“lenders on the panel do not wait until month end for the AR aging, and none would lend to a company unable to provide aged AR almost instantaneously”
As we look to how technology continues to change the world around us and how we conduct business, Fintech represents a new era of real time analytics and 24×7 exception reporting. I recently attended a panel discussion on current uses of Fintech in commercial lending and was struck by the differences in use between the application of Fintech in the North versus the South.
With east coast offices in the North and the South it continues to amaze me at the divergence in these markets. In the Northeast, factors are scarce and second tier lenders are in the minority versus the South that has an abundance of factors, especially in the Miami area, that service new companies with South American roots.
At first blush you think Fintech only applies to small lenders and smaller companies. While that is true today, the impact of the advantages of real-time reporting may soon spread into broader lending environments. My comments below will be addressed to asset based and C & I lenders.
Access to books and records: Real-time analysis
Some of the lenders on the panel do not wait until week or month end for the AR aging, and none would lend to a company unable to provide aged AR almost instantaneously. Lenders retrieve a client company’s books and records remotely and performed analytics and invoice confirmation via their desktops. Programs such as QuickBooks which proliferate the small business environment allow for easy tracing of transactions, obtaining aging reports, cash receipts tracing, and operating results with the click of the mouse. The same can be said for other much more sophisticated management reporting software. If the CFO can access the data remotely so can a banker.
Some panel members traced reporting daily and others only at month end. The lenders focused on month end did not care about the ups and downs of the companies’ economic cycle during the month so long as the company was not over-borrowed at month end.
Data analytics: Exception reporting
The lenders develop data analytics on each customer, allowing them to red flag any variance from norm in terms of billing, collections, or other financial economics. While this will not stop a well-orchestrated fraud it certainly helps all involved flag early signs of growth, decline or unusual. The outcome should result in more proactive communications with the customer – which helps both sides understand the business and the environment they are operating in.
The accumulation of data applies to many industries today. You can get notices on your smartphone when the temperature in your house varies, someone knocks on your door, you’re boat batteries are low, or your loan payment is due. Why cannot lenders get critical information / alarms sent to their smart phone?
Social Media: Information and Intelligence
You are looking to take on a new customer and after meeting with the management team you are excited. You come back to your office and start to search the internet for news and events. Bad reviews from Yelp, customers and employees can put a cold towel on that hot new customer. Nothing new here except it is deeper and wider than ever before.
Cash advance lending: Trending Up or Down?
Cash advance lending is another dichotomy between business North and South. Lenders in the South are very concerned with MCA (merchant cash advance) lending. Customers are being inundated with calls from brokers looking to make MCA advances to companies in the smaller to middle market space. The concerns came from the floor and panel alike. We came across this once up North and what started as a seasonal advance turned into a $2 million headache. In many cases it is loan to own or loan to liquidation.
Staffing and Team: All levels welcome
As with most technology, those involved were younger but very smart and well educated. They have spent years developing algorithms and systems to execute their business strategy. They also noted that sitting in the background was an older crusty credit officer that was much more productive because of Fintech.
It appears banking is headed for a new era of more information quicker. The above summary is of a panel I attended in Southern Florida and reflects thoughts on how future applications of Fintech might impact your customers, lending, and other insights
Definition: Fintech – computer programs and other technology used to support or enable banking and financial services.