There is a mold that perfectly describes the challenger banks that emerged from the ashes of the 2008 financial crisis: the merger of neo and banks to create neobanks. The use of neo, another word for new, emphasizes his determination to disrupt
the traditional banking model with the latest technology. These innovative financial services providers are constantly striving to make their offerings more streamlined, frictionless and accessible, and the emergence of integrated lending aligns perfectly with
this advanced philosophy.
Integrated lending, a subset of integrated financing, is empowering small and medium-sized businesses (SMEs) to break down entrenched financing barriers. By taking advantage of alternative financing options that untie them from traditional lenders, SMEs can secure financing
independence: from making payroll on time, to buying shares for seasonal periods, to settling VAT invoices. And it is neobanks, working in partnership with third-party integrated lending providers, that provide them with a platform to access this vital funding.
at the point of need.
So what is the integrated loan? How can it help neobanks deliver sustainable instant financing? And what are the advantages of 4-click instant financing for SMEs?
What is the integrated loan?
SMBs’ thirst for frictionless digital lending experiences that break the monopoly of traditional lenders has been quenched by integrated lending. This process of integrating credit or financing products in non-financial businesses – or
in this case neobanks: it allows customers to access financing when they need it from a brand they trust. Crucially, the funding gap facing businesses currently stands at a staggering $5 trillion. With the average bank loan approval rate of only 30%,
makes it difficult for many small businesses to get the necessary financing they need. To add to this challenge, the average time it takes a bank to approve a loan application is between 3 and 8 weeks. Also, only some banks offer unsecured loans
above £25,000, further reducing funding options for businesses. These factors make it increasingly difficult for businesses to obtain the funds they need to grow and thrive, especially in today’s uncertain economic climate.
By leveraging a customizable API or white label solution, neobanks can seamlessly integrate embedded lending options seamlessly into their technology ecosystem; before adapting them to the needs of SMEs, and the benefits are convincing:
- The entire loan process becomes faster, simpler and frictionless.
- SMEs can focus on using the funds, rather than applying for them.
- It facilitates the point of need access to the capital that SMEs crave, improving the management of their cash flow.
By partnering with alternative lending providers like Liberis, neobanks benefit from offering instant funding to SMEs without putting their balance sheet at risk, while remaining cash-rich.
Neobanks: lending challenges
Most neobanks claim they exist to “shred” the banking rulebook, but there’s one sphere of financial services they’ve struggled to disrupt so far: lending. Instead of fattening up the lending model again to make it a frictionless experience, they have been
affected by regulatory challenges. For example, neobanks that have failed to obtain a full banking license have been forced to use an e-money licensing model that does not allow them to lend out customer deposits, one of the main money generators for a bank.
Neobanks have also struggled with challenges related to credit risk. Their failure to augment their loan application and evaluation processes with impactful automation leaves them reliant on outdated infrastructure that fails to flag high-risk customers.
that may default on their repayment obligations. Not to mention narrow credit scores, which typically focus on a borrower’s past financial information, leaving loan decisions at the mercy of old factors like payment history and outstanding debt, rather
that your suitability to repay the loan in the future.
Integrated loans: instant financing without risk
By inserting alternative lending experiences at the moment the customer identifies a financing need, neobanks can protect themselves from the risk associated with their balance sheet. For example, revenue-based financing is an example of integrated B2B lending
which allows SMEs to access funding based on their overall business income, not just their credit history.
By basing credit decisions on real-time assessment of current and, crucially, future business conditions, including sales, inventory and reputation, the probability of repayment is based on the borrower’s suitability to repay – it later
Through this flexible approach, repayments can be made in line with the company’s cash flow, with more amortization during good months from a performance perspective.
This forecast removes the risk associated with traditional loan applications and assessment models, which are based on the number of transactions and payments made in the past – historical data that fails to analyze the future creditworthiness of SMEs.
With the risk to their balance sheet mitigated, neobanks can take advantage of the other compelling benefits an integrated lending platform offers, such as expert underwriting, real-time analysis of large data sets, and financial monitoring.
Collaborate with an expert
Success is not guaranteed when entering the lending space. That’s why most neobanks are opting to outsource their integrated lending platform to experts, rather than trying to build it themselves, a trend that’s being perpetuated by four key factors:
- Cost: A neobank takes care of all the costs when doing the project at home. By partnering with a specialized third-party provider, additional revenue can be generated quickly without the additional costs of building the lending platform from the ground up.
or the ongoing cost of developing software updates.
- Time to market: Developing integrated lending platforms requires a significant investment in time and resources, from building a technology platform to supporting customer onboarding. Specialist third-party vendors have the skills and experience
needed to deliver the project quickly. This ensures a faster and more streamlined time-to-market than building from scratch, improving customer satisfaction and retention.
- Underwriting experience: Many third-party providers have an in-house team of underwriters with decades of experience, a resource that many neobanks lack. Instead of relying solely on digital approvals and declines based on credit scores, and because each
Individual companies’ circumstances are different, they talk to the customer to get a full view of their performance, which helps reduce the SME’s fears of rejection.
- Alignment of goals and objectives: By working with a provider that aligns with its goals and objectives, a neobank can leverage its expertise to tailor the lending service it offers to SMEs. This will ensure that it is relevant to the needs of your customers, providing
with the holy grail: security of funding at the right time.
This puts the vendor selection process into sharp focus for neobanks looking to harness the power of integrated lending to mitigate the credit risk associated with instant financing. They must trust the seller from a security, technical, reputation and
strategic perspective. Take the Liberis/Tide partnership for example: neobank has partnered with Liberis to provide unparalleled access to debt and equity for SMEs.
Benefits of 4-click instant financing for SMEs
Artificial intelligence can be leveraged to augment the embedded lending process, enabling a seamless and streamlined 4-click journey centered around convenience, transparency and personalization:
- View the offer: The loan functionality is seamlessly integrated into the brand’s existing customer journey, enabling a pre-approved offer to be made automatically.
- Personalize the offer: Real-time user experience optimization personalizes the loan proposal based on the brand offer and customer requirements.
- Confirm details: Applicant details are processed instantly and an automatic approval decision is made followed by an automatically approved offer.
- Sign the contract: The applicant accepts the offer immediately, gaining access to the funds almost instantly.
This white label solution puts the customer experience at the forefront of the lending journey through a neobank brand they already know and trust.
This seamless application process democratizes instant funding for SMEs, who benefit from access to capital at the point of need and better cash flow management; while neobanks that incorporate it into their ecosystem improve brand loyalty and increase revenue
an improved user experience.
Impact of integrated loans in the lending sector
SMEs face an all-too-common existential threat: limited access to responsible and sustainable financing. This unintended scenario is largely a symptom of rigid legacy provider lending frameworks that perpetuate false assumptions that SMEs are too risky.
to participate, depriving them of the funds they need to survive and thrive.
According to our 2022 survey commissioned by YouGov, 15% of SMEs say rejection is one of their top funding concerns. Integrated loans have the power to address this anxiety by facilitating frictionless financing. To say that it is well located to go there
strength to strength is an understatement: Bain Capital research estimated that in 2021, around $12 billion in B2B lending transactions were done through integrated financing, which is expected to increase.
exponentially to $50 billion to $75 billion by 2026.
Once bogged down by the legacy systems and processes of legacy providers, SME funding applications have been given the 21st century treatment thanks to the emergence of integrated lending and its widespread adoption by neobanks. With rejections replaced by
rubber stamps, SMEs can get instant access to the funding that is their lifeblood.
The foundation of this financial inclusion is the frictionless experiences that integrated lending facilitates. Bolstered by these alternative lending models, neobanks can offer instant financing in 4 clicks with confidence, knowing the future financial situation of each applicant.
has been considered: protecting your balance sheet from credit risk.
Neobanks have revolutionised the financial industry by becoming a go-to platform for digital, accessible and secure banking. A key innovation in recent years is the development of four-click instant funding and embedded lending services, which can help people access quick and secure funding on demand. This article will explore this technology, and explain how Ikaroa, a full stack tech company, is improving the way people access and manage their finances.
Neobanks offer an alternative to traditional banking services and have become a popular choice for those seeking online banking solutions. The technology behind these banks is simple; customers can open a bank account with minimal effort, and it is usually not necessary for them to meet a customer service representative in person. They can access their services anytime, anywhere, and on any device.
However, what makes neobanks truly revolutionary is their capability to offer four-click instant funding and embedded lending services. This allows people to access quick and secure funding in just four clicks through their bank’s website or app. This technology can be used to help people make payments, transfer money, request loans, and access an array of other financial services.
In addition to these services, neobanks can make it easier to manage finances. For example, with four-click instant funding, people can quickly transfer money or make payments without having to wait days or weeks for a loan application to be approved. Ikaroa helps make this process even easier by creating innovative solutions that are secure and reliable.
Through their full-stack technology, Ikaroa makes it possible for people to securely and safely access their bank account anytime and anywhere, using only their mobile device. This is done through a comprehensive authentication system that ensures each customer is who they say they are.
Neobanks utilizing Ikaroa’s innovative four-click instant funding and embedded lending services can make it easier for people to access their finances quickly and securely. In the current digital age, these technologies will make banks more accessible to those who have limited access to traditional banking services. With Ikaroa providing the necessary solutions, neobanks can become reliable and efficient providers of financial services.