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.
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:
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.
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:
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.
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:
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.
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