insights study, “Business to consumer demand finance: modern technology enables a new lending opportunity”, calls on banks to consider facilitating loans from businesses to their customers.
As the world economy continues to adjust, there’s a possibility that zero or negative interest rates might just spur the growth of direct “demand financing” by companies of their customers. While in normal times, a chief financial officer would balk at lending out a company’s own resources to customers, in this situation, this type of demand finance might seem more attractive.
From a bank’s point of view, helping to unlock the resources of cash-rich corporates is even more compelling. Basel III and capital adequacy requirements have the effect of discouraging banks to grow their own lending books. In this scenario, banks would be in a situation where they are deploying their infrastructure strength, but not their own balance sheet.
From an IT point of view, setting banks up as a conduit for the lending of other companies requires a multi-tenant system, which is agile enough to cope with different transaction flows. Otherwise, the use of banks’ AML and KYC processes, and their loan lifecycle management capabilities, would be similar to lending on their own account. The usual imperatives around improving automation and straight-through processing would apply.
“Banks should be prepared to consider marketing combined product and financing offers through their internet and mobile channels, according to quotas from a retailer. They could target these offers according to their own analytics capabilities. Developing those capabilities are already likely to be a priority. But being able to offer demand financing based on, for example, intelligence from a customer’s Amazon wishlist, could be extremely successful,” says Lawrence Freeborn, senior research analyst at IDC Financial Insights.
“Technology evolution coupled with existing monetary policy are making it easier for cash-rich corporations to justify lending direct to customer,” adds Andrei Charniauski, head of Europe at IDC Financial Insights. “It’s only a matter of short time before those capabilities become common. Either established banks will offer B2C lending platforms to their existing corporate clients or Fintech specialists will do instead. Banks should be open to this concept and aim to expand their existing cash management product portfolios with B2C lending.”