At Onyx IQ, we understand and value the power of cutting-edge technology. As an industry-leading loan management platform for SME lenders, we are constantly looking for ways to leverage, learn, and share new tech advancements.
There has been a lot of movement and talk around artificial intelligence (AI) lately, especially after the release of ChatGPT, which has been making waves for its ability to mimic critical thought, as it draws upon a vast database of information sourced directly from the internet.
Some love it, and some hate it, but there’s no denying that ChatGPT is a powerful tool in the world of AI.
We were intrigued to learn what ChatGPT had to say about our own merchant cash advance industry. In this article, we’ll analyze ChatGPT’s response to the following question:
“Hey ChatGPT, what are the biggest trends in the MCA industry?”
1. Increased Competition
“The merchant cash advance industry has become increasingly competitive in recent years, with more and more providers entering the market. This has driven down prices and created a wider range of options for businesses seeking financing.
On the one hand, this increased competition has made merchant cash advances more accessible and affordable for businesses, but it has also created a need for businesses to do their research and carefully compare providers before choosing one.”
The Onyx IQ Take
Spot on, ChatGPT.
The MCA industry has grown substantially since it gained popularity in the mid-2000s. In only five years (from 2016 to 2021), MCA funding went from $8 billion to $19 billion.
Boasting an approval rate of 84%, more SMEs are turning to MCA financing—and more MCA funders want to get in on the action. The industry is only getting stronger.
However, as borrowers have more financing options to choose from, SME lenders must focus on standing out in the market if they want to thrive in the industry.
The key to achieving a competitive advantage in the current economic environment lies in leveraging technology. Lenders must be quick to adopt advanced technological solutions to enhance their customer experience, streamline their operations, and provide more personalized services.
In other words, technology is crucial to staying ahead of the competition and satisfying customer demands in this fast-paced market.
2. Emphasis on Technology and Data Analytics
“Another trend in the merchant cash advance industry is the increased use of technology and data analytics to assess credit risk and improve the lending process.
Providers are leveraging artificial intelligence, machine learning, and big data to analyze vast amounts of information and make more informed lending decisions. This has not only made the lending process faster and more efficient, but it has also helped providers to better assess credit risk and reduce the likelihood of loan defaults.”
The Onyx IQ Take
As a provider of an industry-leading SaaS lending software, at Onyx IQ, we understand the importance of leveraging technology to streamline the lending process.
Tools like decision engines are becoming increasingly important in the MCA industry. Decision engines use preset rules to automate the credit evaluation process, making it faster and more efficient. Lenders can evaluate credit risk in real-time, which is crucial in a fast-paced lending environment.
This technology powers business credit scorecards, a tool used to review a variety of credit risk factors (such as credit history, financial performance, and industry data) to better evaluate creditworthiness.
With the help of this type of risk analysis automation, lenders have reported up to a 40% increase in efficiency.
3. Greater Regulation
“The merchant cash advance industry is also becoming more regulated, with governments around the world taking steps to ensure that providers operate transparently and ethically.
This has led to increased transparency and accountability in the industry, and has helped to protect businesses from predatory lending practices. While increased regulation can be a burden for providers, it is good news for businesses, as it helps to ensure that they are dealing with reputable and trustworthy providers.”
The Onyx IQ Take
Increased regulation is indeed one of the biggest trends in the MCA industry. We have covered this extensively in a recent article.
While MCAs are not regulated by the federal government, state laws applicable to commercial transactions, such as the Uniform Commercial Code (UCC), do apply.
To protect SMEs who access alternative forms of credit, states are increasing their oversight of SME lenders and implementing laws to ensure fair financial practices for all parties involved in MCA contracts.
There have already been major MCA regulation developments in New York, California, Utah, Illinois, and Virginia in the last year—more states will soon follow suit.
4. Focus on SMEs
“Another trend in the merchant cash advance industry is the growing focus on SMEs.
With more and more SMEs turning to alternative financing options, providers are targeting this market more aggressively, offering tailored products and services designed to meet the specific needs of SMEs.
This has made merchant cash advances more accessible and affordable for SMEs, and has helped to support their growth and development.”
The Onyx IQ Take
It’s hard to deny that SMEs are the backbone of the US economy: they employ almost half of the private sector’s workforce.
In spite of this, most SMEs, both emerging and those that have been around for a while, find it hard to secure traditional funding—it’s much easier for large enterprise organizations.
MCAs have become a reliable source of alternative funding for SMEs. In fact, the approval rate for MCAs is the highest among all types of SME funding at 85%.
When it comes to alternative financing, SMEs are the future.
5. Increased Focus on Customer Experience
“With more competition in the MCA industry, providers are focusing on improving the customer experience.
This includes providing better support and more transparent communication, as well as offering personalized solutions that meet the unique needs of each business. The customer experience in the merchant cash advance industry is a critical component of its success.
A positive customer experience involves clear communication, personalized solutions, and transparency in fees and terms.”
The Onyx IQ Take
ChatGPT just scratched the surface on this one.
True, clarity, personalization, and transparency are key for a good customer experience—but that’s just the beginning.
Customer onboarding also plays a crucial role in providing borrowers with an outstanding lending experience.
A smooth onboarding experience lays a foundation of trust and sets up all lending stakeholders for a collaborative and mutually beneficial relationship. Every customer touch point matters, from response time, website or app experience, to what and how you communicate with each customer.
If you’re wondering how you can improve your business’ customer experience, we’ve got you covered.
Final Thoughts: ChatGPT Is Pretty Darn Good
All in all, ChatGPT did an excellent job of covering high-level trends in the MCA industry.
However, some of the responses were a bit too general—it’s still hard to consider AI a subject matter expert.
But we’re excited to see how this technology evolves, and eager to implement new advances into our own technology to better service SME lenders.
If you’ve had enough of ChatGPT and want to see what cutting-edge tech looks like in our industry, reach out and demo Onyx IQ today.
