While the syndicated lending market has been slow to join the technological revolution advancing other areas of banking, attitudes across the sector are rapidly catching up with current trends. A recent Loan Market Association (LMA) study confirms that over sixty percent of surveyed members view fintech as an opportunity to transform critical areas of the syndicated lending process, such as document management and overall operations.i
The prioritization of technology adoption gives us a hint as to the direction the market is taking, particularly the next 5 years as data digitization is a vital first step to enabling cutting-edge technologies.
Gaining a Single Source of Truth
Currently, agent banks rely on antiquated forms of communication, such as fax and email, for sending updates to lenders. In fact, lenders can receive as many as 20 million faxes a year on interest payment notices or requests for amendments, just to name a few.ii
As information comes in from agent banks, lenders must sort and store these communications before uploading data to their own systems to make it available to downstream processes. The tasks are labor intensive and time consuming, requiring institutions to employ a vast number of resources to handle the flow of data.
A similar story is revealed when considering secondary trading and settlement. Currently, communication between seller, buyer and agent banks is achieved through a flurry of faxes and emails, all containing different points of information. To find a relevant data point or piece of instruction, the party may have to shift through multiple pieces of discussion, not to mention up to 10,000 daily notices that may be submitted by agent banks.iii
On the other hand, digitizing data offers multiple advantages, first by eliminating the need to transport information to the end user, via methods such as fax. Instead, information can be posted electronically from the agent bank’s servicing system and made available to lenders via a single platform.
Lenders then access data from their own portal, allowing them to view up-to-the-minute information from one golden source of truth. There is no more searching through faxes or emails for the most recent updates. All data is readily available and searchable via the platform interface and offered in real time, so lenders can more accurately reconcile loan commitments and transactions.
Data digitization offers real and significant benefits for lenders in today’s environment, but it’s also a critical key for future success, opening doors to advancements such as straight through processing (STP). STP eliminates manual tasks in favor of automation, reducing the number of human interventions for faster and more efficient loan servicing.
Data digitization is also key to meeting broader lender objectives. According to the LMA survey, over sixty-five percent of respondents indicated an interest in document automation,iv viewing this tool as critical to creating a more efficient loan servicing environment. Through the use of smart contracts, for example, transfer certificates and assignment agreements can be processed electronically, and even checked for compliance with the facility agreement without the need for human intervention.
However, achieving this future view of syndicated lending requires digitization of data now, and access to a single, golden source of truth, an attribute that requires cloud-based technologies.
Data Digitization and the Cloud
The need for the cloud in data digitization becomes clear when we look at current data handling practices within agent banks. Data often resides in different systems, creating informational silos. In order to present data digitally to lenders, information must first be collated manually and then presented to the lender for consumption.
A more modern approach is to use the cloud. Cloud apps can be appended to agent systems via a connection layer called an API. Cloud applications can then collate data across silos and present it to lenders in a standardized and unified format.
Because of APIs, cloud-based solutions, such as Finastra Fusion LenderComm, can also work with any loan servicing system, allowing financial institutions to extend the length of current investments, while taking advantage of emerging technology to streamline data access.
APIs also make it possible to more easily add new products to existing technology stacks to enhance process flows, eventually creating an end-to-end integration from signing through servicing, trade settlement and maturity. Additional components, such as analytics, make it possible to extend functionality further, digging deep on data and extracting insights that guide future decisions.
The need to catch up with other banking sectors is accelerating interest in technology adoption for syndicated lending, making centralized access to data a priority as financial institutions adopt emerging technologies to improve syndicated loan servicing over the next 5 years.
i “LMA Releases Results of Its FinTech Survey.” Loan Market Association. LMA Press Release, Jun. 17, 2021. Web.
ii “Fusion LenderComm: Creating the Future of Syndicated Lending.” YouTube. Finastra, Oct. 21, 2021. Web.
iii “The Future of Syndicated Lending.” Finastra, 2020. Web.
iv “LMA Releases Results of Its FinTech Survey.” Loan Market Association. LMA Press Release, Jun. 17, 2021. Web.
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