Chris Papathanassi, Global Solution Lead, Lending with Finastra. Papathanassi discusses the two challenges facing lenders: data quality and ensuring a true “golden source” and leveraging real value through data connections. Find out more in the full report >>
Today, digital is the only way to do business. But even though everything they do can be expressed in ones and zeros, most financial service organizations simply aren’t set up to be truly digital. In the context of the current disrupted, volatile and remote-working global economy, doing digital brilliantly is now a matter of survival and urgency for many financial firms – no longer simply a ‘nice to have’.
Digital transformation is difficult for even the simplest business models, and in lending in particular, there is a real challenge. When it can take up to three months to get cash out of the door, it’s hard to see how any bank can keep up with the digital shift. There is a continued dependency in lending on paper documentation and face-to-face contact.
Despite this, the challenges of digitalization are more than balanced out by the potential benefits. You’re likely aware of a few of these already:
- Increased efficiency – removing repetitive, non-value-added work and moving towards real-time processing
- Personalization – delivering relevant customer service even in a socially-distanced context
- Improved credit management – providing integrated, rules-based systems for greater decision speed and transparency
- Proactive risk management – using APIs and platforms to “join up” the risk and sales processes
- Self-service for corporates – providing a digital channel that empowers corporate customers
- Unlocking the value of data – bringing data together from disparate sources so its true value as a commodity can be leveraged
So, what needs to happen for lending to get there?
One of the key issues is data quality and the “golden source”. The bespoke nature of lending makes it hard to maintain data quality and consistency. Lenders have their own individual nuances and conventions. And corporate borrowers that have lending relationships with many different organizations will download and manipulate data so it’s in a format they can work with.
As one major bank asked us: “How can we ensure what the source of truth is across different applications?”
What’s more, as data moves through different systems in a digitalized and connected world, it changes too.
This points to the second challenge, which is that digitalized lending data is only valuable when it can be connected to the other pieces of the puzzle, to provide the big picture lenders and borrowers need. Right now, firms are still downloading data into Excel, manipulating it, and re-sending it.
Digitalization plus API capabilities, however, makes it possible for stakeholders to see the same pieces of data in the same state. It’s this connectivity that is key to realizing the full benefits of digitalization and addressing the “source of truth” issue.
Digitalization also opens data to new technologies such as AI, machine learning, and robotic process automation, which can create new efficiencies and value for banks and customers. And for processes such as syndicated lending that have multiple players, it can be combined with cloud technology to enable more collaboration and better access to a single source of truth.
APIs in the cloud can make innovation more accessible to banks, overcoming the challenges of integrating in-house and external products. In essence, on platforms, banks have access to pre-integrated, interoperable solutions and better access to the broader financial services ecosystem, where they can explore innovations and consume them at speed.
This potentially changes the shape of the lending industry, opening up interesting questions. What do banks want to be? Leaders in the lending business or providers of specialist products? With digitalization both options are possible, creating an opportunity for lenders to add value and build their lending businesses – or to disintermediate healthily.