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Digital lenders must adopt better payment services to succeed

A new wave of digital-first lenders is opening up access to loans and investment capital for Europe’s SMEs, a trend which could lead to an economic revolution.

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Digital lenders must adopt better payment services to succeed

In a new white paper, Johan Strand, CEO at Zimpler, argues that these digital lenders need enhanced payment services to fulfil their mission.

In our first blog, I argued that Europe’s SMEs deserve better ways to pay and be paid given their status as the backbone of our economies.

But there’s another, equally important, emerging business segment that also needs access to better payments – new digital-first lenders seeking to provide SMEs with easier access to loans and capital with less red tape and lower rates of interest.

Firms such as Norway’s Aprila have acquired thousands of SME customers since their inception in 2017, with Aprila itself now boasting more than 3,500 SME lending clients.

Speaking to Banking Circle in late 2020[1], Per Christian Goller, Aprila’s CEO, said that 70% of their customers had no access to financing before signing up with Aprila.

Aprila works by doing away with time-consuming manual paper processes and – crucially – accessing SMEs’ accounting systems to assess their payments history for credit risk purposes.

This enables Aprila to give quicker credit decisions – and take more informed risks thanks to richer data.

One of the key complaints SMEs cite in accessing finance is the time taken both to make decisions on their applications and to receive funds – as noted in Banking Circle’s report.

By adopting more flexible, data-rich payment systems, digital lenders can deliver on their client promise of faster access to funds. More importantly, the new generation of payments technologies will enable them to acquire more data, more easily from their client interactions.

With the EU’s second Payment Services Directive (PSD2) making partnering with third-party services easier through open APIs, digital lenders can drive improvements across their business, from receiving payments from clients through to disbursing loans and investment capital through the use of next-generation payment technologies.

In particular, account-to-account (A2A) payment services look attractive, offering low costs per transaction and immediate settlement.

A2A payment systems provide rich transaction data and reporting to enable lenders to better assess the credit risk of potential clients via an analysis of their accounts receivable (AR) and invoicing patterns.

A2A payments are rapidly establishing themselves in leading markets like the UK, where the UK Faster Payments Council reports[2] growth of 15% in both the volume and value of A2A payments in the last year to £2,101 billion via two billion transactions.

At Zimpler, we offer an end-to-end A2A payments solution that gives access to instant payments and payouts via a single integration.

We also provide tools for AML and Know Your Customer (KYC) compliance and deliver rich transaction data. Perhaps most importantly, we offer a fully flexible user experience and an extensive client support function.

By building our service on top of existing systems, we are able to offer payment services that can be customised to fit a lender’s user experience, encouraging customer use and loyalty.

Digital lenders are going to transform access to capital for Europe’s SMEs. But they will only be completely successful if they fulfil their client promise – which is to slim down the approvals process and speed up access to funds while making repayments simpler.

A2A payments respond to all parts of this mission, and digital lenders should be considering integrating them as soon as possible.

To find out more about the benefits of enhanced A2A payments systems for digital lending companies, download our white paper Solving Payment Services for SMEs.

To get in touch for a discussion, please visit www.zimpler.com

[1] See The Fintech Times, 29 May, 2020: https://thefintechtimes.com/banking-circle-study-of-online-sme-merchants-reveals-banking-gaps-that-payments-businesses-can-fill/

[2] See Pay.UK statistics: https://newseventsinsights.wearepay.uk/media/drafcd12/pay-uk-quarterly-payment-statistics-q1-2021.pdf


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