Artificial Intelligence (A.I), as high-tech as it may sound, has actually been around for more than 60 years. Alan Turing first mentioned it in his paper “Computing Machinery and Intelligence” where he suggested considering the question ‘can machines think?’. Artificial Intelligence or A.I, put out simply, is the development of computer systems to make them perform tasks that usually require human intelligence. This involves tasks like speech recognition, visual perception, and decision making among others.
So how is this affecting the burgeoning market for business lending?
The financial sector as we know it today represents the combined efforts and experience of millions of individuals over 100 years or more of ‘system evolution’. The point is, it took a long time to get to where we are now.
However as predicted in Rise of the Robots the future trajectory of a financial system powered by A.I and quantum computing will be a much faster, steeper cycle of innovation than anything previously experienced. This is likely to hold true also for the growing niche market of unsecured business lending. The knowledge and skill set currently utilized for everything from credit assessment, decision making, product development, and fulfilment will be digitized to varying degrees over the coming years.
So there’s no question A.I will change irrevocably the way small and medium size enterprise obtain finance. What many entrepreneurs may not realise is that it’s already having a demonstrable effect right now t in three ways:
1. More Personalised Lending Solutions
The ‘fuel’ for effective A.I, is data. As more and more data on businesses and entrepreneurs is deployed towards online lending platforms, it’s producing more personalised business loan offers. We can already see in the market that some unsecured business lenders are partnering with online accounting software platforms, and that the data collected is being used to target business owners who may need finance.
Banks, lenders and online brokers such as eBroker.com.au use algorithms to not only assess basic eligibility for credit, but to match business owners with the right type of finance, such as equipment finance or ‘factoring’, where appropriate.
2. Faster Transactions
For aggregators of unsecured business finance such as eBroker.com.au, A.I offers some tantalizing possibilities. Our technology can already match business owners seeking a loan with a wide range of eligible lenders. In future, we anticipate that A.I will dramatically increase both the speed and depth of our loan matching capabilities. This will improve our efficiencies, and most importantly will deliver an even better experience for our users.
More broadly across the non-bank business lenders we partner with, these improvements combined with forward credit reporting may soon provide full loan approval within minutes or seconds. Even better, the partly automated funding mechanisms of some lenders is delivering faster settlement and disbursement of funds to business applicants. For Australian SMEs used to the lumbering service standards of big banks (where loan approvals are still measured in weeks and months), this all represents a radical leap forward.
3. Channel Disruption
Individual mortgage brokers and commercial finance broking businesses are currently a significant distribution channel for many small business lenders. However, ‘next generation’ groups such eBroker.com.au and others are already using A.I to connect entrepreneurs more directly online with the providers of unsecured finance.
The superior speed, choice and convenience of this approach is fast growing in popularity with Australian business owners. This ‘disintermediation’ of the traditional distribution model for small business finance probably spells bad news for the viability of many ‘old-school’ brokers.
So it’s clear that A.I is already having a substantial impact on unsecured loans for small business. It seems clear that Artificial Intelligence is set to further transform it beyond even the rapid innovation evident from both lenders and aggregators over recent years. Although these changes are likely to challenge existing business models and distribution channels, the improvements in product choice and fulfilment they will deliver will be a godsend for Australian small business owners.