Hani Hagras, Chief Science Officer, Temenos


COVID-19 has accelerated trends across the spectrum and nowhere has this been more evident than in banking. The shift towards digital banking, which was already in motion, has proven to be unstoppable with its capabilities being stretched to cater to increased and changing customer demands.

While much attention has focused on exciting developments in digital services for consumers, its businesses, particularly small businesses, where there is perhaps a greater opportunity for banks to shine.

It is often said that small businesses are the lifeblood of our economies and communities. At the start of 2020 there were 5.94 million small businesses in the UK alone, that’s 99.3% of the total business. Combined they account for 99.9% of the business population (6.0 million businesses), three fifths of the employment and around half of turnover in the UK private sector.

But these small business have been hit hard by the pandemic with many facing financial hardship and reliant on banks and relief programs to provide urgent support. We’ve seen many great examples of where banks have stepped up through distribution of emergency loans, loan repayment holidays and fee free lending. But there is more that needs to be done.

Small businesses require financial products and services that are tailored to their individual needs. This fact is reinforced by the recent formation of the Banking Competition Remedies Ltd, which will administer access to £775mn of funding for those that can demonstrate they will address their needs.

Properly servicing this market segment is mutually beneficial to banks too. Banking revenue from the SME sector is set to grow over c.7% p.a.  the next seven years making the small business sector one of the largest, lowest-risk profit pools in the entire industry.

Banks have typically serviced the SME market with a blend of retail and corporate solutions, but it is widely recognised that this no longer fits the evolving needs of SMEs. Instead, there is a need for SME banking services to move “beyond banking” to address the front-of-mind needs of SME owners. As a result, holistic solutions involving collaborations with other, digital service providers can work together to address these challenges.

At Temenos, we see this moment as a rare opportunity to fundamentally reimagine how banks serve the SME sector. By leveraging the technology that is now available, banks can implement innovative design centric and data driven products, and services that can transform the customer experience of SMEs in areas such as on-boarding, lending, cash flow management and trade finance. It is the digital experience and utilisation of data that will be at the heart of the next wave of SME banking services.

This is where Artificial Intelligence comes to the fore. It allows banks to leverage data from multiple sources to make faster, and more accurate decisions and provide individualised, frictionless customer experiences.

Explainable AI or “XAI” takes this one step further, by addressing one of the key issues for banks using AI applications; which is that they typically operate as ‘opaque boxes’ offering little if any discernible insight into how they reach their decisions. At Temenos we are the first to bring transparency and explainability of AI automated decision making to the banking industry.

Take lending as an example. By looking at a small business holistically across a lot of attributes, not just a credit score, banks can make better, more nuanced and fully explainable decisions that lead to 20% more positive credit decisions and fewer false positives. All this can be done in real-time using APIs to connect to third party data sources.

If a loan is refused, the bank will be able to use XAI to explain why the decision was made and offer alternative products or suggest ways to improve their chances of getting a loan approved in the future.

With the current increase in small business loans, including those underwritten by government to support small businesses, right now, the need to digitise and make smarter decisions to alleviate underwriting pressure and drive efficiency has never been more important.

Banks can also carve out new revenue streams through XAI. Customers who may have had a service negated can instead be rerouted towards others that are more suitable for them, or for which they would qualify.

We’re only just scratching the surface of what XAI can do, but as banks look at how they can leverage its capabilities it will become integral of product development. The transformative abilities of XAI could truly revolutionise banking for the SME sector.



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