Banking should be as inclusive as it is innovative. With open finance now at the forefront of the financial services industry, an integrated, collaborative lending ecosystem is not just possible, but rising.
Lending is a crucial part of the world’s economic system. Access to financial services and credit is critical to economic opportunity, but it is often constrained by barriers, costs, and inefficiencies. Without a well-developed financial system, modern economies may struggle to drive the growth they need. This impacts various segments, communities, and populations around the world, with many populations who are underserved or underbanked.
Technology can help address these challenges. To better understand, I have identified three important areas where open finance is enabling better lending across the globe.
Inclusive trade
The international trade ecosystem is becoming more open, collaborative, and transparent, presenting a path for banks to embrace new technologies that offer connectivity to previously disconnected “digital islands.”
To achieve this, several challenges must be addressed. Automation of manual processes is a low hanging fruit that can be picked off quickly with the right mix of technology. Despite many advances, trade still relies heavily on manual, paper processes that are inefficient. In a world of skills shortages, banks have their highly skilled professionals caught up in manual work.
Across international trade stages and procedures, one single transaction may involve 30 parties, 40 documents, 240 copies, and 200 data elements, of which 60% are duplicated at least once through all documents. Consider the possible environmental impact of this. Digitization significantly reduces paper consumption, aligning financial operations with eco-friendly practices, which in turn advances sustainability goals.
Resources can easily be optimized, reducing operational risk and costs in a complex industry. These efficiencies also allow for market expansion and enhancing the customer experience. With newfound time and increased resources, entering new markets with a renewed focus on streamlined, personalized services make closing the trade gap even more possible.
Sustainable corporate lending
Many hope for a greener, more sustainable global economy, which requires massive investment. The United Nations estimates a finance gap of over $500 billion a year for climate projects in emerging markets alone over the next decade, presenting a major opportunity for lenders.
With this comes inevitable regulation and compliance requirements, emphasizing the need to source, collect, analyze, and report new categories of data. To meet this demand on sustainability targets, financial institutions must be able to improve their efficiencies and processes.
Despite these challenges, sustainable corporate lending provides many benefits. By embracing innovative technologies, financial institutions can future-proof their operations with cloud-native SaaS applications using service-oriented APIs. This helps connect banks to the automation tools and flexibility needed to evolve with the market.
Sustainable lending also offers new revenue growth and reputational considerations. By opening new lending opportunities and driving efficiency in decision making, new value streams are available, and a reliable, data-led approach to encouraging sustainable lending practices puts banks on track to build their reputation in the space.
Inclusive lending
In a more equitable society, everyone should be able to access the lending and banking services they need to prosper in a world of open finance. By providing vital financial services to the underbanked and unbanked, banks can enter new markets while providing relevant financial services for everyone.
Closing the gap in lending is not a new concept. During the early days of the COVID-19 pandemic, when the US government launched the Paycheck Protection Program (PPP) to support small businesses, the funding was distributed through Community Development Financial Institutions (CDFIs) and Minority Deposit Institutions (MDIs), in some areas.
These institutions serve underbanked communities across the United States, but face many challenges, including lack of capital and liquidity to lend, affordable tech solutions, and qualified IT staff. Open finance can help bridge this gap. For example, Finastra launched its Total Community Lending solution during this time to support CDFIs and MDIs in their work. Built on secure cloud-based technology, it is easy to scale, deploy, and grow, requiring minimal on-site staff.
Solutions like this can be scaled beyond the pandemic and utilized to democratize financial services and make lending more inclusive and accessible across the country.
Inclusive trade, sustainable corporate lending, and inclusive lending are unlocking new opportunities, new markets, and new ecosystems. Through the power of open finance, these help drive growth for banks while breaking down barriers, building up communities, and supporting positive societal change. #FinanceIsOpen
