How are artificial intelligence and open banking transforming business finance? Why has AI bias become such a big problem? And what is the future for fintech innovation? Chirag Shah of Nucleus Commercial Finance Ltd offers his take.
Tell us how and why you got into fintech.
I was inspired to move into the fintech space after identifying significant challenges with the availability of SME data during the initial years of running Nucleus. Another inspiration was Uber – the simplicity of the concept, its ease of use, and the part it plays in everyday life. My goal was to provide tools and funding to enable SMEs to be run more efficiently.
How did you start Nucleus and what was your main aim for the company?
When I started Nucleus back in 2011, I wanted to position us as an alternative lender in the UK SME market. My aim was to develop a multi-product offering which was similar to what the banks already did but had a quicker application process, which would make it easier for SMEs to access. Since then, and during the last seven years in particular, our focus has been on becoming a true partner for SMEs, helping them to leverage their data in order to make more timely decisions and providing our clients with clear visibility in terms of liquidity and our available loan offerings. Today, we are a leading fintech lender in the UK, with market-leading technology capabilities.
What are the main products that Nucleus offers today and how do they benefit the customer?
We have been supporting UK SMEs with critical funding for more than 11 years now. During that time, we’ve evolved by adding new products and talented people to our ever-growing team. By using the best-in-class technology, we can quickly provide SMEs with the funds they need. Offering funding between £3,000 and £5 million through both secured and unsecured products, we give our clients the choice and flexibility required to thrive as a business. At the same time, our award-winning technology has enabled us to streamline and automate the entire process to provide a hassle-free funding journey for both our clients and introducers.
What are the biggest challenges in terms of the availability of business finance and lending, and how are you helping borrowers to overcome them?
There is a distinct mismatch between SMEs’ expectations and what lenders can offer. Across the market, we are seeing fewer approvals, lower amounts offered, higher rates, and more security requested by lenders. This has created a dysfunctional market. However, we are seeing signs of improvement and expect there will be an improvement in lending conditions in the second quarter. This will be driven by artificial intelligence and machine learning, which has enabled lenders to shorten the loan application time, provide instant decisions, better decision-making on credit, and greater access to finance for SMEs with shorter trading histories. Our focus has been on becoming a true partner for SMEs, helping them to leverage their data in order to make more timely decisions and providing our clients with clear visibility in terms of liquidity and our available loan offerings.
How can advances in technology such as artificial intelligence and machine learning, combined with the advent of open banking, enable SMEs to access finance more easily?
While, at first glance, AI and open banking may seem completely unrelated concepts, combined they are fundamentally changing the way that the lending industry works – for the better. That’s because, while open banking brings unparalleled access to vast swathes of customer data, without AI analysing that data would take a huge amount of time and resources, thus limiting the number of credit applications lenders can process, as well as their potential profitability.
Why has AI bias become such a big problem and what is the credit sector doing to tackle the issue?
AI has the potential to incorrectly and unfairly interpret data, often favouring one group of people over another. This has been perpetuated, as humans choose the data that the algorithm will use and how those results will be applied and then the AI systems merely replicate those biased models in one big, continuous vicious circle. By understanding how algorithms make decisions, and closely monitoring the data they use to swiftly detect and remove any issues, the credit sector is leading the way when it comes to tackling AI bias. But it still needs to go further to ensure that certain groups of customers are not unfairly discriminated against when it comes to key lending decisions.
What do you foresee as the biggest disruptors in business finance over the next decade?
AI-driven platforms combined with embedded finance solutions will help overcome key issues and challenges in business finance. In the future, it will be a quick, short user journey, with the aim of providing one-click lending. Fintech platforms are also leveraging data to provide real-time insights to SMEs, helping them to make informed decisions in a timely manner. As we gather more data and enrich the AI platform, it will enable better predictions for businesses. A prime example of a tool that’s already doing this is our Pulse product.
What do you believe will be the biggest challenges facing fintech innovation moving forward?
We need the full ecosystem to develop and harness the benefits of technology and AI. The biggest challenges we see are the reluctance and slow adoption by incumbents, such as banks, and oversight by regulators. Another problem is platforms over-promising and under-delivering. This is a significant risk when we are trying to increase acceptance of fintech solutions among business owners. Finally, there’s the issue of compliance.
How can fintech work more effectively in tandem with traditional banking and finance, rather than being viewed as a competitor?
There are increasing cases of new partnerships between banks and fintechs. It’s a perfect pairing because fintechs need to deliver results, gain trust, and remain transparent, while banks must weigh the risks of adoption with the risks of standing still and being left behind.
What are the future goals for Nucleus Commercial Finance and how do you aim to achieve them?
To leverage our technology to provide cutting-edge business insights. This will include a real-time snapshot of the business to all decision-makers, the ability to drill down into granular detail and make more informed decisions, and one-click lending, so SMEs always know how much they can borrow and can access funds within a matter of seconds.
Chirag Shah is the founder and CEO of Nucleus Commercial Finance Ltd. Shah launched Nucleus over 11 years ago with a mission to provide flexible funding solutions to the UK’s economic backbone after realising that businesses had very limited options beyond the much-known incumbent banks. He vowed to be at the helm of a fintech lender that doesn’t reject outright SME applications outright with little or no explanation, instead focusing on a more transparent approach. Through an AI-powered automated underwriting machine, Nucleus can tell customers why their loan applications were rejected and work closely with their introducer network to support clients in getting that all-important yes.