Digital Disruption in Commercial Lending

Published on February 14, 2018 by Maulin Thaker

Global Commercial Lending is in the midst of a renaissance with the emergence of an enhanced ecosystem of communication inter-linkage between lenders and their existing/prospective clients. Ongoing technological advancements in this space have the potential to disrupt the roles of risk personnel, from back-office to front-line lenders. The emphasis here is mainly on the technology initiatives taken up by Banks and Credit institutions with the aim of boosting their lending activities. These can be classified as:

Internal Initiatives

• Significant investments in back-office digitization; leverage automation to streamline operations and achieve cost efficiencies. The introduction of robots is an ideal example.

• The launch of block chain based solutions with agile and open systems to enable seamless third-party integration

• Provide transparent and convenient corporate payment services in real time

• The migration of data, processes, and infrastructures to hybrid (a mix of private and public cloud services) cloud-based systems

External Initiatives/Factors

• The use of technology-powered marketplaces that connect borrowers and lenders

• Utilize Application Program Interfaces (APIs) to partner with “FinTech firms” and meet the unique needs of corporate customers

• The use of predictive analytics for credit scoring institutions and overall risk management

• The introduction of new banking industry regulations as supervisory bodies push for a level playing field between various players, such as Fintechs, Challenger Banks, and Neo Banks

All of the above may not occur simultaneously, but they will result in:

• Significant time savings for both the business and commercial lenders, with an increase in online and mobile reporting capabilities

• Facilitation of a more meaningful communication between the two parties

• Effective implementation of sales strategies

• Stronger credit risk management

• Reduction in the time spent in reporting tasks

Key trends that are likely to dominate Corporate Banking in the 21st century

The world of APIs – In legacy structures, Banks and financial institutions have organized their core financial information in financial spreading software, excel spreadsheets, documentation software, core processing systems, and commercial loan systems, while generic data is housed in loan origination systems. So, in essence, the origination and booking were located in one place, while loan activity monitoring resided in an altogether separate silo. However, in today’s world of data integration via APIs, a seamless assimilation of this data will allow lenders to appreciate a more thorough picture of client relationships.

24/7 Virtual underwriting support – Faster response times to new loan requests and credit line increases will be the new norm, as refined data integration will essentially allow loan origination systems to seamlessly communicate with the financial spreading technology. On the other hand, commercial borrowers will be able to safely update their financial records in the back end using the electronic medium. So, for instance, any updates to client data will be merged into a running historical spread of each business client and any related parties, such as guarantors, thus allowing continuous virtual underwriting.

Predictive lending analytics – Banks should be able to anticipate upcoming loan requests, based on the borrower’s financial condition, if the above mentioned continuous virtual underwriting reaches its logical conclusion. In addition, factors such as external events impacting the borrower’s industry can also be incorporated into the predictive model. Lenders willing to grow their portfolios from within their existing client base can find this extremely useful.

Data Integration enables intelligent user interface – The data integration mentioned above facilitates a more interactive User Interface (UI). Each lender will be able to see calendars, incoming loan requests, task lists, renewals, loan pipelines, existing portfolio statistics, sales goals, and much more through the use of customizable web dashboards.

Acuity Knowledge Partners, through its Commercial Lending practice and innovative Business Excellence and Automation Tools (BEAT) solutions suite, enable banks and financial institutions "to" achieve significant operational efficiencies.

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