3. Lowering Cost of Approval
2. Powering Real-Time Risk Analytics
SME loans are notoriously expensive to approve. A study by Deloitte found that large US banks spend between $2,000 and $10,000 to process a loan application. Why? Because it’s incredibly time consuming to manually move a loan through the application process, which in the case of big banks can spread over a 10-week timeframe. To give this some context it’s important to look at the wider implications of manual processing on performance: picture each member of your lending team running a booth on a toll road. Every time a car wants to pass through the toll your officer needs to ask multiple questions, check for insurance, ownership, service history, etc. This creates two problems: one, it increases the time a car has to wait before it continues on its journey; and two, it significantly limits the number of cars your team can process in a specific timeframe. Now compare that to traditional lending processes where your loan officers stop each application to tick all of the data boxes, and it sheds some light on why SME lending costs are so high and business efficiency is a challenge. Enter the automated toll booth or automatic toll highways. These booths use technology to pull in information about each car that passes through the sensor and then automatically charges the owner the toll fee. Or motion sensor cameras at highway entrances and exits take pictures of your licence plate and send you an exact bill that you pay online. Cars flow smoothly, payments are automated, and, in a major improvement to efficiency, one person can provide support for multiple booths. Digitization and automation have both streamlined the user experience and massively improved efficiency, and technology can do exactly the same for SME lending. In the next section we’ll focus in on what digitization of SME lending will look like for financial services organizations when they select the right technology.
Since the first loans to buy grain were issued in 2000 BC, lenders have understood that knowing as much about the applicant’s business as possible is the best way to understand risk and predict the likelihood of default. Fast forward a few thousand years and the amount of data available has grown by infinite proportions, but just because the data is available doesn’t guarantee that it’s either easily accessible or in a useable form. Sticking with the car analogy, your old school lending processes have serious problems when it comes to data integration and real-time risk analytics. Think of manual decisioning like your 80s limo. Need to gather information? Data access and orchestration means making regular pit stops at data sources to manually collect the information you need, and often asking your passengers to do some of the work for you. For them it’s like calling an Uber and then being expected to take on a significant share of the driving. If this happened in any other industry, a one-star Yelp review would be considered generous.
The issue is that when you’re driving an 80s vehicle, ‘connectedness’ means a car phone that cuts out at the slightest hint of signal interference. Gathering data isn’t a simple or fast task and keeping applicants up-to-date requires extensive communication. When your team enters the decision processing tunnel to assess the loan you may as well have been sucked into a black hole, leaving applicants asking:
“Hello, are you still there?”
Digital Lender:
APPROVAL
To deliver real-time decisions that support world-class SME lending experiences, you need to upgrade to a solution that makes it quick and easy to pull in the right data exactly when it’s needed. This means no longer relying on personal credit scores to decision business loans, but instead looking to business financial data, such as accounting documents and tax returns, to get a deeper understanding of business health and decisioning loans based on a prediction of future business success. When you have this volume of data and the technology to access, orchestrate and process it, you can implement risk decisioning tools that can accurately take an application from data to decision in under a second.
AUTOMATED PRICING
AUTOMATED DECISIONING
Hours
We’ll cover this more in the “choosing the right technology” section that follows.
AUTOMATED DATA COLLECTION
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