Low interest rates. Costly operations. Mystified customers. Are you ready to figure out the future of lending?
The Commercial Lending Conundrum
Track and act with continuous credit risk monitoring
Connect and automate lending processes
The answer doesn’t start and end with workflow
The lending life cycle
is a riddle that needs solving
Slow and complex processes puzzle customers
Short- and long-term risks compound the challenge
Commercial lending is in a quandary
Understand customers and stand out from competitors
Crack the conundrum with expert support
In these rollercoaster times for lenders, massive growth doesn’t always mean more revenue.
The early days of the pandemic saw corporations drawing down heavily on existing lines of credit and taking out bailout loans in droves.
Banks have ostensibly been doing big business, with high volumes piling huge pressure on the back, middle and front office.
But, low interest rates mean that income from commercial loans has actually fallen.
Loans outstanding for U.S. banks grew by 7.5% in 2020
Net interest income dropped by 4.4% in 2020 and by another 3.1% in Q1 2021
Rise and fall
Source: Celent analysis
Most risk and regulatory calculations happen at peak times, such as quarter and year ends, when systems may need five times more computing power than in quieter periods.
And all the while, you’ll need to keep taking care of both the hardware and the software that it’s running, as well as managing all the operational risk. Plus, while your staff may get to know the system, when they move on they take their expertise with them.
With so much costly, inflexible IT to manage, your on-site infrastructure could be holding you back.
DID YOU KNOW?
SVP and Group Executive, Commercial Lending, FIS
With LIBOR on its way out and replacement rates still under discussion, lenders need a fintech partner that’s up to speed on the latest market requirements and can support the whole range of potential calculations.
By the end of 2020, banks had some of the highest levels of liquidity and capital ever, with rates of non-performing loans and charge-offs at historic lows.
But without the government backing that helped many firms through the pandemic, are loan delinquency rates now set to rise?
Only time will tell. It is hard to predict how well some industries will recover from the crisis, making it difficult for lenders to plan for the short-term future.
There are also new, longer-term risks to consider. As environmental, social and corporate governance (ESG) grows in importance for businesses and investors, a firm’s sustainability will become more critical to its creditworthiness.
Leaving infrastructure sitting idle for 75 percent of the time and charging you for the privilege.
computing power needed
What about LIBOR?
Head of Corporate Banking Research, Celent
The transition from LIBOR is another reflection of the uncertainty that lenders have to manage. It’s not even yet clear which new reference rates banks will be using – and in early 2021, outstanding LIBOR loans still amounted to $12 trillion.
Believe there is too much manual handling of documentation
The growing external challenges apart, lenders now also have to deal with a big internal problem.
With fast access to commercial finance more critical than ever during the pandemic, sluggish operations continue to frustrate customers and let them down.
Today’s retail consumers are used to instantaneous decisions on personal credit. But for businesses, the lending customer journey is typically fraught with long delays and unpredictable timescales.
Manual processes and fragmented systems are largely to blame for this and they also limit transparency. So, as a commercial customer, it may not always be clear where you are in the lending process – or what you are waiting for.
Customer pain points
Cite a lack of transparency as the top reason for dissatisfaction
Source: Oliver Wyman analysis and benchmarks
SME loans 9-21 days
Corporate loans 60-270 days
Typical time to cash
Hand every aspect of complex modeling technology to an expert provider and you'll reep the benefits:
Chief risk officer
Major insurance company, UAE
Cloud computing services come in three shapes
The accommodation of large data sets, highly demanding algorithms and the hardware for instant computational resources make the cloud ideal for large-scale data analysis.
Lending operations have become more complicated than they need to be, especially for larger commercial loans.
With data and documentation going back and forth between customers, bankers and underwriters, as well as the multiple handovers, manual document handling and continuous rework make the end-to-end commercial credit process both costly and inefficient.
Data can also end up scattered across different systems. So, it’s common for lenders to request the same information several times – duplicating tasks, increasing paperwork and holding up decisions.
Meanwhile, credit memos that pitch the deal and assess the risks take inordinate time and effort to write. And even when the deal is sealed, there are legal documents to distribute, loans to book and credit quality to monitor on an ongoing basis.
Isn’t it time to streamline the lending life cycle?
The lending life cycle is a riddle that needs solving
deliver speed and scale
Source: Oliver Wyman analysis
Up to 20% of each process step
SME loans 10+
Corporate loans 18+
Too many handovers
Up to 90% of the total process time
Process pain points
believe there is too much manual handling of documentation
In 2020, unprecedented global circumstances have shown us all the benefits of hosted IT for business continuity and remote working. But beyond lockdown conditions, there are more reasons than ever to run your organization’s most powerful systems in the cloud.
For many commercial lenders, the traditional solution to complex and costly operations has been to buy an enterprise workflow tool. With this business process management (BPM) technology, firms plan to glue together their existing lending systems and automate previously manual processes.
But this solution doesn’t usually work. It simply replicates the same old handover-heavy routine, albeit with a different software.
For example, you could still continue to use Word documents to define and review your lending arrangements. The only difference will be that you’re moving them around from person to person with workflow rather than emails.
As a result, the data in your documents may still need to be rekeyed multiple times into different downstream systems. Plus, it can’t be used to dictate what happens next in the workflow, nor can it be viewed simultaneously by others in the approval chain.
So, while workflow capabilities are critical for operational efficiency, they should only be part of the solution, not the whole story. You need an approach that will help you manage commercial facilities seamlessly throughout their life cycle and handle all the complexities that life cycle involves.
cite a lack of transparency as the top reason for dissatisfaction
Director of Product Management, FIS
One of the most important outputs of a lending transformation program is a single flow of accurate data, and systems that know what information you need to capture, when you need to capture it, where it must go and how it should be viewed and used.
If an administrative or compliance process doesn’t involve a lot of decision making or add value, why should you do it? Potentially a BPaaS provider can do it at a much reduced cost. That’s why cloud-first strategies are also taking hold in the industry. Why carry the burden of owning and maintaining complex technical architecture when someone else could simplify it and provide it as a service to lower your costs?
Start by linking historically separate activities like origination and servicing, so that data generated and documented in one process flows seamlessly into another.
With APIs connecting key lending systems, you will no longer need to rekey information. And, as well as reducing errors and providing a 360-degree and more transparent view of data, you can save considerable time by instantaneously producing documentation such as the annual review of a facility.
For broader efficiencies, ask yourself which tasks your business could do without, like manual approval and financial spreading processes for simple loans, or covenant checking and monitoring for complex facilities.
If a process doesn’t directly differentiate your business, you have a clear choice: automate it yourself with technology – or hand it over wholesale to an expert Business Process as a Service (BPaaS) provider.
Connect and automate lending processes
Eliminate effort with BPaaS and cloud
Solution part #1
Get sustainable by going digital
Regulators have highlighted the importance of including ESG factors in internal credit risk strategy and policies, as well as the calculation of clients’ creditworthiness. But they have also emphasized the need to maintain a solid credit life cycle management process, supported by modern IT infrastructure.
With a digital lending framework, you can more easily adopt a sustainable mindset and track ESG metrics throughout the life of a deal.
As regulation moves increasingly into the governance of banking relationships, you need to not only track commercial customers closely throughout the lending life cycle, but also show you are prepared to act on what you see.
Broadly, regulators want to make sure that you’re on top of a loan’s performance and have a policy in place for early warning signs of a default.
There’s no shortage of data to mine for the purpose. In today’s credit-sensitive market, credit risk indicators can be found at many levels – by continuously monitoring everything from a firm’s cash flow, transactions and behavior as a borrower, to news feeds and social media for market and sentiment data.
The challenge will be to isolate the intelligence you need from the vast quantities of information that’s available. But through a combination of automated rule-based digital technology and intuitive policies, you can whittle down the number of data points you need to monitor, proactively manage issues by exception – and present the right data to the relevant stakeholders at the apt point in the lending cycle.
Solution part #2
For lenders, automation isn’t just about making decisions using technology rather than human brainpower. It’s also about using the data at your disposal to make intelligent suggestions about what should happen next.
Technology does more than just enable lenders to monitor credit risk more easily – it’s also key to improving service.
Digital systems will help you increase efficiency, streamline processes, accelerate decision making and give customers more convenient channels to engage with.
But, there is still a considerable need for human relationships between businesses and lenders. Importantly, automated processes not only free up time to focus more on commercial customers, they also actively create opportunities for dialogue.
For example, with digitally driven analytics, traditional banks can play to their greatest strength and build deep, sustainable customer relationships by using the same data set to both identify potential credit risks and cross-sell financial services.
Ultimately, it's about serving your customers in the way they want to be served. Whether you’re lending to a small business or providing a complex syndicated loan to a corporation, your firm can set itself apart by really getting to know the customers and offer them the right products and support at the right point in their business cycle.
Automate with intelligence
Solution part #3
The commercial lending life cycle doesn’t have to be an enigma. But to crack the code, you need more than process automation.
When you build your whole lending transformation on a BPM tool, you’re essentially starting from a blank page. You’re either wrapping a workflow program around legacy processes or configuring new processes from the ground up – which could potentially take years.
Instead, you need technology and services that understand the complexities of lending at an operational level and help you reduce your costs, improve your margins and manage your short- and long-term risks.
With a single, purpose-built lending platform, an expert provider has already defined gold-standard processes for risk management, calculations, decision making and compliance. Why waste time and money reinventing the wheel?
You’ll still require robust workflow capabilities to automate the lending life cycle and drive efficiency from end to end. But for long-term, future-proof digital transformation, expertise in lending businesses, data and processes is the skill that really counts.
Connect with our experts
Get in touch to find out more
With FIS’ powerful technology and reliable managed services, the future is less of a mystery and more squarely in your hands. We’ll help you advance your digital transformation to automate or eliminate low-value tasks, see the earliest signs of defaults, and get more insight into every customer and deal.
LET’S SOLVE THE FUTURE OF LENDING
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FIS is a leading provider of technology solutions for merchants, banks and capital markets firms globally. Our more than 55,000 people are dedicated to advancing the way the world pays, banks and invests by applying our scale, deep expertise and data-driven insights. We help our clients use technology in innovative ways to solve business-critical challenges and deliver superior experiences for their customers. Headquartered in Jacksonville, Florida, FIS is a Fortune 500® company and is a member of Standard & Poor’s 500® Index.
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