Winning the lending race. A sneak peak into the LendingUP conference topicFebruary 19, 2020
Michailas Traubas, Solution Architect @ETRONIKA
Everyone wants to be a winner in the lending race – traditional banks, challenger banks, factoring and consumer lending specialists, and P2P and crowd lenders. The consumer lending space is fairly crowded all over Europe and beyond simple loan types (such as payday loans and consumer leasing), there are vast opportunities still to be explored. SME lending is currently considered a top priority by many traditional lenders, but there are numerous challenges to be overcome if you want to be the ultimate winner in that race.
While helping financial institutions to solve their existing lending challenges, I am noticing obstacles and misconceptions that tend to repeat.
Automation vs digital transformation
Most financial institutions are working on digitalizing their loan-origination processes to help them achieve a higher level of efficiency and cut costs. However, the scope of digital transformation is frequently limited by the appetite for risk, IT resources and the organisation’s maturity level, leading to only partial efforts or simplification of the scope for digital transformation.
One of the widest efforts towards digital transformation is based on RPA (Robotic process Automation) solutions. RPA is not, however, about transformation, but about digitization of operations and reducing costs by using robots instead of costly human resources. True digital transformation is about changing the way your organisation works and achieving higher efficiency in processes, rather than merely a faster speed of operations.
This is why I believe lenders that choose to implement specific solutions for digital lending will win out in the long run, with such methods bringing positive organizational changes, and improving the quality of the loans portfolio and processes in general.
Lack of speed
An article from August 2018 by McKinsey & Company indicates that shorter approval and disbursement times are key factors for customers when choosing a lender.
In many markets today, consumer loan origination – specifically, origination of payday loans and similar products – has reached a stage at which the limiting factor for performance is the time for external systems such as national registers and credit bureaus to process originator requests. A time of 5 to 10 minutes to disburse a loan does not seem like a distant goal nowadays, but has become a mere benchmark figure.
However, I could not say the same about more complex products such as SME lending or mortgages, which require profound evaluations, a large amount of paperwork, external approvals and risk assessment. Many lenders need weeks, if not months, to onboard business customers – something that often creates liquidity problems for such clients.
I would like to highlight that the ability to serve SMEs in a predictable fashion and shorten the loan origination cycle is the best way forward for winning the lending race.
Delivering on the promise for SMEs: not a simple task
Even after promising a great service experience for SMEs, banks are still slow in execution. After approaching a lender, a SME needs to spend many hours filling in different forms, from simple company data to financial information and project-planning documents. This work frequently results in manual transfer of information from application forms into loan-origination systems, further delays in application processing and inconsistencies of information within the bank. The ultimate result is a lengthy loan-origination cycle that can take weeks or months and lead to dissatisfied customers.
It should be noted that the majority of traditional lenders fail to fully use the data they have available on their SME customers in their systems. They also fail to engage SMEs via self-service and process automation, unlike with the retail customer – so someone who has both personal and business accounts at the bank can feel the difference and may get a sense of disappointment with the business offering.
Over 1000 regulatory bodies worldwide are seeking to bring more transparency into the financial industry, meaning that all lenders must comply with many different laws and regulations that are constantly changing. It is estimated that a medium-sized financial institution spends up to 9% of its total annual expenditure on compliance, while product teams need to spend valuable time on making mandatory compliance changes instead of focusing on innovation, sales and the optimization of existing products.
Operational risk management addresses internal compliance efforts – and, typically, the more manual work the organisation carries out, the more operational risks it faces.
Failing BPM initiatives
Many financial institutions are trying to solve the challenges involved in lending processes by launching major BPM (business process management) initiatives. Unfortunately, up to 80% of such initiatives fail along the way because of poor organizational planning, ineffective distribution of resources, lack of input from business teams and an inability to foresee future needs.
After all, major BPM initiatives are often planned a long time few years ahead, meaning that original solutions might become outdated even before they are launched. In my opinion, this is a clear indication that there is a need for initiatives towards true digital transformation to effectively solve the key existing challenges in the lending sector. There is no one-size-fits-all solution, so I encourage market players to seek tailored solutions for the management of SME loan origination.
Learning from real cases
It is impossible to solve all problems and become leader in the lending race in one day, but it only takes a moment to start making positive changes. Talking to experts who once solved the same problems that you have is worth more than reading tons of books.
I recommend that every loan lending provider attends the LendingUp conference in Prague on 5-6 March, where all the leaders from the lending industry will share their success stories and present the newest digital loan-origination and lending solutions. As Solutions Architect at Etronika, I will also be there – so if you are interested in learning more about modern loan origination and want to overcome your existing lending problems, I would love to meet you in person.back