Banking must be as inclusive as it is innovative, and with open finance now at the forefront of the financial services industry, an integrated and collaborative lending ecosystem is not only possible, it is thriving.
Lending is a vital part of the global economic system. Access to financial services and credit is important to economic opportunity, but is often constrained by barriers, costs, and inefficiencies. Without well-developed financial systems, modern economies can struggle to drive necessary growth. This impacts different segments, communities, and populations around the world, leaving large numbers of people underserved and underbanked.
Technology can help address these challenges, and to better understand, we’ve identified three key areas where open finance is enabling better lending around the world.
Comprehensive Trade
The global trade ecosystem is becoming more open, collaborative and transparent, pointing the way for banks to embrace new technologies that provide connectivity to previously disconnected “digital islands.”
To achieve this, several challenges need to be addressed. Automating manual processes is a simple task that can be quickly achieved with the right combination of technologies. Despite many advancements, trade still relies heavily on inefficient manual paper processes. In a world with a skills shortage, banks are tying up highly skilled professionals in manual tasks.
Across all stages and procedures of international trade, a single transaction involves 30 parties, 40 documents, 240 copies and 200 data elements, of which 60% are replicated at least once across all documents. Think of the environmental impact this has: Digitization can significantly reduce paper consumption, aligning financial operations with environmentally friendly practices and advancing sustainability goals.
Resources can be easily optimized, reducing operational risks and costs in a complex industry. These efficiencies also enable market expansion and improved customer experience. With newfound time and increased resources, you can further close the trade gap by entering new markets with a renewed focus on streamlined, personalized service.
Sustainable Business Financing
A greener, more sustainable global economy is what many want, but it will require huge investments: The United Nations estimates there will be a financing gap of more than $500 billion per year for climate projects over the next decade in emerging markets alone, creating a huge opportunity for lenders.
This inevitably brings with it regulatory and compliance requirements, emphasizing the need to capture, collect, analyze and report on new categories of data. To meet this demand for sustainability goals, financial institutions must be able to improve their efficiencies and processes.
Despite these challenges, sustainable business lending offers many benefits. By adopting innovative technology, financial institutions can future-proof their operations with cloud-native SaaS applications that use service-oriented APIs, giving banks the automation tools and flexibility they need to evolve with the market.
Sustainable lending also leads to new revenue growth and reputational improvements: Opening up new lending opportunities and driving decision-making efficiencies creates new value streams, and a reliable, data-driven approach to promoting sustainable lending practices helps banks build their reputation in the industry.
Comprehensive Financing
In a more equitable society, everyone must have access to the loans and banking services they need to thrive in an open financial world. Providing critical financial services to the unbanked and underbanked will enable banks to enter new markets and provide decent financial services to everyone.
The idea of filling the lending gap is not new. When the U.S. government launched the Paycheck Protection Program (PPP) to help small businesses early in the COVID-19 pandemic, funds were distributed in some areas through community development financial institutions (CDFIs) and minority depository institutions (MDIs).
These institutions serve unbanked communities across the United States, but face many challenges, including a lack of capital and liquidity for lending, affordable technology solutions, and skilled IT staff. Open finance can help bridge this gap. For example, Finastra launched its Total Community Lending solution during this time to support CDFI and MDI operations. Built on secure, cloud-based technology, it’s easy to scale, deploy, and grow, and requires minimal on-site staff.
Such solutions can be scaled up post-pandemic and leveraged to democratize financial services and make lending more inclusive and accessible across the country.
Inclusive trade, sustainable corporate financing and inclusive lending are creating new opportunities, new markets and new ecosystems. Through the power of open finance, these are driving growth in banking, breaking down barriers, building communities and supporting positive social change. #FinanceIsOpen
