After a tempestuous few years, has credit underwriting changed for good? Or are we still seeing the same credit models that we are used to?
We’re all well aware that the Covid-19 pandemic sparked one of the biggest flurries of SME lending activity that we have seen in living history, but has the pandemic changed the way we lend forever?
Two weeks ago, AltFi sat down with Anna Pifferi, senior regional manager at Q2, Jenny Holt, chief risk officer MarketFinance, Paul Schooley, chief commercial officer at Cashplus and Richard Prime, co-CEO and founder of Sonovate at the AltFi Lending Forum 2021 to discuss this very question.
But, has it just been the pandemic that has spurred on this change in credit models? Or are other factors, such as open banking, at play?
“What we would take from the pandemic is that there was a real opportunity to test the risk models and test how it flows through and assess if it worked and if there is anything we can do better,” co-CEO of alternative lender Sonovate Richard Prime said.
“For us, we rely heavily on data and on our platform we’ve got the data that supports the receivables we are funding and we have real-time data in terms of what we are going to be lending.”
Prime also added that Sonovate is constantly evolving and changing its models, and often looks at what worked in past years in order to decide how to move forward.
Schooley added that in order to survive in the crowded SME lending market, lenders need to “move fast, be decisive, be adaptive.”
Open banking has played a huge part in revolutionising the way consumers bank, but it hasn’t quite transferred into the world of SME banking fully just yet.
“In the SME world, we’re still a little bit behind the consumer world when it comes to open banking use,” MarketFinance’s Holt added.
“We’re moving more towards how things are done in the consumer world. There’s a lot more digitisation and more use of alternative data sources, a lot more embedded lending too. But, Open banking is just not mature enough in the industry that I work in.”
Similarly, Q2, which provides banking infrastructure to banks, specialist lenders, asset finance and fintech companies globally has also seen an increase in open banking adoption, even if the sector is not totally up to speed just yet.
“We’re going to see a lot of changes in open banking,” Pifferi, Q2’s senior regional manager of Europe, Middle East and Africa, said.
“If we can speed up the process and increase education this is not a technology that will fade into the background anytime soon.”
During the panel, we also ran a poll asking if open banking was under-hyped or under-hyped as a disruptive force in the world of lending, with mixed reviews coming from the audience and panellists.
Cashplus’ Schooley had one foot in the over-hyped camp: “In general, I do not think that open banking is going to be revolutionary because of the latency and disruption that it does to the overall customer journey.
“But, I do think it’s going to be very powerful in allowing the customisation of certain products and pricing as well as higher acceptability across the board.”
Even with the important lessons learnt from past years, it’s impossible to predict what might come further down the line.
All alternative lenders can do is take on board those lessons and hope they are better placed to tackle hurdles thrown in their path.