Regardless of their industry, size or product, it’s a relative certainty that every business has a New Year’s resolution that involves growing their business.

When credit is easy to secure and the economy is booming, these goals might seem simple to meet. However, rapidly growing businesses can struggle during a strong economy, as they need cash to finance their expansion. And they often need that money very quickly.

If economic forecasts are accurate, growth in 2019 is likely to be robust. The Conference Board said that both businesses and consumers believe the U.S. economy has “plenty of room to run.” Consumer sentiment is certainly boosted by post-recession highs in wage growth and an unemployment rate of just 3.7 percent, the lowest since the 1960s. Business owners, however, are a little more cautious, noting higher interest rates and growing cost pressures due to wage growth. There is also uneasiness due to the issues with major trading partners like China, Mexico and Canada. While these might be viewed as impediments, smart planning and identifying the best financial solutions will help put banks, corporates and suppliers alike in the best position to succeed.

In this three-part series, we will look at how to effectively drive growth in 2019 for Banks, Corporates and Suppliers.

How Can Banks Compete and Grow in 2019

After years of tight credit, especially when it comes to servicing the small- to mid-size business (SMB) market, things have loosened somewhat. Part of this is a function of what was perhaps an overreaction to the mortgage meltdown, but more notably, a significant driver of change is the advancement of alternative finance solutions. Fintech firms noted a gap in the market and pounced on it. SMBs (those with annual sales up to $50 million) were having trouble getting credit from banks and other lenders, but they still needed capital to grow. This situation caused a shift in the marketplace. Fintechs came in and started making capital available, either in the form of loans or other financing solutions. This led to several global financial firms either quickly adapting innovation themselves or developing strategic fintech partnerships. In the process, they secured billions of dollars’ worth of business. These efforts will only increase in 2019, as global financial and tech firms continue to revolutionize the financial services arena. [1]

Percent of responding banks said they would consider a partnership with a fintech with a focus on small business lending

– March 2018 survey conducted by the American Bankers Association

%

American Bankers Association Survey

According to a March 2018 survey conducted by the American Bankers Association, the relationships between fintechs and banks are growing for services like lending, mortgages and factoring. The study notes that these partnerships help rather than hurt banks as they enable them to “fill product gaps, strengthen existing customer relationships, and generate income.” It went on to note that 57 percent of responding banks said they would consider a partnership with a fintech with a focus on small business lending. In addition, in their report “2019 Banking and Capital Markets Outlook,” Deloitte noted that corporate banks that are modernizing their operations are in a better position to succeed, especially with the expanding middle market where revenue is projected to grow by 6.7 percent in the next 12 months. The importance of innovation and developing new solutions that take advantage of data, advanced analytics, digital technologies and new delivery platforms has never been more important. [2]

They [fintech firms] do it cheaper and they do it with better value for the customer. We want to build a portfolio of companies that are disruptive, that do things from scratch and can attack the incumbents, including ourselves.

Carlos Torres Vila

BBVA CEO

There is no doubt that leading global banking institutions recognize the impact that technology and fintechs are having on their industry. Banks must invest in technology innovations and partner with or even acquire fintechs; as many have already done. At a May 2016 speech, BBVA CEO Carlos Torres Vila said of two of their recently acquired fintech firms, “They do it cheaper and they do it with better value for the customer.” He went on to note, “We want to build a portfolio of companies that are disruptive, that do things from scratch and can attack the incumbents, including ourselves.” It’s this mindset that will help the banking industry grow and thrive; effectively competing and quickly meeting the needs of their customers in a rapidly growing economy.

In our next post, we’ll discuss how corporates can leverage their relationships with fintech firms to thrive in the current market.

Sources:
1. https://thefinancialbrand.com/77869/innovation-trends-banking-ai-api-personalization-payments/
2. Ibid

Additional Sources
www2.deloitte.com/content/dam/Deloitte/us/Documents/financial-services/us-fsi-dcfs-2019-banking-cap-markets-outlook.pdf
ababankmarketing.com/insights/how-banks-partner-with-fintech-for-digital-lending/
www.conference-board.org/data/usforecast.cfm
www.federalreserve.gov/data/sloos/sloos-201810-table-1.htm
www.businessinsider.com/bbva-ceo-carlos-torres-vila-embracing-fintech-2016-4
According to a survey conducted by the Federal Reserve, more than 10 percent of banks eased lending standards on small firms in Q2 2018. That trend stayed in place in Q3.