The global lending landscape is going through a wave of disruption. While growing internet and smartphone penetration coupled with the rise of FinTech has challenged incumbents to go digital and look to incorporate innovative technologies in the way they do their businesses, the newer, nimbler business models are looking to bridge the gap in the traditional lending ecosystem by serving the underserved, thin-file customer segments such as SMEs and unbanked customers. Furthermore, the non-FinServ, non-traditional internet players, and TechFins[1] are now joining the bandwagon, offering lending products to their vast customer and merchant base.
Post the global financial crisis, there has been a reduction in the risk appetite of banks, especially for the SMEs. Typically, 80% of SMEs that apply for commercial bank loans get denied.
Meanwhile, the evolution of the internet economy and the e-commerce/sharing economy[2] boom has brought several smaller merchants online. The likes of Amazon and Uber now support millions of small businesses.
With the reduced risk appetite of banks for SMEs creating a gap in the market, the evolution of online businesses had a solution lurking around. The key to a successful lending business is not in the capital but in the credit decisioning capability.
For decades, incumbents have over-relied on the traditional data sources for assessing creditworthiness – the credit score, financial statements, etc. As online businesses – just like consumers – leave a vast digital footprint behind in form of their order history, cash flow, consumer reviews, etc., these marketplaces are now identifying the potential beneath the sea of merchant data. As the data of this kind can be a rich source of information for credit-decisioning, several of these online marketplaces (e.g. Amazon, Grab,
