Scene 1: An FMCG company applies for commercial loan to launch its latest line of cereal products. They want to have the products on the market shelf in the next 2 months. But their loan application is stuck in a limbo with the bank.
Scene 2: Bill wants to expand his coffee shop to address a growing demand for his delectable brew. He has applied for loan in the reputed bank in his city. His business would benefit if he is able to capitalize on the demand before the competition replicates the recipe. It has been a month and he is still waiting for the loan to come through.
Bill tried his luck with a fintech that is homophonous with a ‘vegetable’. Irrespective of the moniker, the fintech garnered a good reputation in the lending business. It understands Bill’s business dynamics and processes his credit application in no time at all.
The FMCG Company also discovers that the need for speed in their business is more appreciated by another marketplace lender.
Loan Shopping-The Banker’s ordeal
Wake up call- Customer loyalty, the card that banks were banking on for so long, is now decidedly elusive!
Having been associated with the software products industry for years, particularly banking technology, it has been an interesting journey for me to witness the shifting trends in the financial services sector. Underlying the trend shifts is one enduring factor- the changing facet of technology. Factors that are causing longstanding bank customers to move to alternate lenders include inadvertent delay in loan approval, unfriendly loan packages, loan pricing and ineffective communication. And all of these factors can be traced to gap in technology. Now this is where the alternate lenders are scoring-unburdened by legacy systems and riding the wave of digital disruption, they are addressing the needs of business customers with quick and easy loans.
Piggybacking on outdated legacy systems- The banker’s bane
A majority of banks in the US, especially Community Banks, are still using technology that dates back to the ’60s and the 70s. Half a century later, what banks have are stacks of servers, outdated file formats that are non-synchronizable, hard-coded applications, manila folders holding critical information and stacks of paper documents-all dispersed. Considering that the average life of loans is 7years and the existing crumbling IT infrastructure of banks, the probability of tracing original loan application papers can be quite a daunting task.
In order to keep up with expanding business needs, banks keep investing in point solutions and packaged applications which, though solves the problem at hand because of their domain expertise, invariably adds to the ballooning up of cost and operational complexity. With time, banks have created layers of applications on top of core banking system which has made the entire system architecture slow and unstable with minimal flow of information from one application to another.
Banks in the US are already spending upward of $60bn on IT every year, but the problem seems to be going nowhere. Most of these spends are on maintenance of the outdated legacy systems. And, with the recent spurt in mergers and acquisitions, greater IT conflicts have emerged. Overhauling core system might act as a placebo, but it doesn’t really address the present needs of the customers who are flocking to alternate lenders with easy and quick loans.
Soothing the Achilles heel with Platform Integration-Need for CLOS
Commercial Loans contribute significantly to bank’s profits. Yet, banks dither from upgrading their Commercial Lending infrastructure due to their existing investments in the present IT system. However, banks can still achieve an inflection point here, even with their legacy technology. The crux lies in integrating the core system with the disparate point and external applications.
Banks looking to streamline their Commercial Lending business while leveraging their core system needs to look out for Commercial Loan Origination Solutions (CLOS). Here’s why:
- CLOS forms the integrating process orchestration layer that seamlessly integrates with legacy and external systems
- It serves as a single application window to cater to multiple LOBs (C&I, CRE, SBA, Leasing)
- Automates end-to-end Commercial Lending lifecycle from origination to disbursement and servicing, making processes paperless in an automated workflow environment with minimal manual intervention
- Captures loan requests from multiple channels
- Efficient credit scoring and underwriting of loans due to seamless integration with Third Party credit bureau sites
- Makes quicker lending decisions by automating and centralizing business rules
- Takes care of compliance, scaling needs and effective tracking and analysis of processes
Imagine your loan officers taking less than 20% of the usual time to review loans. What you get are happy customers! With CLOS its Time to say YES on Time!