Member Exclusive, Online Lenders

Lending Briefing: Commercial digital lending — a lifeline for mid-sized banks?

  • Commercial lending is also one of the least digitized areas of operation for most lenders, as paper-based processes continue to be the norm.
  • As commercial loan underwriting is tailored to each business, digitization can allow banks to differentiate themselves in areas that have become commoditized.

Email a Friend

Lending Briefing: Commercial digital lending — a lifeline for mid-sized banks?

When it comes to digital lending, most of the spotlight has been on consumer or small business lending. A less talked about area, however, has been commercial lending – such as commercial real estate lending and commercial and industrial lending. 

This segment is hugely relevant to mid-size banks, which are squeezed in between the bigger banks and fintechs, especially in this new digital competitive arena. 

But commercial lending is also one of the least digitized areas of operation for most lenders – paper-based processes continue to be the norm, while tasks like underwriting and servicing still mostly rely on people, according to Alex Johnson, fintech research director at Cornerstone Advisors. 

And today, the competitive landscape is changing in favor of digital savvy lenders as the pandemic brought online experiences into the mainstream, and new technologies increased data accessibility. 

One thing to keep in mind is that, in essence, the process of digitizing banking services moves the focus from selling a product to fulfilling a need. So as commercial loan underwriting is tailored to each business, digitization can allow banks to differentiate themselves in areas that have become commoditized. 

Therefore, customers won’t be won over by being offered just a product, but rather on how this product is delivered as well as the tools available to support and enhance its value. One way to do this is to become embedded in the business’ day-to-day operations and collect data more effectively to underwrite the loan, yielding a better customer experience. 

“The opportunity for mid-size banks is to embed their revamped commercial lending capabilities into the new business management and finance platforms that corporations are adopting,” Johnson said. 

Facing shrinking net interest margins, mid-sized banks “must proactively disrupt their existing loan distribution channels and cultivate new digital lending ecosystem strategies to drive growth,” he argued.

And fintechs are already eyeing this market, making its way into B2B as it did in B2C. 

You have corporate credit cards and expense management fintechs like Brex and Ramp, while companies like Clearco and Pipe are giving businesses new ways to access capital. 

There are also fintechs like Newgen that provide digital lending platforms for banks and credit unions.

So while digital lending isn’t new, it is becoming more common and customers are always expecting more. Partnering with technology companies looking to bridge this gap can be an opportunity for banks to remain competitive in the digital arena and bring more value to their customers. 


Chart of the week

The banking/lending tech sector experienced the highest levels of international funding activity in 2021 among fintech sectors, reaching $43.4 billion according to the latest FT Partners’ new Fintech Almanac. 

Around 40% of the volume raised and deal activity was recorded in North America. Some of the largest banking/lending tech financing transactions last year included US residential solar financier Goodleap raising $800 million, bringing its valuation to $12 billion, and Chime raising $750 million to value the company at $25 billion.

Source: FT Partners

Quote of the week

Paolo Sironi, global research leader in banking and financial markets at IBM Consulting and FinTech author, argues in his new book that banks and fintechs need to embrace platform theory in order to survive.

“Everyone that thinks digitizing a bank just means to sell products on a digital medium, however streamlined, optimized or fancy the experience is, will not succeed. Those who understand the value comes from somewhere else in the banking relationship, where operating as a platform allows this value to be unlocked, will be capable of succeeding. 

“The new value comes from the fact that the transaction is not the key element anymore, it is the new way people can engage in the frictionless economy and digital interaction. This allows them to monetize a new value that wasn’t there before because they can now orchestrate interactions that you could not before.”

What we’re reading 

  • CFPB warnings of bias in AI could spook lenders (American Banker)
  • El Salvador partners with DeFi lending platform for bitcoin-backed SMB loans (deBanked)
  • Experian to allow consumers to create their own credit reports (WSJ)
  • How LendTechs are transforming loan access for SMEs (Fintech Global)
  • ​​SEC reportedly probing crypto lending products by Gemini and Celsius (CoinTelegraph)
  • LendingClub beats Q4 earnings and delivers profits (Lend Academy)

What we’re writing 

0 comments on “Lending Briefing: Commercial digital lending — a lifeline for mid-sized banks?”

Keeping the bad guys out, Lending, Online Lenders

SMB lending fraud keeps growing – how can lenders protect themselves?

  • Lenders of all kinds, from large banks to small community banks, credit unions, and fintechs, are hemmed in by the pressing issue of SMB lending fraud -- with fintechs continuing to experience the highest hit.
  • Convenience is a staple of digital lending. And while this is valued by borrowers looking for a quick and easy application process, it also opens the door for fraud.
Sara Khairi | June 14, 2023
Online Lenders

How Black-owned SoLo scaled to 1 million registered users

  • SoLo Funds has become the first Black-owned financial services company to cross the 1 million customer account mark last month.
  • The fintech facilitates P2P loans for consumers living on the margins of financial services. Acquiring more than 1 million users hasn’t come easy for SoLo, though.
Sara Khairi | March 29, 2023
BNPL, Online Lenders

PayPal’s evolving strategy in a crowded BNPL market 

  • We take a look at how PayPal entered the BNPL sector by launching its first BNPL offering – ‘Pay in 4’, and expanded its suite of products by rolling out another BNPL product, ‘Pay Monthly’, in 2022.
  • Steve Mikulcik, VP of Global BNPL at PayPal, talks about the ramifications of such a rapidly-growing industry, and whether it is still serving the purpose of facilitating consumers.
Sara Khairi | January 17, 2023
Online Lenders

5 questions about managing everyday Americans’ finances with Achieve’s Andrew Housser

  • Achieve, formerly known as Freedom Financial Network, offers digital finance solutions like consolidation programs to underserved credit groups.
  • Tearsheet sat down with the co-founder and co-CEO of Achieve, Andrew Housser, to learn about his plans for the company and how it caters to the needs of everyday Americans.
Rabab Ahsan | December 28, 2022
Online Lenders

Does B2B BNPL have the potential to emerge as the next top fintech trend?

  • Is B2B BNPL keeping up to speed with the B2C model?
  • Contrary to B2C, B2B BNPL is viewed more as the automation of existing credit processes with slight innovation. However, the model brings its own set of challenges.
Sara Khairi | October 31, 2022
More Articles