Intelligent ‘Transaction Mapping’ Speeds Lending Decisions That Enable Embedded Finance

As is often the case with many small- to medium-sized businesses (SMBs), their accounting data is kept separate from their banking data, which works fine, until cash flow-constrained B2Bs try to apply for a loan or commercial line of credit.

In short, the problem is that when different sources of data are disconnected, it makes it difficult for banks to quickly and accurately make credit decisions, as they have to provide PDFs or spreadsheets to the bank or lender, which then must manually compare them to the banking data.

In fact, this business bottleneck is frequently a two-way street, as bank’s payments rails are often not connected to an SMB owner’s accounting systems either, meaning the bank cannot provide the convenience of embedded finance.

“Those are the kind of use cases that we hear from financial institutions that they want to use,” ForwardAI CEO and Co-Founder Nick Chandi told PYMNTS, adding that intelligent transaction mapping technology can speed both processes by automatically cross-validating accounting systems with synced banking accounts.

Embedded Finance Ecosystem

With intelligent mapping technology, banks can enable bill payments using their own rails, while ForwardAI’s technology both pulls data from accounting systems and then pushes it back in.

What that means is that when a bank integrates with this technology and allows access to its payment rails, bills and due dates can be delivered, outstanding invoices can be paid, and the accounting system can be updated.

“We have heard from two very large financial institutions so far, where they’re very interested in solving this payment problem for their customers,” Chandi said, noting their preference to use their own rail rather than those of other outside processors such as Stripe or PayPal.

“These FinTechs or banks are competing to keep customers on their website [by] offering them more features, more functionality and keeping them more engaged,” Chandi said.

For SMBs that are customers of these large financial institutions (FIs) that embrace this system, it will mean that money is taken from their account and bills are paid on the schedule they choose.

“Using [application programming interfaces (APIs)], using technology, I think the whole process will be automated,” Chandi said. “It will be very seamless, and of course it will be the best consumer experience.”

Intelligent Transaction Mapping

Cross-validating accounting systems with synced bank accounts also eliminates the need to manually compare PDFs to verify transaction data, a time-consuming task that slows lending decisions.

“If I’m a contractor, I need $50,000 in my bank account today so that I can take the job, finish our work and bill our clients $400,000,” Chandi explained. “But if I don’t have 50K in the bank account today, and my bank is taking three days or a week to deliver me the funds, I can’t take that contract, and I can’t finish that job.”

When the accounts are synced and the comparison is automated, that saves time, and in the above example, can be the difference between life and death for businesses.

By allowing smarter SMB lending decisions with permission-based access to the borrower’s data, banks can have greater visibility into how long they’ve been in business, how they’ve been making their payments and how much of their business comes from a few customers.

“This is an opportunity for the small businesses as well as the financial institutions to offer the right products and solve their problems at the time they need it most,” Chandi said.

Innovation in the Business Domain

“We have seen a lot of innovation happening in the consumer domain, but the business domain has been slow,” he added. “That’s going to change.”

With today’s technology and APIs interacting with each other, decisions can be made in real time. Chandi said he expects that within the next three years to five years, 90% to 95% of all SMB lending decisions will be automated.

“In five years, no vendor will be asking for those PDFs,” he said. “They are outdated, they might be manipulated, the numbers might be changed… Who knows what’s happening. But the new world is all about the real-time movement of the data.”

See also: SMBs Lead an Effort for Faster, Safer Loan Underwriting