{"id":629,"date":"2023-01-23T00:33:41","date_gmt":"2023-01-23T05:33:41","guid":{"rendered":"https:\/\/www.credacc.com\/insights\/?p=629"},"modified":"2023-11-07T08:40:19","modified_gmt":"2023-11-07T13:40:19","slug":"next-gen-credit-decisioning-part-1","status":"publish","type":"post","link":"https:\/\/www.credacc.com\/insights\/blogs\/next-gen-credit-decisioning-part-1\/","title":{"rendered":"#NextGenCreditDecisioning Part 1"},"content":{"rendered":"\n\n
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Traditional credit decisioning methods share a significant shortcoming\u2014they are quite rigid, with little room for nuance. Businesses and people are not\u00a0static or predictable. In order to increase one\u2019s addressable universe of customers and to meet evolving customer needs, banks need to have different credit boxes\u00a0 and associated workflows to address the needs of different segments. i.e. one size cannot fit all.\u00a0<\/p>\r\n\r\n\r\n\r\n

The state of credit risk management for SMB borrowers today<\/strong><\/p>\r\n\r\n\r\n\r\n

The United States Census Bureau<\/a> estimates that in 2020, a record 4.4M new business applications were filed\u2014a 44% increase over the 3.5M applications filed in 2019. This was surpassed in 2021, which saw 5.4M new applications\u2014a 22% increase from 2020 and a stunning 54%<\/em> increase over 2019.<\/p>\r\n\r\n\r\n

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This presents a massive opportunity for financial institutions (FIs) since 85%<\/a> of these SMBs consider credit the most vital driving factor for their success, yet many are unhappy with the \u00a0credit decisoning process itelf. In the FED small business credit survey<\/a>, 33% of respondents reported dissatisfaction with long credit-decision waiting periods, and 28% found the application process difficult. A recent survey<\/a> by the American Banking Association reveals that more than half of large banks in the US have incorporated digital loan origination channels. Despite the increasing number of businesses and digitization of the loan process, approval rates for business loans have fallen significantly over the last two years. The reason that digitization is not leading to increased opportunities for FIs and small businesses is that most of the digitization is limited to front-end processes\u2014loan applications, customer onboarding, documents, and e-signatures\u2014rather than innovation in credit decision-making. Potential long-term profitable relationships for FIs become missed opportunities, as only 32% of large and 13% of small banks offer automated and instant credit decisions.<\/p>\r\n\r\n\r\n

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SMBs today do not always fit into traditional definitions. For example, an e-commerce business in Texas may have only five employees but might make over $5M in annual revenue.<\/p>\r\n\r\n\r\n\r\n

Traditional credit systems: challenges and limitations<\/strong><\/p>\r\n\r\n\r\n\r\n