Q&A: Patented data extraction system simplifies borrower health checks

A conversation with Jeff Schmidt

Q&A: Patented data extraction system simplifies borrower health checks

With a newly issued patent on our system for extracting financial statement data, Crowe is poised to help lenders manage their portfolios with greater ease and efficiency.

For lenders, there is an ongoing tension between, on the one side, getting as much information as possible about the financial health of borrowers, and on the other side, minimizing the burden of reporting for all stakeholders. Crowe always is seeking ways to create efficiencies for clients, and in July, we reached an exciting milestone: the formal issue of a patent* for our document extraction system and method, a key component of our Crowe Financial Data Automation tool.

Our system for automating data extraction represents a dramatic improvement in what historically has been a very manual, time- and resource-intensive, and error-prone process of conducting financial health checks on borrowers. In the Q&A that follows, Jeff Schmidt explains why automating data extraction is important, why this is particularly relevant today, and how this newly patented process is driving transformative change for Crowe clients.

Q: What is your role at Crowe?

A: I consult with banks in the credit space, helping commercial lenders monitor their credit portfolios. A lot of my job involves helping customers automate and gain greater insight, but the first step is to bring in timely data about their borrowers. Dealing with inbound management of large volumes of data and extraction of that data is a challenge for all of our clients.

Q: The new Crowe patent for a document extraction system and method was granted on July 14. Why is this new technology important?

A: Since banks began lending, they have needed to collect information from their commercial borrowers about their financial position. Borrowers don’t spontaneously go out of business, but without a regular review of financials, banks can miss warning signs that borrowers are getting into trouble.

To manage this risk, banks collect financials from their borrowers on an annual, quarterly, or even monthly basis to do a health check and understand what’s happening inside the business. Unlike with a tax return, borrowers’ financial statements don’t follow any particular template or structure, so financial statements look different for different types of companies across different sectors. 

There is a tension, then, between getting as much data as possible and being able to enter and manage the data in a timely manner. A monthly view of financials provides the best insight into how borrowers are doing, but processing financial information data on a monthly basis requires significant resources at the bank to manually key data into the system, review the data, and make judgments about what it means for the financial health of the borrower. Many banks only do this exercise quarterly or annually because they simply don’t have the people or resources to do it more often. 

Q: What has been the historical approach to processing all of that data, and how does this new technology change the approach?

A: Typically, banks get financial statements on a prescribed schedule, and someone at the bank hand-keys the data. The person entering the data has to make decisions about where to put the numbers in the bank’s system, and once information is in the system, it can be difficult to trace it back to the original document. To drive efficiencies, banks tend to push this type of activity down to the lowest-level resource in their organization who might not be deeply knowledgeable about financial statements. Data can be entered incorrectly, or in the wrong place – or worse, differently from period to period. Some banks push this function overseas, creating additional risks in terms of protecting borrowers’ sensitive data.

Our technology allows banks to electronically extract the data and validate the numbers on the basis of established accounting assumptions (on a balance sheet, assets equal liabilities plus equity). With that automation and validation of the data, banks can improve accuracy, through-put, and traceability of data back to source documents. 

Q: How does this new patented technology fit into the Crowe Financial Data Automation tool?

A: The Crowe Financial Data Automation tool covers the full process of collecting the documentation, extracting and making sense of the data, and mapping the data into the client’s target system. The patent covers the second part of that three-part process: the extraction of the data and giving it meaning.

Q: How is the invention particularly important today, in a world where COVID-19 is a persistent part of our reality?

A: In this moment, it is even more critical for banks to closely monitor their lending portfolios. Things are changing fast, and if lenders are not monitoring their portfolios regularly, they are exposed to a great deal of risk. If a borrower goes sideways and the lender has not reviewed its financials in three months or 11 months, the lender might be completely blindsided.

Without this kind of tool, lenders could not possibly keep up with the volume of data required to look at every borrower monthly. Using automation lets banks get financial statements processed and into their systems in order to identify problems before they become catastrophic.

Q: How is this new technology transformative for Crowe clients?

A: Digital transformation isn’t just about improving an analog process with technology. It’s also about doing things differently – in a way that drives efficiency and greater value. Having the ability to monitor lending portfolios more frequently is a transformative change that allows banks to accelerate their business cycles and decision time frames. Being able to make quick lending decisions can give a bank a competitive edge. The faster banks can get data into an electronic format, the more quickly they can feed that data into downstream tools that can accelerate the lending process or identify credit risk.

* One or more of the features of this product are covered by U.S. patent no. 10,713,481, issued July 14, 2020.

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Jeff Schmidt
Jeff Schmidt