Fear is a powerful factor that creates a fundamental shift in human behavior as the human brain is hard-wired to avoid loss. Scientists and behavioral economists call this “loss aversion.”
We are seeing this trend play out in real-time as the COVID-19 contagion accelerates globally; people are adopting technology at a pace they have never done before. Schools are being conducted through teleconferences. Senior citizens are adopting QR payments and digital banks for the first time. Online activities and transactions are no longer a convenience factor but a necessity. As people adapt to a digital lifestyle, so too will they expect the same convenience and seamless experience from other areas of life, including financial services.
Thailand has made great strides in digital payments thanks to the Promptpay initiative, but it was only during the COVID-19 outbreak in March that we witnessed a noticeable jump in the adoption of digital payments. PromptPay transactions rose 93% or an average of 11M per day in March, up from 5.7M per day in the same period last year. Digital channels are becoming the primary point of access for payments for the mass population in both online and offline purchases.
One of the challenges is not all financial transactions can be done digitally. Think about the last time you wanted to open a bank account, open an internet banking account, take out a loan, or make cross-border transfers, what did you do? Even in today’s world, some types of transactions still require us to visit bank branches.
With the change in customer behavior and expectations, coupled with the pain points of existing products, how will financial services evolve going forward? How might we use technology to improve the way financial products are served?
Credit: Long gone the days of paper-based loan application
Yesterday: As the world enters recession, the bank loan approval rate tends to decline as banks become more cautious over the health of their loan portfolio. This leaves the cash-strapped SMEs with little option for financing. The typical process requires borrowers to submit paper-based loan applications, together with heaps of financial statements and other documents, at bank branches while credit decision-making is done manually and takes weeks.
Today: Google search shows a surge in search activities for words, such as “loan” and “loan from fintech app”, as SMEs and furloughed workers seek alternatives as they scramble for liquidity. In fact, the number of Thai companies that have declared bankruptcy due to financial problems rose 46% in the first two months of the year vs same period last year. Aspire, the neobank for SMEs and our portfolio company, helps digital merchants get working capital loans near instantly utilizing alternative data from e-commerce, account software and point-of-sale systems. The number of active borrowers for Aspire has accelerated in February 2020 vs the year before.
Tomorrow: Looking ahead, a lot more can be done using technology. Some of the things that we’re excited to see are
- A platform that automates and digitizes loan application and decision-making processes, both for long-term high value (e.g., mortgage) and unsecured loans (e.g., credit card). Blend, for example, uses software to assess information that the bank has about you — income and assets held at the bank — to almost immediately calculate how big a loan you can afford, and reduces the risk of fraud and errors by replacing document uploads with connections to financial data sources and by automating data verification.
- A private credit scoring data aggregator that links different private data sources and fintech players and collects data that can be used for assessing borrowers’ credit scores, including national credit bureau (NCB) data, mobile data from telecommunication companies, utility payments. By democratizing credit scoring data, data owners can monetize the data, and reduce the risk of fraud and default for the whole ecosystem.
B2B Payments: Digital process creates the visibility required for supply-chain financing
Yesterday: A process to make payments is still analog with 90% of businesses receiving their invoices the old fashioned way (on paper). Payments might have to go through a purchase order process, invoicing, accounts payable, various data entry points and disbursement. It costs an organization nearly $8 to process a single account payable to suppliers[1].
Today: Since 55% of B2B sales in APAC is made on credit with 32 days terms on average[2], companies need a way to manage, initiate, approve and make payments in a fully digital way with full visibility on financial resources and commitments (e.g. AP, AR, and payroll). FlowAccount, one of our portfolio companies, offers software that digitizes the process of issuing invoices and recording receivables.
Tomorrow: By linking disconnected players in supply chain payments – from buyers, suppliers, to banks, businesses will not only better manage their liquidity, but also a better opportunity to access working capital.
- A platform that connects buyers and suppliers can provide full visibility on where things get stuck and helps businesses optimize workflows. Tradeshift helps businesses connect with all their suppliers digitally, remove paper and manual processes across procure-to-pay, and seize early payment discounts to save money. AvidXchange automates AP processes for medium-sized companies.
- Access to real-time payments (RTP) could enable companies to access payment delivery statuses and settlement information and, thus, better manage their liquidity. Highradius helps companies get paid faster on their receivables via AI and machine learning. Finlync connects businesses’ enterprise resource planning (ERP) systems with banks’ payment portals, allowing its customers to have full visibility over cash flows.
These are some instances where fintech can help improve the way financial products are served. COVID-19 is just a catalyst that helps push customers along the technology adoption curve. Once onboarded, users tend to stick with the new habit because it’s more convenient. This shift towards digital products and services, accelerated by the virus, will have a long-lasting effect on the years to come. The winner will be those who can serve a digital-native product and adapt to customers’ digital behavior with speed and ease of access being table stakes.
[1] https://www2.deloitte.com/content/dam/Deloitte/us/Documents/financial-services/us-fsi-b2b-payments-untapped-opportunity.pdf
[2] https://group.atradius.com/publications/payment-practices-barometer-asia-pacific-2019.html
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Author: Nattariya (Nat) Wittayatanaseth
Editors: Wanwares Boonkong, Vitavin Ittipanuvat
Photo by Clay Banks on Unsplash