Traditional banks today face competition from alternative nonbank lenders, but in China, analysts say there is a new trend emerging among financial institutions themselves.
Bankers in the country are deploying a tactic developed by the head of Nanyue Bank, Yilong Xu, that sees traditional financial institutions focused on the “pain points” of business borrowers, reports by Forbes said on Thursday (July 21).
While traditionally banks will focus on borrowers’ credit performance, Xu’s strategy sees banks analyzing businesses’ credit cycles to identify where the firm’s “pain points” are in terms of cash flow. Banks then provide financing at that point in the business cycle, though instead of lending directly to the business, the money goes to the company’s supplier.
It’s all about helping a company get its product to market faster, Xu said.
“I analyze the entire operation,” he told the publication. “Once I have identified the client’s ‘pain point,’ that is the point of entry.”
Nanyue Bank provides short-term credit that is given to the supplier, thereby negating the threat that a company will use the financing for something other than it was intended, the executive explained. This, Xu added, means banks no longer have to perform a credit check on the business.
The tactic is targeted at small and microbusinesses, reports said, and is especially useful for entrepreneurs and “mom-and-pop” shops that typically use PayPal or eBay to handle their foreign exchange needs when dealing with international suppliers.
Reports added that Nanyue Bank is working with Visa, Mastercard and other credit card companies to build an acceptance network for companies to more easily be able to collect payments for exporters dealing with cross-border buyers and suppliers.
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