The last year has undoubtedly highlighted some important facts about processes in banks, factoring companies and fintechs. While fintechs have long been prepared for the on-line process, traditional financial institutions need to catch up. Successive lock-downs and restrictions have shown how much has a digitalisation process accelerated and where to look for improvements.

Banks have many advantages that fintechs cannot compete with: a much wider range of products, including factoring, loans, guarantees, letters of credit, foreign exchange or interest rate hedging. They are also usually much cheaper than fintechs. However, they also have several drawbacks. A complicated procedure for granting factoring or overdraft limits is one of them. The limit granting procedure in most banks involves going to a branch, submitting a paper application and presenting a whole "pile" of financial documents. After the data and documents have been checked for correctness by a credit advisor, they are scanned, archived and forwarded to the risk department, or more precisely, to the queue in the risk department. And usually at this stage the tricky part starts: further questions to the client - to clarify the financial data, to prove making business with indicated partners, analysis of settlements, etc. These steps are unfortunately time-consuming, but they are necessary to make an informed credit decision, based on reliable data. Another issue is the need to sign a paper agreement and process it in the bank in order to make the overdraft limit actually available to the customer. These are the main reasons why it takes several days or even several weeks for a financing decision to be made and for the financing to be granted.

As it turned out, fintechs have prepared much better for stay-at-home recommendations. The most advanced of them are able to take a decision on granting a limit in less than 10 seconds.

The whole process is carried out on-line, without the need to go to a bank branch and meet with a relationship manager, in other words, all the "paperwork" is eliminated. Of course individual KO (knock out) criteria must be met in order for the decision to be issued in a few seconds and for the process to be smooth and fast. However, if these criteria are not met and the decision needs to be approved by a risk manager or a risk analyst, the decision-making usually takes no more than 24 hours. This shows that the fintechs are "light years" ahead of banks and traditional factoring. Banks may learn this process from fintechs, what's more, they will have to learn it, as customers who get used to such a customer experience with financial institutions are unlikely to want to face long banking procedures.

The increasing cooperation between "traditional banks" and "fintechs" is certainly an interesting phenomenon. In a way, they can complement each other and this seems to be an interesting direction in banking.

Karol Leszczyński

Factoring Product Manager at Comarch

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