New banking models based on a transactional model have negatively affected female entrepreneurs
According to a study published by the Harvard Business Review, the new model of banking digitization has negatively affected a large group of entrepreneurs around the world, especially women. Getting loans and credits to finance their small businesses have been complicated.
Leer en español: La digitalización de los bancos afecta a las emprendedoras
The banking transformation
For a few years, banks have considered their digitization as one of the most practical methods to increase their competitiveness and efficiency. This change has led to the closure of thousands of bank branches globally. In Europe nine thousand closed in 2016, a reduction of 4.6% in just one year. In the United States, between 2013 and 2017, the total of these also fell by 8.2%.
This digitalization has involved an interruption in the direct relationship between the bank and its customers, as there are fewer and fewer interactions between the two. In Switzerland, the proportion of approved loans to small and medium enterprises has been reduced by 15% in the last 10 years and 60% of its entrepreneurial clients have reported growing difficulties when accessing financing and investments.
So, instead of generating a personal and direct relationship with its customers, this new model has become a transactional one that only reviews the credit and banking history of the applicants. Although this is more effective for institutions, it has affected entrepreneurs.
Before this model, the financing of banks towards entrepreneurs seeking support was based on the bank-client relationship. Personal meetings were the heart of the evaluation. It was there that the applicant could demonstrate his ambition and commitment, as well as his business model.
It was an exchange of information necessary to analyze the intention of the entrepreneur to pay his loan. This model allowed young people with no credit history to obtain financing, for example.
Now, of these rapid transformations, women have been affected the most. Studies reported by the Harvard Business Review have found that they are increasingly forced to seek solutions elsewhere and resort to more desperate and extreme methods of financing.
This is due, precisely, to the lack of direct interaction at the time of the evaluation. The Harvard study suspected that gender could matter at the time of seeing who would be approved and who would not, based on the type of credit history.
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The problem of gender stereotypes
Throughout history, there have been stereotypes based on gender. Within this economic sphere, men have seen themselves as ambitious and with more entrepreneurial potential than women. So there is structural gender discrimination in banks.
These stereotypes are activated immediately along with the credit history of the applicant for a loan. Therefore, it greatly influences perceptions about whether an entrepreneur is fundable or not. Gender creates biases when it comes to an evaluation based purely on records.
However, it has been shown that the old model, in which there is a personal relationship between the bank and the client, has given women the opportunity to disrupt these stereotypes and demonstrate ambition and commitment to their business and loan. These evaluations can modify the perceptions that women have when approving financing.
In the Harvard study, it was suspected that gender might matter at the time of seeing who would be approved and who would not be, based on these types of reports. Studies show that women have less access to capital. Even when they are approved for some type of financing, they face more demanding and complicated credit terms than men. There is no way to change without social interactions.
It is for this same reason that banks must reconsider this model in detail because it still has big mistakes to solve. The decision models must be different in order to give equal opportunities to people when it comes to generating loans to entrepreneurs.
On the other hand, the Organisation for Economic Co-operation and Development (OECD) also suggests that women need to be more selective when choosing the bank that accompanies them in their endeavors taking into account their decision model.
LatinAmerican Post | Valentina Moya
Translated from "La digitalización de los bancos afecta a las emprendedoras"
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