The original impetus for loan origination systems and application processing was B2C and involved FI’s strategically finding ways to grow the sheer number of consumers in their portfolios. However, today there is a strong area of growth outside of the consumer space that warrants implementing automation. It is in the B2B space: Merchant Services.
Small to medium businesses are often referred to as the backbone of America. Many individuals as a result of the recession have reached into their entrepreneurial spirits and gone into business for themselves. Therefore, the volume of merchants and micro-merchants in the marketplace is growing. Additionally with access to the internet and online clients, the government’s push to create jobs with the Small Business Jobs Act, and the SBA’s support in backing exported goods internationally; there are more opportunities than ever for small and medium sized businesses to expand. The need for lenders to facilitate lending in this market is paramount and the requirement to automate merchant origination processing is greater than ever.
Typical origination systems in place today for consumer lending practices cover everything from application entry, to pulling data for decisioning, to manual queuing for review and application completion. (These decisions are often processed within seconds, unless manual review is required.) Merchants, especially small to medium merchants, have similar origination needs. For example, they may need to restock inventory, pay for publicity, or expand office square footage to meet demand and may require a credit product immediately. While consumers know whether or not they are eligible and approved for credit within seconds at the cash register, merchants often must wait days or weeks although they have immaculate credit and strong growth patterns. Of course, careful decisioning is a key component to facilitating lightning- paced approval processing to ensure risk mitigation and early exposure of any potential fraud. But this is why automation is in place: To improve the speed of extending credit and to extend it to the most profitable customers. So, faster decisions on approvals are necessary in B2B to keep up with the volume of lending opportunities.
Developing a Merchant origination and application processing system can be an easy transition for FI’s and card issuers. Incorporating a powerful rules engine which pulls the right business data (like Dun & Bradstreet or Experian Business) and even incorporates consumer data on the principal of the business enables risk organizations the ability to underwrite businesses in real time while mitigating risk as much as possible. It also helps the business owner feel that his/her financial needs are understood establishing a good, long term relationship and deeper wallet share for the FI. If additional manual review is required, then the collection of all the necessary data should be in an easy-to-get-to format to help make decisions quickly.
Ultimately, there are many merchants and micro-merchants out there that look just like (or in some cases, better than) some of the best consumers in terms of average loan amounts and interest earned for an FI. They are very profitable opportunities. If banks can automate origination processing for merchants, then they are much closer to increasing a revenue stream that is not impacted by the same regulation as consumers….But regulation is a topic for another blog.