Economic shutdowns and consumer uncertainty caused by COVID-19 make digital approaches to credit administration even more critical for banks.
Before COVID-19, lenders were under consistent pressure to support the growth of their organizations without adding administrative resources. Additionally, new technologies were reshaping how banks and financial services companies performed several of their most basic processes.
These two trends – already converging when the pandemic began – accelerated in the face of rising branch closures and consumer uncertainty about the future during the past year. With a shift to remote working arrangements and the added complexity of Paycheck Protection Program (PPP) loans, banks and other commercial lenders suddenly had to do a lot more with a lot less, and they had to do it virtually or with limited interaction.
The urgent need to optimize operations and embrace new technologies has an upside, however. Banks and other commercial lenders can leverage both in order to navigate present challenges and at the same time can uncover future opportunities in efficiency, speed, and customer relationships.
Today’s credit administration landscape
The credit administration function can vary significantly from one organization to the next, with the degree of centralization playing a major role in determining how roles and responsibilities are assigned. Centralization – or the lack of it – becomes an increasingly important consideration as organizations grow.
Regardless of the variations in duties, the tasks required of most credit administration departments can be organized into several broad functions, including:
- Obtaining current financial information such as borrower financial statements, collateral appraisals, references, and other supporting data
- Coordinating credit analyses and risk rating to enable more effective credit decision-making
- Maintaining credit files, including updated appraisals, loan covenant tracking, and reporting
- Preparing documents and communications involving both customer interactions and regulatory reporting
- Performing portfolio analysis to support portfoliowide risk management for strategic and compliance purposes
- Supporting the relationship managers in order to promote growth strategies and improve portfolio quality
In carrying out these functions, credit administration personnel can encounter a variety of challenges, including evolving regulatory requirements, changing management expectations, and ongoing technological evolution such as multiple system updates. Of all the various hurdles they must overcome, data-related challenges often prove to be the most difficult.
However, the PPP lending program has made documentation an increasingly critical issue. It’s also forced many banks to originate Small Business Administration loans for the first time, meaning that on top of everything else, their employees must familiarize themselves with a new process.
3 key digital transformation technologies can help transform your credit administration
Of the many technologies available to banking and financial services, which include mobile and blockchain, three deserve particular attention because of their potential to transform the credit administration function:
- Cloud computing. This technology was important prior to the pandemic, but remote work made it absolutely critical for continued operations. By removing barriers between organizations, customers, vendors, and even competitors, cloud data storage and applications help simplify data sharing while providing easy access to add-on services and applications. Making the right investments can provide cost savings and security advantages.
- Robotic process automation. Using robotic process automation to perform manual or repetitive tasks can accomplish two important things for banks and financial services companies right now. First, it can automate relatively simple but time-consuming administrative work, freeing up strained employees to deal with higher-value activities and new challenges such as processing PPP loans. Second, it can be used to automate certain parts of entirely new processes, making these more manageable and reducing the chances of human error.
- Artificial intelligence (AI). By transferring the responsibility for certain decisions and removing emotion from the decision-making process, AI – and machine learning in particular – offers the potential to significantly advance the efficiency and consistency of lender decision-making. Data access and data quality are particularly critical in implementing this technology.
When employed to their full advantage, these three digital technologies can do much more than help organizations do the same things faster. They also can be used to do something new, and, in the process, create a true value exchange that benefits all parties concerned. Additionally, these digital technologies can help banks and financial services companies stay agile and adapt to rapid changes in the market.
The data you need – faster. Crowe Financial Data Automation™ for lenders.
Digital transformation: Practical examples in credit administration
Digital transformation goes beyond one-off efficiency improvements. It involves constantly finding new ways to achieve goals faster. Today’s best-in-class lenders actively seek such opportunities and will adapt or upgrade their technology solutions to help deliver them. Consider these two examples:
- Customer data portal. One effective tool for helping to improve customer compliance with documentation and reporting requirements – for instance, with PPP loans – is a web-based customer data portal. Customers access such portals online and submit needed documentation directly, in many cases allowing the extraction of data from these regularly submitted financial statements.
Automating the submission of customer data in this way greatly reduces the effort required from customers and improves compliance. It benefits the bank by reducing the volume of reminders and follow-up activities that must be performed by the credit administration staff. The same system also can be used to extract and feed borrower data directly into lenders’ spreading systems, thus freeing up credit analysts to focus on actual analysis rather than data acquisition, follow-up, and verification.
This kind of data portal also can be used to create added value for the customer. Lenders can use the same secured access point to feed relevant industry and peer data back to their customers, who then can use this information for their own comparative analysis and strategic planning purposes.
- Automation of credit analysis and anomaly detection activities. Automated credit analysis is another technology that can create added value for customers and banks alike. This area is especially important as the level of financial services fraud is expected to increase over the course of the pandemic. In addition to helping improve analyst efficiency and accuracy, the technology used to automate these processes can feed back useful information to customers.
The advanced credit analysis tools used by lenders also can be applied to give borrowers access to new sources such as social data, which otherwise might not be available to them. These data sets can be combined with other external indicators to create predictive models that customers can use to improve their own risk management and strategic planning capabilities.
Embracing digital transformation in credit administration
In this market, it’s critical for banks and financial services companies to have fast, consistent access to accurate, real-time data in order to make the best lending decisions. Improving data quality and data capture is an essential first step in creating a road map that can address the competitive, cost, and risk management pressures that today’s credit administration functions face.
Also, for banks and financial services companies that already invested in these solutions and systems prior to COVID-19, it could be a good time to reassess their digital environments for opportunities and risks in this new reality.
In reassessing, cleaning, and fixing an organization’s data systems, it is important to make sure that data is captured in usable formats. Decision outcomes and rationale should be entered as data because of their importance in teaching machine learning models. As well, the frequency of data collection, which could be limited due to the effort it takes to enter the information into systems, should be reexamined in light of the available automation technologies. More data will equal more insights and more intelligent support systems.
Credit administrators also are advised to reassess their roles and interactions with the lending relationship managers who cultivate frontline exposure to customers. Managers should be encouraged to enhance these internal relationships proactively, asking relationship managers what type of information they need to achieve better insights into customer needs along with the types of information that could benefit borrowers.
Credit administrators should take a proactive approach to the ongoing digital transformation rather than merely reacting to new technology tools as they become available. By doing so, today’s most advanced credit administration functions might find that they can use technology more effectively to create opportunities for genuine value exchange, which can benefit all parties in the transaction while also maintaining regulatory compliance and effective risk management practices.
Our banking and financial services specialists understand credit administration and the technology landscape. We can help you figure out which solutions make the most sense for you.
