Transforming commercial lending

A growing number of banks recognize the need to modernize their commercial lending businesses.

Here’s how to do it.

North American banks are increasingly prioritizing their investments to build advanced commercial lending origination capabilities. For decades, the standard commercial mentality of ‘this is how we do it’ has dominated the market landscape.

However, we are now at a crossroad as emerging technology solutions are becoming the new standard to transform, simplify and digitize the full range of commercial lending needs.

Although the change will likely be disruptive, it will also create opportunities for banks to differentiate themselves in this important banking sector over the coming years.

Evolving business and compliance requirements have been colliding with outdated origination platforms and highly manual processes to create frustration and disappointment for everyone involved, from customers and associates to industry regulators.

The results? Customer dissatisfaction. Lagging customer conversion and retention rates.

Regulatory and compliance problems. Associate frustration and inefficiency. And lastly, limited management visibility and control over business performance.

The good news is that the latest commercial platforms have been carefully designed to address these issues, helping banks grow their lending businesses while managing risk and reducing operating costs.

Behind the times

Many banks have not significantly updated or invested in their commercial lending capabilities putting them far behind the times in this key business.

The process of obtaining a commercial loan can be complex, opaque and slow, leading to customer frustration and reduced conversion and retention.

Bank associates don’t fare much better, spending far too much time and effort shuffling papers and relying on a mishmash of applications — including a variety of homegrown tools.

Bank management faces similar challenges, lacking the tools and data to systematically track business performance and monitor/enforce internal and external service level agreements.

Policy exceptions — such as pricing overrides and fee waivers — are beyond the capabilities of most legacy systems and must be handled manually. Also, outdated legacy systems and processes can give rise to significant compliance issues, including risk rating inconsistencies.

Bank leaders generally recognize the need to improve their commercial lending operations; however, they currently face a number of major barriers that make improvement and transformation difficult.

Different parts of the business have different policies and procedures, making it hard to develop and adopt consistent systems and processes. Loan customizations are commonplace, increasing complexity, documentation requirements, and exception handling.

Also, there are unclear role expectations between line and support functions, with multiple handoffs and a lot of inconsistencies and duplicated effort — with no centralized tool to facilitate information sharing and to track task ownership and status.

Leaping into the future

By digitizing all of the data associated with commercial lending and harnessing the latest technologies — including data analytics and workflow automation — banks can dramatically simplify and accelerate the commercial lending process.

The resulting transparency and breakthrough insights can help decision-makers improve business performance and manage risk more effectively with less cost and effort. Key features include:

  • Digitization and workflow automation. Digitizing paper documents to help streamline and automate the entire lending process from origination to close.
  • Integration with CRM systems. A shared technology platform that is used by all roles in the lending process — from relationship manager to underwriter to closer — to improve efficiency, communication, and coordination.
  • Customer/vendor portal. A secure online site for vendors and customers — along with their CPAs and attorneys — to upload information and track loan application progress.
  • Advanced analytics. Using the latest analytics tools to improve loan scoring and risk identification — and to fuel growth by uncovering opportunities for cross-selling and relationship expansion.
  • Digital dashboard and real-time reporting. A system that enables near real-time monitoring and reporting of key performance indicators such as the loan pipeline and regulatory compliance activities, as well as drill down capabilities to track the progress of individual loans.

Keys to success

Transforming a commercial lending business can be a difficult challenge — but it’s an achievable one. In our experience, there are four keys to success:

  • Define and standardize. Define and document associate roles and responsibilities throughout the loan life cycle, including how associates and functions interact. Align around simplified, consistent processes as much as possible — making sure the organization and technology support it.
  • Continually review process effectiveness and revise as needed to maximize value.
  • Lead with business vision. Although technology is a key enabler, business leadership must provide the overall vision for the transformation. Establish and maintain simple and clear business and IT accountability for project strategy, delivery, and adoption. Avoid decision-making by committee. Strong program management combined with a staggered, high-touch model for deployment, training, and support can boost the odds for success.
  • Harness the power of the platform. Avoid reverse engineering and replicating your existing legacy systems. Take advantage of the new platform functionality — including mobile capabilities — and best practice processes to optimize performance. Move to a more agile and iterative delivery model, refocusing IT skills and investing in new roles that provide greater value for the business.
  • Focus on data architecture. Use the latest practices when redesigning your data architecture for new and legacy on-premise applications. Make sure the data set is clean and actionable — and that it provides what’s needed to support the business processes. Carefully define and manage data volumes in key tables, relentlessly focusing on data quality and governance.

Banks that take the lead in this important area have an opportunity to differentiate themselves and emerge victorious. Those that don’t may find themselves struggling to compete in the years ahead.

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  1. @Neil – Thanks for the comment. I think differentiation comes in the core values you hold true to deliver (ex. frictionless experience, speed, etc.) Process standardization and role clarity is critical to implementing any platform as its important to understand the “secret sauce” as it relates to differentiating capabilities by geography/business segment and also capturing key controls. In addition to making a platform selection – looking at the supporting ecosystem to evolve capabilities and being agile about transformation is critical.  There should be a continuous cycle of looking at the bank’s strategic ambitions to improve delivery (externally at technologies, business models, competitors, ecosystems to create value), focusing on the experience (human interaction, influences that drive engagement of clients/employees), operational evolution (people, culture, mindset to adapt to changes), and continue to evolve the platform and supporting technologies to deliver value.  

  2. Thanks for writing this interesting article Dounia. I have a question…how much of a bank’s differentiation in their market comes from their commercial lending system/process? If it’s significant, does a commercial lending platform not inhibit their ability to differentiate? Thanks again, Neil