Lending Lifecycles Archives

Traditionally, suppliers and buyers stand on opposite sides of the negotiating table when closing a business deal. However, they may need to adopt a more collaborative approach in certain circumstances. For instance, they may come together to apply for a business loan.

Known as supply chain financing, this unique product enables the supplier to produce and deliver their products to the buyer on time.

In this blog, we deconstruct supply chain financing. We also outline the top six supply chain financing strategies that help lenders capitalise on market opportunities and grow this vertical.

What Are Supply Chain Financing Strategies?

Supply chain financing is a unique credit model in which buyers and suppliers come together to secure a loan. By doing so, the supplier has the financial resources to deliver the goods according to the buyer’s needs and timelines. Essentially, the loan is approved based on the buyer’s creditworthiness.

Here’s an example. Say a small business receives a large order from a corporate buyer. However, it is unable to fulfil the order due to a lack of financial resources. The small business does not possess a credit history or assets to secure a loan.

Instead, the buyer, who has a strong credit history, applies for the loan. The lender approves the loan, and the small business secures the funds and fulfils the order on time.

Supply chain financing strategies refer to a set of best practices lenders adopt to fill in the gap and drive revenues without increasing risks.

Today, supply chain financing is emerging as a significant business opportunity for lenders. The demand is triggered as more Micro, Small and Medium Enterprises (MSME) suppliers fulfil product orders.

By being prepared for this growth, lenders can capitalise on this opportunity and fill credit gaps.

Top 6 Supply Chain Financing Strategies

Here’s a list of six game-changing supply chain financing strategies you can adopt:

Automate the Lending Lifecycle

Ambitious lenders aiming to grow their supplier chain financing vertical must consider automating the lending workflow, end to end. Manual interventions can result in chaos, delays, omissions, errors, and data misuse.

The adoption of a cloud-based lending management solution enables lenders to automate the process. A superior solution leverages a mix of technologies, bringing efficiency, cost-effectiveness, and scalability to lending operations.

AI-powered Risk Assessment

When multiple organisations are involved in a single loan, the risks are also greater. Lenders can proactively address this challenge by adopting an AI-powered financial analysis process. AI can flag irregular banking transaction patterns that may be invisible to the human eye.

Banking transactions can be further deconstructed through swift extraction and segregation into multiple inflow and outflow categories.

This process helps to weed out transactions related to late fees, penalties, non-payment of EMIs, and cheque bounces. AI-based predictive analysis helps lenders identify the behaviour of borrowers that suggests an inability to make future EMI payments on time and in full.

Customised Offerings

The needs of suppliers and buyers vary extensively across sectors. Hence, lenders must be flexible in their offerings. The best approach is to customise loan products to serve the specific needs of various supplier-buyer partnerships. The smart use of technology enables lenders to personalise the products and make them more affordable and relevant.

This supply chain financing strategy allows lenders to stay competitive and capture a more significant market share in this vertical. It is a customer retention strategy that lowers customer acquisition costs due to the size of business loans.

Superior Communication

Since multiple parties are involved, lenders must be even more concise with communication. They can boost the clarity of the loan terms and conditions for all parties involved. They must know which party is repaying the loan, the interest rates, tenure, EMI, and late fees. Lenders can automate reminders and enable automated repayments to make it a seamless process.

Proactive Debt Recovery Process

As lenders scale this vertical, they may face delayed repayments, or a temporary halt in multiple repayments. Supplier-buyer partnerships may face some challenges such as a market slump. To support borrowers, lenders can put in place a proactive debt recovery system that is automated, data-driven, and customer-centric.

For example, the adoption of Management Information System (MIS), auto-generated calling and follow-up lists, and strategic allocation of debt recovery agents, can help expedite debt recovery. Access to real-time data can help agents make quick decisions. They can seek instant approvals, and problem-solve, effectively.

Data-driven Decision-making

The adoption of cloud-based, end-to-end lending management solutions, empowers lenders to nurture a data-driven culture. The software collates data from multiple sources. These include credit histories, banking statements, and business accounting. It automatically analyses the data in-depth, and allocates a creditworthiness score for borrowers. This feature helps lenders make informed decisions.

Lenders can also customise dashboards to understand past and future borrower trends, behaviours, and patterns. Based on these reports, lenders can improve their products and services. They can offer relevant solutions to evolving supplier-buyer partnership needs.

Benefits of Supply Chain Financing Strategies

Here’s a snapshot of key advantages:

Lenders can ensure quick turnaround of loan applications, which helps drive conversions.
They can manage risk effectively while capitalising on market opportunities.
Businesses can retain customers through customer-centric supply chain financing strategies. Thus, they are able to reduce acquisition costs.
Businesses can tap the MSME sector and serve it in a relevant manner.
Lenders can function with lean teams, enhancing efficiency while reducing costs.
The ticket size of supply chain financing loans is significantly large. Hence, lenders can drive revenues.
Businesses can scale faster. They can capture greater market share through the effective use of technology.

The Takeaway

As more businesses scale and collaborate with suppliers to restock their product pipeline, there will be a growing need for quick and efficient credit access. Lenders can build a competitive edge by adopting the best supply chain financing strategies to provide affordable, customised, data-driven loans to this growing market.

Finezza offers a comprehensive set of tools and solutions to manage your lending portfolio. Our end-to-end lending management solutions are trusted by brands like ftcash, Hiranandani Financial Services, gromor Finance, and UC Inclusive Credit, to name a few.

Finezza’s intuitive bank statement analysis software is geared to analyze bank statements with speed, and accuracy and detect potential fraud.

Book a demo to know more.

There is a stark contrast between India’s current financial landscape and its state in the 2000s primarily due to the influx of fintech companies. The confluence of technology and finance combined with the increasing demand for convenient and user-friendly financial services are shaping India’s economic ecosystem.

While traditional banks and financial institutions have served the masses in the past, they have been somewhat sluggish in embracing new technologies and streamlining the lending lifecycle.

The arrival of fintech companies and tech advancements has transformed India’s financial landscape and influenced consumer behaviour. Indian consumers, especially the millennial and the Gen Z population, aren’t shy about ditching their incumbent banks in favour of better and more efficient alternatives.

While the Reserve Bank of India’s (RBI) support will be crucial for fintechs to flourish, new technologies will shape the future of lending in the upcoming years. This article explores these innovations and how the fintech revolution is improving the lending life cycle.

State of Lending Lifecycle Before Fintechs

As mentioned earlier, traditional banks and financial institutions have been somewhat rigid in thinking out of the box and improving their products and services.

While we cannot disregard their role in the Indian financial system, the lack of digital-first offerings, lengthy lending lifecycles, and outdated processes have partly dented their reputation.

Furthermore, their services and products were only available to consumers in the locations where the company had a physical presence, such as stores or offices. This significantly restricted their ability to reach potential customers in other areas.

It is also fair to say that banks were not proactive enough to provide tailored services and products to their customers, resulting in poor customer experiences.

Fast-forward to 2024. What has changed?

Let’s look at some interesting technology trends that are redefining lending lifecycles.

Technologies and Innovations Revolutionising Lending Lifecycles

This section explores some of the latest innovations, from machine learning (ML) algorithms to smart data analytics, that are expected to streamline the lending lifecycle:

1. AI For Credit Assessment And Disbursement

Banks and even fintechs often struggled to assess first-time borrowers’ creditworthiness, delaying loan approvals. Things have gradually changed since digital lending took off in India, compelling lenders to tighten their grip over credit assessments and tackle this roadblock.

Traditionally, bank statements and credit reports were used to determine a borrower’s creditworthiness, which did not provide a clear picture. Today, lenders use AI-powered algorithms for credit assessment using various touchpoints, including a borrower’s online transactions, social media behaviour, and other patterns.

2. Automation

Automation has made significant inroads in the financial sector, playing a critical role in improving lending lifecycles. Today, many lenders are on board with end-to-end automation across all lending activities.

From credit assessment to loan disbursement, lenders must automate every stage to meet the requirements of tech-savvy consumers who want faster loan approvals.

Climate-conscious Gen Z and millennials are also turning their backs on lenders that require them to fill out physical documents or perform manual labour. Automating the entire lending lifecycle paves the way for convenience and a better lending experience for the borrower.

3. Hyper Personal Loan Products

Gone are the days when borrowers were satisfied with basic or peripheral personalisation. Today, lenders must switch gears and focus on creating hyper-personalised experiences for borrowers.

Around 72% of people rate personalisation as a critical metric when choosing a bank or a fintech alternative.

Lenders who overlook the importance of delivering personal communication and lending services are likely to be replaced by those who prioritise personalisation.

Therefore, lenders need to leverage different tools to capture relevant user data to curate tailored lending experiences. These experiences can be crafted around a user’s immediate requirements, spending patterns, recent expressions of interest, and more.

4. Fraud detection with AI

Lending fraud remains one of the most glaring issues for credit unions, digital lenders, and banks. Lending-related fraud surged 14.5% in 2022 against a modest 6.9% in 2021.

It is clear that lenders have never had a better time to address this menace and mitigate loan fraud risk, and this is where technology can step in.

AI-powered fraud detection solutions can detect suspicious data and activities by observing real-time anomalies and patterns. These advanced systems can prevent fraud, including identity theft, email phishing, ID document forgery, and more.

5. Smooth API Integration

Lenders, particularly banks, have realised the importance of using third-party applications and APIs to improve the lending lifecycle and unlock new opportunities.

Many fintech companies are rolling out reliable and accurate solutions that can easily integrate with the lender’s existing tech stack. These solutions empower lenders to make informed decisions, expand their lending portfolio and improve the lending process based on real-time borrower data.

Parting Notes

Undoubtedly, technology will dictate the course of the digital lending landscape in India and other parts of the world.

Traditional lenders, including banks and credit unions, must escape the clutches of outdated systems and processes to compete with new-age fintech companies. It is worth noting that borrowers are swaying toward lenders prioritising transparency, personalisation, and convenience.

The onus is on lenders to embrace innovation and streamline their lending lifecycles to attract and retain borrowers.

Finezza’s advanced loan origination system is a cutting-edge solution for expediting and improving direct and indirect lending. Its wide range of third-party integrations, combined with its exceptional automation capabilities, has helped our clients transform lending and take it to the next level.

Book a demo to learn more.

Advancing Lending Operations: Supply Chain Financing Strategies