Why going digital end-to-end is the future of corporate lending
In most banks, the current corporate lending process involves multiple hand-offs between many different participants. The results can include delays, errors and a lack of transparency—in turn causing higher costs and lower margins for banks, plus frustration for borrowers.
But why is it this way? The organizational siloes and process inefficiencies in corporate lending are so embedded that many of us accept them as part and parcel of the industry. But we shouldn’t.
Look at the typical corporate lending process, and you’ll see that each step—spread across the front, middle and back offices—is siloed from the others and conducted by separate teams using different systems. What’s more, the exchanges of information between these teams are characterized by widespread use of paper documents, error-prone dual-keying, and point-to-point, ad-hoc communications via phone, email and even fax.
Put simply, it’s archaic. And the reason is a lack of digital technologies and integration throughout the process.
The opportunity on offer
The benefits to be gained from filling this digitization gap are substantial. Digitizing and integrating the corporate lending process end-to-end and front-to-back offers the clear potential to boost throughput, transparency and efficiency, while removing the need for manual handoffs, dual keying and to-and-fro communications.
On top of lower cost and higher speed, digitization of corporate lending also presents clear opportunities for banks to improve borrowers’ experience and grow market share. IDC’s Global Corporate Treasury Survey 2019, based on research among 400 corporate treasurers worldwide, found that 30% were highly dissatisfied with the service from their banks. And their top priority for 2019 was improved access to funding, cited by 84%.
Mapping out the way forward
To break the logjam in corporate lending processes, the first step is to get a clear view of the current state of play. And here the accompanying chart of a typical credit facility on-boarding process tells its own story. As it shows, this one transaction involves multiple communications channels and a wide array of documents in different formats passing between the front, middle and back offices.
As well as increasing costs, time and the likelihood of errors, this complexity also limits visibility for everyone. The participants who are not immediately involved at any stage must contact the current lead participant to find out what is happening, what decisions have been made and what actions they need to take. This lack of transparency is most marked for borrowers, who often need to contact the Relationship Manager regularly to check the status of their application.
Together, all these shortcomings mean the market is crying out for automation and simplification of the process using digital technologies. Hardly surprising, then, that many banks are now taking a long, hard look at their lending processes, seeking ways to use digitization and automation to optimize workflows—thus enabling a smooth and seamless transition of documents through each stage, and greater transparency and clarity for both internal and external participants.
Key characteristics of a solution…
What attributes should this solution possess? In my view, three characteristics are imperative. It should:
- Manage complex products – Banks are providing increasingly complex loan products in response to customers’ rising demands, and the solution must have the ability to support this complexity.
- Maximize usability – Ease of use, convenience and transparency for RMs should be priorities, enabling them to do their jobs better and focus on building profitable customer relationships.
- Have a single workflow from product selection to servicing – A consistent, integrated workflow and data sharing all the way from initial client contact, and loan origination through to loan servicing.
…and the benefits for banks
A solution with these attributes will provide banks with an integrated front-to-back lending cycle that will deliver several major benefits. One is that it will help them to improve operational efficiency, meeting the growing pressure on corporate lending to find faster and lower-cost ways to operate. Another is that it will enable banks to apply proper management of capital and maximize the performance of their lean portfolio.
A further benefit—one whose importance shouldn’t be underestimated—is that it will provide a far superior experience to corporate borrowers. Their experience as consumers of digital offerings outside work means they now want similar levels of convenience and transparency from the corporate banking solutions they use.
By digitally integrating and connecting the process end-to-end and front-to-back, banks will be able to provide such an experience. This will set them apart from their competitors, helping them to build more durable, trusted and profitable customer relationships, increase their market share and grow their corporate lending business over the long term.