Social distancing: A catalyst for digitalization of SME debt management process

Ashish Devalekar,

EVP & Managing Director,
Europe and Middle East

Published: July 1, 2020

The current pandemic poses a fundamental threat to SMEs business model which primarily relies on human interaction and physical transactions for banking activities. To deal with a rapidly changing and uncertain situation, banks have initially set up a small, experienced task force that will steer, coordinate, adapt and prioritize work executed in the normal functions. This team is responsible to set and operationalize credit strategy in response to crisis scenarios and work closely with the bank executive committee. Banks are now working to digitalize SME banking platforms to help SMEs in revamping their business for growth.

SME business model and ecosystem

SME business ecosystem consists of banks, Government, Suppliers and Customers and it is important that every ecosystem player is on an effective level of digitalization to collaborate for business continuity and recovery. Banks have started taking the lead and are strengthening their e-training efforts via setting up virtual SME Academies, allowing SMEs to make the most of the current lull in business activity to upgrade their skills.

The current restrictions such as quarantine, social distancing and curtailment of travel have negative impact on the SMEs cashflow. In a recent survey in the UK, approximately 40% of SMEs said that they have ceased operations and an equal percentage had to close parts of their business. Around 80% of SMEs have indicated that orders have declined since the pandemic outbreak while 35% are stating that customers are taking longer than usual to pay.

Steps taken by Governments & banks to help SMEs

Governments of major economies and banks have stepped in to help the SME sector by providing assistance through various programs:

  • The British Business Bank under the aegis of the UK government has introduced the Coronavirus Business Interruption Loan Scheme (CBILS), Coronavirus Large Business Interruption Loan Scheme (CLBILS) and Bounce Back Loan Scheme (BBLS)
  • UK government has formulated and introduced the Coronavirus Job Retention Scheme also known as the furlough scheme
  • Leading UK banks such as RBS, Lloyds have approved approximately £25 bn in loans to more than half a million businesses
  • Banks are also announcing proactive measures to support customers through several measures such as amortization deferrals on mortgages, waiving off overdraft fees, late payment fees etc.

What’s Next

Central banks are now suggesting that banks should prepare to address situations of customers facing financial hardship and thereby higher rate of delinquencies. But a bigger challenge is that SME banking has a lot of manual intervention including applications submission, document collections, bank statements, notices for various processes, etc.

Digitalization and helping SMEs to adopt digital platforms within days to enable recovery is the need of the hour. Some banks have already started digitalizing and enhancing product features, but there would be an accelerated investment in digitalization of the Debt Management process and SME retention plans. The banks who will lead these initiatives, will be the banks of the future for SMEs.

Digitalization of Debt Management process

In today’s scenario, banks should focus on digitalising the entire credit journey process from loan applications to disbursements, and online documents collections to e-dispatch. Banks have to speed up the whole process while also focusing on simplification and automation so that SMEs can leverage to sustain and recover business. The banks that are able to reinvent themselves for the current scenario, will become the banks of choice, for the SMEs.

Re-inventing SME Banking

To reinvent banking for SMEs, banks should focus on three key areas – Digitalization of customer experience, Automation of business processes and Investment in risk modeling.

  1. Digitalization of customer experience – focusing on AI and Data to offer customized services and real-time touch points to enhance customer loyalty
    • AI and Data Analytics can leverage data from both traditional and digital sources to provide a complete contact and treatment strategy to create a customer-centric experience for collections service personnel
    • Lenders can use various solutions such as pre-trained cloud contact centers, chatbots, email bots to manage the incoming customer volumes, and leverage segmentation to provide for effective outbound customer collection calls
  2. Automation of business processes – Streamline and simplify business applications, automate processes like documents submissions, payments, collections, assessments, etc. and leverage cloud
    • Collections process that was valid a few months ago isn’t relevant today. As a result, reimagining collections process has taken on a new urgency
    • Automate processes to make new loans available within two days – simplifying the documentation requirements by going financial statement-free, requesting only bank statements, notices of tax assessment, and credit bureau scores
  3. Investment in Risk Modeling – Invest in Data Models & Data Scientists (AI/ ML) that can correlate real-time events and create individual customer risk score to forecast options and probability to save customers from delinquency
    • Due to resource constraints, default-management approaches are only focusing on high-risk customers. Modeling and analytics can help segment and prioritize clusters of consumers and accounts with agility
    • Create new products and engagement models factoring in almost real-time event occurrence in customer’s lifecycle and offer appropriate solutions to turn their business situation to growth direction

Future of SME Banking

Banks need to start working more closely with SMEs to restructure their loan portfolio to prevent delinquency. By adopting a new customer engagement approach, including campaigns like #MoreSupportLessWorries, banks can help SMEs cope with the current situation.

Banks should partner with Technology service providers to do a quick assessment of their current product portfolio and systems. By leveraging the power of Data, Cloud, Analytics and Automation, banks can digitalize business processes and operations to deliver more value – faster, better and cheaper. Banks should also realign to be more customer centric and redesign business models to sustain and help SMEs to emerge from the current situation and become the leaders in their industry.

References –

Ashish Devalekar

Ashish Devalekar

EVP & Managing Director,
UK, Europe and Middle East

Ashish Devalekar oversees a high-performing team across Europe and the Middle East that delivers business transformation, digital innovation, consulting, and IT services to clients across banking, insurance, telecommunications, healthcare and life sciences sectors. He is responsible for driving Virtusa go-to-market strategy in Europe and the Middle East.

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