Digital transformation enables operational capabilities to support the lending process.

Commercial lenders face constant credit risk and an uncertain future in volatile times. For profitable growth, one must focus on what one still has control over, from costs to risk assessment. But do you have a firm enough grip on your operations if your systems are disjointed and inefficient? It's time to seize control of the entire lending life cycle and speed up your digital transformation from start to finish.

Low-value tasks should be automated or eliminated. Mark the first signs of defaults and learn more about each customer and deals. You are now in the best possible position to increase your margins, and manage credit risk, while differentiating your services.

Commercial banking's competitive market has shifted. Universal and regional banks dominated the commercial lending space at the turn of the decade. Today, fintech and smaller independent players compete in this space, distinguishing themselves from traditional banks through market offerings, customer experience, and delivery speed.

Due to the slower adoption of automation and digitization, the relative complexity of the commercial lending operations, and increased customer demands, banks have had to deal with several difficulties.

Commercial Lending overview

Because of disaggregated systems and manual tasks, even today 30-40% of lending resources time is spent on non-core, automatable tasks. Inefficient processes and inaction on improvement opportunities (including digitization) are driving the high level of manual efforts. Banks need to address any redundant processes in credit analysis, underwriting, loan booking, and portfolio administration.

Many banks use complex and out-of-date legacy IT systems, which raises costs and frequently prevents them from leveraging digital technologies to scale for growth. Inability to leverage innovative technology can severely limit a bank's ability to provide differentiated experiences for its customers.

Traditional banks that use manual, paper-intensive underwriting processes delay loan approval. Outdated credit risk models make it difficult to assess clients' creditworthiness. Both facts limit a bank's ability to keep up with market competitive forces, as evidenced by the rapid growth of fintech loan portfolios.

Most banks may not be able to establish a thorough understanding of their consumers due to a lack of robust data analytics to extract insights from lending portfolios. Only 37% of customers believe their banks fully understand their needs and preferences. Limited data access leads to poor loan performance management and makes identifying areas with poor operational efficiency difficult.

Fintechs are working hard to disrupt banking through digitization, promising better client experiences and faster decisions at a lower cost. Commercial lending is not immune to this upheaval. With its distinctive products and services, fintech is drastically changing the conventional commercial lending business model.

Banks must acknowledge that changing customer preferences and increased data accessibility are shifting the competitive landscape in favor of digitally savvy leaders. To stay competitive, banks should consider investing in and further digitizing their commercial lending processes. They must provide value-added services to clients who are always expecting more.

Retaining customers by ensuring exciting experiences.

Commercial clients are increasingly expecting the same level of service as retail customers; clients are frequently willing to switch if their expectations are met better, elsewhere. Hence, banks must keep up by originating, deciding, and closing loans as quickly as possible while providing a frictionless client experience.

Digital transformation enables operational capabilities to support the lending process on a day-to-day basis. It adds activities such as client outreach, loan servicing, and portfolio management to the bank's existing lending process. It augments these capabilities with digital and analytical tools that improve operational efficiency. Additionally, it helps in managing key operational activities associated with loan origination and servicing, allowing bank executives to focus on the client experience, decision-making, and other market-making activities.

Financial institutes, from traditional banks to fintech companies, must effectively address emerging technological challenges and opportunities, beginning with improving the client and employee experience. Thus, accelerating digitization can help financial institutes to overcome obstacles, advance the transformation agenda, and enable faster transactions, further benefiting related projects.

Author:

Shekhar Mullatti, President & Global Head – Banking, Aurionpro Solutions