FinMonster has just published an article in PCCW Media’s Business Sourcing Directory 2019! Here we recap the article for you!
As business owners or financial controllers, have you ever experienced the below? For the similar facility size and borrowing terms, various banks make their indicative pricing quite differently. This even happens among different bankers in the same bank. On the other hand, the competition in retail banking is fierce and price setting is relatively transparent. How could this happen? How SMEs can reduce their bank interest cost by the application of financial technology?
First, bank approval and pricing are based on risk-reward. The lower the risk, the better the price. Interbank prices differently due to different information received or risk appetite. Large multinational or listed companies, due to regulatory requirements, generally have regular and relatively transparent information releases, including annual or quarterly results, major business or financial status, and will regularly communicate with investors, investment banks and rating agencies. Research reports and credit ratings are available for reference. Banks can obtain information of those large corporates in many ways and the risk level will be close among banks thus the price will be relatively consistent.
However, for SMEs, banks rely on bank managers to communicate with customers and collect information. Major banks have their own or outsourced systems to assist in the analysis of risk levels and pricing, as well as more subjective risk assessment by different bankers. As a result, the approval conditions vary from bank to bank and prices vary widely. In the past ten years of banking experience, author has often found that there will be a 1-2% difference in interest rate. For every millions of loan, the difference in interest costs for one year is already 10 to 20 thousand.
Traditionally, SMEs find bank managers through personal networks or intermediaries. However, there are many banks, and each manager’s expertise and risk preferences are not the same. This traditional method is not necessarily efficient. Nowadays, thanks to the advancement of information technology, many industries have been de-intermediated. With the power of algorithms, big data analytics and user behavior analysis, online platform can accurately match supply and demand side in different industries. For example, there are car hailing platforms that connect commuters and drivers while there are also different platforms in traveling to match travelers with airlines or hotels. In the banking sector, price comparison platform is also very efficient in achieving market competitive prices for retail products like deposits, credit cards and mortgage loans.
In corporate banking, due to the complexity of products and the challenges in assessing corporate risks, the development of related technologies has started slower than retail banking in Hong Kong. However, with the market development and many successful cases overseas, fintechs in Hong Kong have also begun to enter the door of corporate banking. For example, there is a first-to-market free online platform to use artificial intelligence and big data algorithms to assist SMEs in matching bank managers for commercial banking services from opening bank accounts, commercial credit and trade finance. The platform offers one-stop solution to shortlist suitable banks and managers and compares the best price under the same conditions, according to the corporate’s business operations, basic financial information and loan requirements. Since the reply is performed by real bank managers according to the situation of the each corporate and not purely comparing the official price of bank products, the successful rate of the matching can be ensured.
With the introduction of the Hong Kong Monetary Authority’s open API framework last year, corporates in future may connect to major banking systems through fintech platforms to instantly compare, apply and obtain approval of banking services for better user experience. Just like traveling today, we search for suitable flights on the comparison platform and instantly confirm the ticket without going to the airline website anymore.
The success of each technology will bring changes in behavior to users. we believe that in the near future, when it comes to corporate banking services, business owners and financial controllers will pick up their smartphones and leverage the online platform to compare and apply instantly, instead of calling friends for referral.
FinMonster, as a pioneer in Corporate Banking FinTech, has already launched the Corporate Loan Comparison Platform and been preaching the building up of a Regional Corporate Financing Platform for the promotion of capital flow to real enterprises and simplification of the loan process which ultimately benefit the business growth of enterprises. We are working towards financial technology transformation. Will you join us?
