On May 15th, China started to apply a low reserve requirement ratio (RRR) for some small and medium-sized banks.
Some county-level rural commercial banks will enjoy a favorable RRR of 8 percent, unleashing long-term capital of about 280 billion RMB, which would be used as loans to private as well as small and micro enterprises (SMEs).
Heads of the banks’ SME Finance Department may have mixed feelings: This is indeed good news, however, where can we develop a business growth strategy? Some banks attempt to branch into new arenas by leveraging on the experiences of a third-party vendor.
This is the case with Bank S.
In this case study, PINTEC Academy will be sharing how PINTEC, here as an SME Finance solutions provider (hereinafter referred to as “SME solutions”), has assisted Bank S in achieving its business growth.
1. Four major challenges for banks’ SME credit loan business
There are four major challenges facing banks in SME credit financing: First of all, data that can be used to assess the creditworthiness of SMEs is often not available. Even if such data is available, its quality varies greatly. Secondly, the loan application and approval procedures are complicated, and the cost of a single loan application is relatively high. As such, loans with small credit amounts are not cost-effective for banks, which makes it more difficult for them to extend their businesses to smaller enterprises. Thirdly, some industries are subject to impacts of cyclic changes, while traditional banks usually adjust their credit products at a much slower pace. Lastly, banks have limited means to acquire new customers. Traditionally, banks mainly acquire SMEs customers through promoting on the ground.
PINTEC’s SME solutions are precisely tailored to counter these four challenges.
2. Risk control: Multi-dimensional data analysis model
Data that can be used to review the credit situation of SMEs can fall into three categories: daily cashflow data, invoice data and E-tax data. One of the core services we provide to banks is the multi-dimensional data processing and modeling capabilities.
Take invoice data as an example. At the beginning of this year, PINTEC has established a strategic partnership with electronic invoicing SaaS provider Best Wonder, to start a joint data modeling. The information obtained from the invoices had significantly enhanced data models and label products in our SME solutions in three ways: Firstly, invoices usually carry information about commodity types, which can be used to define the companies’ scope of businesses. Secondly, invoice data can reveal the transaction network to a greater extent. * Thirdly, the information presented in the invoice data can be used for early warning of loan servicing.
For example, if Company B accounts for more than 50% of the total sales revenue of Company A, it will mean that B is an important downstream purchaser of A. Therefore, the financial and operating data of Company B will significantly affect Company A’s ability to collect the receivables, thus affecting Company A’s credit performance.
There are many other similar connections. PINTEC comprehensively evaluates the credit qualification of small and micro-enterprises based on this multitude of data dimensions, and provides recommendations for Bank S’s final credit approval.
Another value-added service provided by the PINTEC solutions is that it can take the SME owners’ personal creditworthiness into consideration when evaluating the credit limits for the SMEs.
When banks evaluate SME loan applications, they tend to view them merely as one corporate customer, and seldom spend the effort to find out more about the actual controllers behind these enterprises.
However, the smaller the enterprise, the more is the credit of an SME correlated to that of the enterprise owner. Therefore, it is crucial to consider the evaluation of personal credit when determining the credit lines for SMEs. Fintech companies like PINTEC have relatively rich experience in personal credit evaluation.
3. Streamlined loan application process
The second challenge facing banks in SME credit financing is the lengthy and complex loan applications and approval processes.
To meet the needs of Bank S, PINTEC has customized a set of online mobile operation tools based on the bank’s existing business model for loan applications. These are implemented in the form of H5.
One of the benefits of implementing H5 is that it simplifies the loan application process: Using the QR code or link provided by the sales staff of Bank S, SME owners can easily register and log in with their names and mobile phone numbers, fill in their personal and business information, and submit the application for approval after passing tests of a face recognition and OCR (Optical Character Recognition) of the business license.
This new submission method not only successfully moved the offline business process online but also managed to incorporate part of the risk control verification process into the application process itself.
As the business owner is filling in the application, the system will concurrently conduct OCR on the data uploaded by the customer. If the uploaded information does not match that of the database, the system will immediately reject the loan application. This is an example of how PINTEC managed to reduce decision-making costs and increase decision-making efficiency by technical means.
After the verification of identity data and initial risk assessment, the loan application will enter the credit assessment process. PINTEC has customized its risk management strategies and risk model according to the customer entry principles and risk preferences of Bank S.
On the one hand, it enables Bank S to refer to the credit recommendation formed by advanced algorithms based on big data and machine learning when making credit decisions; On the other hand, it also enables Bank S to achieve autonomous and controllable credit decision-making.
If the data submitted by SME owners are complete, the whole submission process and evaluation will take about 10 minutes on average, and the average assessment time will only be 2-5 minutes.
4. Product: “Run fast with small steps–Rapid iteration”
“Run fast with small steps–Rapid iteration” is a common practice in the Internet industry to ensure the competitiveness of products. It means that after a product is launched, it will be updated through rapid iteration to ensure that the product is in line with the new industry trends.
PINTEC will update its SME solutions with flexibility through small and rapid iteration according to market environment changes.
“The type of SME customers that banks are familiar with tend to be in traditional industries such as manufacturing. In this Internet era’s new economy, the degree of electronic informationization has deepened in industries including catering, domestic services, logistics, retail and industrial supply chain finance,” said Song Yuanwen, head of PINTEC’s SME Credit Business. “Bank S values PINTEC’s ability to seize the industry’s cyclical changes and continue to serve SMEs that meet the economic development characteristics.”
5. Offline-to-online customer acquisition
Banks mainly acquire SME customers through promoting on the ground. The main challenge here is that it is difficult to achieve a large-scale increase in loan volume through ground promotion alone without increasing the number of sales personnel.
Understanding Bank S’s pain spots, PINTEC’s SME team has been cooperating with several mobile payment platforms, e-commerce platforms, supply chain core enterprises, logistics platforms, SaaS service platforms, and finance and taxation platforms, in the hope of expanding Bank S’s customer acquisition scenario from offline to online, and at the same time, broaden its SME loan acquisition channels.
Since 2019, the People’s Bank of China has introduced a series of policies to guide financial institutions to better meet the loan needs of SMEs, to benefit these businesses.
PINTEC Academy believes that: > In this Internet economy, “the integration and processing of multi-dimensional data, emphasis on user experience (simplifying the submission process), ensuring flexibility in product improvement, and expansion of customer acquisition channels”, are good references for banks and other financial institutions to consider when providing financial services to small and micro-enterprises.
Song Yuanwen said: “PINTEC has packaged advanced algorithms, risk control models that have been tried-and-tested, and products and operating experience that have served 500,000 small and micro-enterprises all into the SME solutions that can shorten the loan submission and approval processes to just 15 minutes, providing unique value to our customers in the banking and financial institutions.”