Imagine you are a small business owner who needs a loan to buy new equipment, hire more staff or expand your market. You have a solid business plan, a loyal customer base and a positive cash flow. But when you approach your bank for a loan, you are faced with a long and complex application process that requires you to submit tons of paperwork and wait for weeks for a decision. Sounds familiar?

If you are one of the millions of SMEs (small and medium-sized enterprises) in the UK who struggle to access funding from traditional banks, you are not alone. According to a recent report by the British Business Bank, SMEs account for 99.9% of all businesses in the UK, but only receive 20% of all bank lending. This means that many SMEs are missing out on growth opportunities and facing cash flow challenges due to the lack of adequate and affordable financing. 

But imagine a better way to get a loan for your business. A way that is faster, easier and more accessible than ever before. What if you could use cutting-edge technology to streamline the loan application process and provide much quicker funding solutions? That’s where fintech lenders come in. 

Fintech lenders are innovative companies that use technology to offer alternative financing solutions to SMEs. As an owner of a fintech lender myself (Nucleus), we use digital platforms, data analytics, automation and artificial intelligence to simplify the loan application process, improve the underwriting criteria, offer competitive pricing and provide instant funding. We also offer more personalised, responsive and flexible customer service than traditional banks. One of the key advantages of we provide over traditional banks is our ability to automate many of the tedious and time-consuming tasks involved in loan processing. By using robotic process automation (RPA), we can eliminate human errors, reduce operational costs and speed up workflows. 

In this blog, we will reveal the secrets behind the fintech revolution that is transforming SME lending and making it faster, easier and more accessible than ever before. We will explore how fintech lenders are using technologies such as robotic process automation (RPA), machine learning (ML), artificial intelligence (AI), open banking and open accounting to accelerate the loan application process for SMEs. 

The Growth of RPA 

RPA is a technology that leverages AI to mimic human actions and perform repetitive tasks such as data entry, verification and compliance checks. RPA can interact with various systems and applications, such as web browsers, email clients, databases and spreadsheets, without requiring any coding or integration. RPA can also handle exceptions and errors by following predefined rules or escalating them to human supervisors. 

As a fintech lender, we use RPA to bring significant benefits to our business and our customers. For instance, RPA helps us to automatically extract data from documents such as bank statements, tax returns and invoices, and populate them into the loan application form. This saves our customers from having to manually enter the information and reduces the risk of mistakes or fraud. RPA also helps us to automatically verify the data against external sources such as credit bureaus, government databases and social media platforms, and flag any discrepancies or anomalies. This ensures that the data is accurate and complete and meets the regulatory requirements. RPA also helps us to automatically generate loan offers, contracts and reports based on the data and the underwriting criteria and send them to our customers via email or SMS. As a result, we can reduce turnaround time and drastically improve customer experience. 

According to a study by Deloitte, RPA can reduce the processing time by up to 90%, increase the accuracy by up to 100% and lower the cost by up to 80% for fintech lenders. RPA can also scale up or down according to the demand and volume of loan applications, without requiring additional staff or infrastructure. This gives fintech lenders a competitive edge over traditional banks that rely on manual processes and legacy systems that are prone to errors, delays and inefficiencies. 

Embracing cutting-edge technology 

Another key advantage of fintech lenders over traditional banks is their ability to leverage machine learning (ML) and artificial intelligence (AI) to improve their underwriting processes. By using advanced algorithms and data analytics, fintech lenders can assess the creditworthiness of borrowers more accurately and quickly. 

Underwriting is the process of evaluating the risk and profitability of a loan application based on various factors such as the borrower’s income, expenses, assets, liabilities, credit history, business performance and market conditions. Underwriting determines whether the loan application is approved or rejected, and what are the loan amount, interest rate and repayment terms offered to the borrower. 

Traditional banks use manual or rule-based underwriting models that rely on limited and outdated data sources such as credit scores, financial statements and collateral. These models are often rigid, biased and inconsistent, and fail to capture the true potential and risk profile of SMEs. For example, a traditional bank may reject a loan application from a new or innovative business that has a low credit score or no collateral, even if it has a strong cash flow and a loyal customer base. Alternatively, a traditional bank may approve a loan application from an established or conventional business that has a high credit score or sufficient collateral, even if it has a weak cash flow and a declining market share. 

According to a study by McKinsey, ML/AI-based underwriting models can increase the approval rate by up to 50%, reduce the default rate by up to 40% and lower the interest rate by up to 20% for fintech lenders. The automated underwriting model used at Nucleus accesses and analyses data from various and changing sources. This improves our lending decisions, lowers our costs and risks, and enhances our customer experience. The performance of the companies in our portfolio reflects this: the ones that use our automated underwriting model perform 30% better than the ones that don’t. 

User-Friendly Application Processes 

One of the main pain points for SMEs when applying for a loan from a traditional bank is the amount of paperwork, documentation and verification required. This can be frustrating, time-consuming and discouraging for SMEs who need quick access to funding. Fintech lenders have solved this problem by simplifying the application process and making it more user-friendly and accessible. 

Fintech lenders use digital platforms, such as websites, mobile apps or online portals, to enable SMEs to apply for a loan anytime and anywhere, without having to visit a branch or make a phone call. Fintech lenders also use digital tools, such as digital signatures, biometric authentication and e-KYC (electronic know your customer), to verify the identity and eligibility of borrowers without requiring physical documents or visits. Fintech lenders also use digital channels, such as email, SMS or push notifications, to communicate with borrowers and provide them with updates and reminders on their loan status and repayments. For instance, we use Onfido verification here at Pulse for users to access our data analytics services. 

Enhanced customer service 

One of the main benefits for SMEs when choosing a fintech lender over a traditional bank is the quality of customer service they receive. Fintech lenders have invested in building strong relationships with their customers by offering more personalised, responsive and flexible support. 

Fintech lenders use digital tools, such as chatbots, live chat and video calls, to provide 24/7 assistance to borrowers throughout the loan journey. Fintech lenders also use CRM (customer relationship management) systems to track customer feedback, preferences and behaviour, and offer customised solutions and incentives. Fintech lenders also use NPS (net promoter score) and CSAT (customer satisfaction) metrics to measure customer loyalty, retention and referrals, and take actions to improve them. 

Fintech lenders can also create a community of loyal and engaged customers who share their stories, reviews and testimonials on social media and online platforms. This gives fintech lenders a competitive edge over traditional banks that offer impersonal, slow and rigid customer service. 

Open Banking and Open Accounting 

Open Banking (OB) and Open Accounting (OA) allow fintech lenders to connect directly with the bank accounts or accounting software of SMEs, without requiring them to share their login credentials or download statements. This gives fintech lenders instant access to up-to-date financial information such as income, expenses, cash flow, invoices, etc., which they can use to make immediate decisions on loan eligibility, amount, and terms. 

Open Banking and Open Accounting are enabled by APIs (application programming interfaces), which are standardised protocols that allow different systems and applications to communicate and exchange data securely and efficiently. APIs also enable data aggregation and analysis, which provide fintech lenders with deeper insights and recommendations on the financial health and performance of SMEs. APIs also enable data enrichment and categorization, which provide fintech lenders with more granular and contextual information on the financial behaviour and preferences of SMEs. 

For fintech lenders, OB and OA bring significant benefits in terms of speed, convenience, and accessibility. For instance, OB and OA enable immediate decisions, where fintech lenders can approve or reject loan applications in seconds based on real-time data and underwriting criteria. OB and OA also enable true embedded finance for SMEs, where they can access funding within their existing platforms or apps, without having to switch between different providers or interfaces. OB and OA also enable certainty of funding, where fintech lenders can guarantee the availability and delivery of funds based on the current and projected cash flow of SMEs. OB and OA also enable one-click access to funding in seconds, where fintech lenders can transfer funds directly to the bank accounts or accounting software of SMEs with a single click or tap. 

According to a study by Accenture, OB and OA increase revenue by up to 20%, increase market share by up to 30%, and increase customer satisfaction by up to 40% for fintech lenders. OB and OA also create new opportunities and partnerships for fintech lenders with other players in the ecosystem, such as banks, accountants, software providers, and regulators. This gives fintech lenders a competitive edge over traditional banks that use closed, outdated, and inefficient systems that limit the access and use of data. 

Streamlining loan applications in the real world with Pulse 

Pulse is an AI-powered data dashboard built for SMEs to achieve x-ray vision into their financial performance and unravel game-changing insights that can help them make wise business decisions and secure the funding they need to make their dreams happen.  

Nucleus has successfully decreased the time needed to complete loan applications by an impressive 95% by harnessing the potential of digitisation and automation, with Pulse playing a key role in this achievement. SMEs can apply for a loan in minutes using their phones or computers. No paperwork or documents needed. Just connect your bank account or accounting software to our platform and share your financial data with us in real-time via APIs. As a result of these improvements, we have been able to provide faster, easier and more accessible funding to thousands of SMEs in the UK, helping them grow their businesses and overcome their cash flow challenges.  

Pulse is an AI-driven, free-to-use service designed to empower business owners with real-time analysis for making better financial decisions. Get in touch with our team today to learn how Pulse is transforming the way SMEs make financial decisions and access funding.