Näktergal blog

The missing link: Fintech's role in distributing of state loans

August 20, 2020 - 5 min read

The COVID-19 pandemic has forced governments all over the world to enforce extended lockdowns and quarantines. Unlike other countries, Sweden took a rather bold approach when it came to tackling the virus. Instead of countrywide lockdowns, businesses and schools in Sweden remained open with strict social distancing measures put in place. Whilst the pros and cons of this are still under discussion, it is important to note that whilst Sweden’s economy performed better than most of Europe. Simultaneously, it has not escaped unscathed, and analysts predict a lengthy recovery period.

With the global economic meltdown and falling revenues, SMEs and other businesses are struggling to survive. The government has taken steps to inject some much-needed liquidity into the economy to stimulate growth. These come in the form of emergency loans distributed by major banks and guaranteed by the Swedish National Debt Office. With approximately 70% of jobs in Sweden generated by SMEs, this is undoubtedly a welcome measure.

In the wake of the 2009 financial crisis, Swedish banks have reduced their market share in the lending sector. At the same time, cash injections must be efficiently and strategically distributed to those businesses in need to create change. Giving rise to questions regarding a banks’ ability to distribute loans seamlessly and efficiently.

While banks have the will to see this project through, many lack the infrastructure and technology needed. Incumbent banks are less agile and more constrained in terms of ability to scale processes to meet demands quickly. Could Fintech’s be the answer? A collaboration between these parties would be a real financial powerhouse. One that brings together the flexibility of Fintech with the consistency of the financial sector. What vital role can Fintech play in the distribution of state loans?

1. Reducing paperwork

At such a difficult time for businesses, the last thing a business owner needs is more paperwork. The business loan application process tends to be tedious and lengthy, often requiring physical meetings and piles and piles of paperwork.

Government agencies and banks must find new ways to deliver resources to businesses. Making sure that businesses get the help they need when they need it must be prioritised. For example, in the United States, the Office of Management and Budget instructed government agencies to leverage digital forms and electronic signatures to the fullest extent, practicable.

Fintech’s are known for straightforward and digitised onboarding. This is crucial to help struggling businesses apply for the support they need quickly and seamlessly. Digitising onboarding even minimises the risk of human error. Essential in a time where cash-strapped businesses are struggling.

2. Streamlining scoring and decision making

For many businesses, a week, sometimes even a day, can make all the difference. Processing applications quickly helps businesses get a decision expeditiously. Fast decisions are great for preventing customers from wasting unnecessary time waiting for approval or even rejection. So, even rapidly rejecting applications that exceed risk appetite can improve a banks customer relations.

Without the same reliance on legacy tech as banks, Fintechs can speed up the decision-making process significantly. From client history to identification, there is a Fintech out there for every process. Helping make all the difference between success and bankruptcy for a struggling business

3. Easing into a new "normal"

The nature of COVID-19 has forced us to live a new normal. One where enforced social-distancing and remote working are the order of the day. In this new normal world, physical meetings and non-digital tasks seem out-of-place. The evolution toward self-service, digital advice and digital payments have accelerated in just a few short months. Even digitally reluctant customers have done so out of necessity.

Thus, expanding beyond traditional brick-and-mortar service models is increasingly crucial for banks. This shift towards digitising customer experiences, services and products is being accelerated out of necessity. The reasons for collaborating with Fintechs should be self-evident to any bank decision-maker. That is, Fintechs have the flexibility and agility to accelerate planned tech deployments and implement new tech.

TL;DR - Fintech is the tool and banks the vehicle

Being at the forefront of cutting-edge tech Sweden needs to lead the way forward. Collaboration between banks and Fintech firms will enable much-needed funds to make their way to struggling businesses. Moreover, Fintech and bank collaborations will flourish as physical banking services declines.

The decision to inject cash to stimulate the Swedish economy is an admirable one. However, these efforts require the right infrastructure and technology to be implemented successfully.