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Editor's note: See more essays on the Finance Flash Forward homepage.
We feel the rising drumbeat of our datacentric age, and the powerful reality of our time is that there’s so much more data and it moves so much faster that it requires fundamental changes in what we think of as “running a business.”
Since cuneiform tablets in Mesopotamia were used to record commercial transactions, agreements, and judgments in the earliest marketplaces, the availability of information about a business has made relationships and their benefits possible among participants in an ecosystem. What you know, and what you don’t know, define opportunity and risk. Those who make good choices in the face of uncertainty are rewarded with successful outcomes.
Applied to Lending
Uncertainty, risk, and reward are especially clear in business lending, where the extension of credit can enable growth for the borrower, returns for the lender, and multiple benefits to the economy. Job creation, community development, and the purchase of goods and services from people outside the direct borrower-lender relationship all amplify the growth impact of that capital being put to work. Data will create a two-way street with better risk models for the lenders and better buying opportunities for those who need capital as long as they have the supply and quality of data required to earn the confidence of a lender.
Businesses like Lending Club, Funding Circle, Kabbage, and The Credit Junction are focused on bringing together data from multiple sources to create a more effective model for assessing risk and opportunity. In business lending there’s a crucial borrowerlender information relationship that extends beyond the point of origination and throughout the lifetime of the loan. Tapping the wealth of data that can now come from businesses themselves, along with other sources to enhance and validate, makes for analysis at the speed of light on far larger data sets than would ever have been possible before. Those who can’t participate in the new flows don’t get the benefits.
There’s a pattern already evident in other industries undergoing technological transformation, with dramatic efficiency gained through data integration and aggregation leading to disruption of incumbent players. Uber, for example, has replaced cab dispatchers because every potential passenger and driver has a smartphone so instead of searching for fares drivers are directed by a map right to the passenger.
In financial services we expect similarly innovative startups to disrupt traditional banking processes by efficiently delivering highly costeffective capital products in realtime. When a lender can fund a business loan based on a phone camera shot of a truck’s vehicle identification number, or consumers get instant approval of peertopeer loans at the point of purchase, this evolution improves transparency and efficiency entirely outside the traditional credit card networks. Open digital data ecosystems promote a diversity of micro solutions, replacing the inert institutions of today.
Supply chains already experience this in a basic form, but think of all the value chains that every business is already implicitly in though not yet recognized as such: transportation, food, real estate, power, computing resources, design, advertising, logistics, human resources, financial services, and more. These are all chains that a business relies on and contributes to economically.
The more a business knows about itself, the better it can participate in a rich ecosystem of dataintensive exchanges that allow it focus on its core value proposition in the most efficient way possible. The future of business will require it, and reward it.