The business lending opportunity is up for grabs
Banking and financial services industry has been on a slow recovery path since the 2008 financial crisis. However, in the last few years, a steady and noticeable rise has been observed in commercial lending sector. This upward trend has fuelled banks of all sizes — across various commercial loan offerings, into action to tap this opportunity. Lenders are realizing that majority of their current portfolio today comprises commercial lending products.
However, lenders face a perfect storm of challenges.
Regulatory regime continues to get stricter
Post the financial crisis, while banks became risk averse, the regulatory requirements have become even more stringent. Banks need to be able to perform Portfolio Management, Credit and Risk Management while ensuring compliance.
Commercial lending processes are complex
Unique client needs poses a complexity of its own, however, what makes commercial lending further complex is the cross-functional nature of these processes. Additionally, for proper risk and portfolio assessment, these processes involve participation of subject matter experts and risk officers at various stages, making these workflows even more complex.
Every client is unique
Banks need to profile prospects and customers in a detailed manner and also as precisely as possible. This uniqueness of customers and their requirements makes it difficult for banks to assess risks and service them duly without adequate information support.
Broken context in loan servicing
One of the biggest challenges for lenders that prevents faster loan disbursal is that customer context is not carried through the whole lending lifecycle seamlessly. Broken processes, siloed systems, under- leveraged experts, and complex rules do not allow lenders to service their customers adequately and fast enough.
Inefficient middle office and back office operations
For lenders, one thirds of operational costs are due to reworks, waiting times and delays. The slow and cumbersome processes often lead to disenchanted customers, while good quality customers are already on a decline in the overall commercial lending space.
Dependency on legacy, points solutions and siloed systems
From IT perspective, trend in the past has been to rely on core legacy systems for backend and specific point solutions for front and middle office. However, these siloed and disparate systems continue to be a source of inflexibility and disadvantage in the digital economy.
No cookie-cutter solution
Commercial Lending cannot be handled with cookie-cutter and one-size-fits-all approach. C&I and CRE (incl. Multifamily) products need deeper, rigorous and expertise driven processes while being efficient at processing. Small Business loans and SME loans on the other hand provide for much lesser margins with much higher expectations on speed and volume. Additionally, commercial lending processes are prone to emergent and exceptional scenarios. What’s the way out?
Digital Commercial Lending Model
Banks cannot afford to be stuck between revenue making and risk management. The opportunity presented by changing dynamics always comes with a timeline to act. Speed is key.
|Digital is not just about a Automation, but it is also about connecting people, processes, systems and things in your ecosystem to deliver customer- centric, agile and responsive organization. That’s what Commercial Lending needs. As Commercial Lending process cuts through multiple functions and systems, it cannot be looked upon as a transactional point solution. There needs to be a holistic process approach in consideration of multiple dimensions that lenders have to address.|
However, organizations cannot just paste a digital face to the same-old transactionally disparate mechanism of doing things. They need to have a unified approach that addresses the end-to-end lending lifecycle — from prospecting to lead generation to closure and then servicing — with the right balance of customer-centricity, process automation, and knowledge worker leverage.
Organizations need a model for Digital Commercial Lending — a blueprint that provides for leverage points supported by an architectural approach.
The Five Dimensions of Digital Commercial Lending
These five dimensions make Commercial Lending truly and comprehensively digital.
Customers need to be addressed in their context, and with speed. This is especially important because lending needs for every customer is unique. The lender organization’s relationship managers and loan officers need to be equipped with customer information along with process intelligence in order to “talk” to customers in their context. A flexible process driven approach supported by a system that provides customer context throughout lending lifecycle is key. This requires a “Unified” commercial lending approach.
2. Process Efficiency and Straight Through Processing
Customers expect a fast response, and contextually correct action. This requires a process mindset, supported by a flexible workflow driven platform, with the ability to delink business rules from the transactional aspects of the process. Customer data, customer documents and collaterals, lending policies and rules, risk management policies and regulatory compliance aspects need to work in mutual conjunction without forcing rigidity and tight-coupling in the process.
3. Risk Management
It has two key aspects: one, automation of credit checks and isolation of policies into a better manageable and flexible rule management system. And two, empowering loan officers and risk officers with the right level of participation and authority, along with flexibility to act in the customer context. This needs process visibility, content integration, flexible workflows, robust and flexible business rule management system, and great exception handling capability at process as well as transactional level.
4. Regulatory Compliance
A thorough process monitoring, a tight control over application of credit policies, a comprehensive portfolio management and covenant & collateral management are the basic requirements for regulatory compliance. However, it is also critical to be able to respond to regulatory changes and indeterminate regulatory aspects. For a thorough 360 degree adherence, a unified platform across lending products provides a handy overview and visibility.
5. Human Element
Digital is not ‘truly digital’ without consideration of the human element. Customers need a human connect when they interact with lending organizations. And, even though automation of the communication channels helps streamline the resources better, a customer still needs a timely and contextual engagement. Similarly, risk officers, loan officers, and relationship managers have their own needs in order to serve the organization as well as the customers better. A unified platform that provides them all the right information and allows them to make timely decisions in the best of their capacity is critical for an effective commercial lending process that is customer-centric and efficient, i.e. digital.
In order to compete in today’s growth environment, organizations need to address the five dimensions of Digital Commercial Lending.
Configurable Unified Platform for a Digital Commercial Lending Model
A commercial lending solution built over a BPM framework provides the right mix for ‘truly digital’ commercial lending.
The BPM framework provides the underlying workflow automation, process flexibility, loosely coupled business rules management, and integrated transactional content management. These form the basis for the agile and architectural flexible platform for technology needs across lending products. A solution accelerator, built atop this framework lends organizations faster time to market for implementation of their lending products across commercial lending segments. This Configurable Unified BPM platform based approach provides lending organizations the required coverage across all the five dimensions of digital commercial lending.
This model for Digital Commercial Lending driven by a unified platform for all lending products works because it helps organizations ‘pragmatically’ address the five dimensions, and by providing the much needed bridge between the business & customer objectives with risk management & compliance.