The fast and the curious: Why insights must drive the future of commercial lending
David Ratnage | Head of Commercial Lending Strategy, Europe, FIS
November 22, 2022
Digital technology has turbocharged the commercial lending process with fast, highly automated decisions seriously slashing the time to “yes.” But to navigate the uncertain times ahead, lenders will need more than speed from their fintech – they’ll be looking for deeper, more forward-looking insights, too.
The rise of automation
Automation alone may no longer be enough, but over the past decade it’s taken lending a long way. When the global financial crisis hit and many traditional banks withdrew from all but the safest bets in the lending market, a new wave of technology-driven “alternative” lenders picked up the slack.
Armed with game-changing APIs and access to open banking data, the digital disruptors both filled the gap and set a new pace. With small teams and low-cost operations, they could deliver loan decisions in minutes, not weeks, to consumers and businesses alike – and provide a superior customer experience along the way.
Ever since, traditional banks have been playing catchup to grab back their market share. And thanks to their own digital transformation, many are now making simple “yes” or “no” lending decisions just as quickly and efficiently as their alternative competitors.
The need for forward thinking
But not all commercial lending decisions are simple. Far from it, in fact. And especially in today’s economic climate.
With inflation, interest rates and energy costs all climbing fast, previously healthy businesses could soon represent a much greater credit risk. After years of relative stability and reasonably low numbers of defaults, the digital lending business model faces its biggest challenge yet.
In the credit-sensitive cycle that we’re entering now, yesterday’s safe bets can rapidly become tomorrow’s bad credits. So, no matter how quickly your commercial lending technology can access and process historic financial data, it’s your ability to predict the future and react accordingly that counts. In simple terms, you need that “edge” so you can have the right conversation with your clients and intervene early.
Traditional lenders can rise to the occasion in two ways.
First, they can fall back on their strengths and take advantage of the competencies and services that set them apart from alternative lenders – namely, their ability to advise their customers, develop long-term relationships and provide a full range of banking products.
Second, they can look forward and support their decisions and relationships with predictive insights, powered by artificial intelligence (AI).
The advantages of AI
With AI-driven analytics, commercial lenders can take automation to the next level to build a fuller, deeper and more dynamic picture of customer and prospect businesses.
That could mean seeing where firms fit into the macroeconomic environment and their industry sector; how their performance ranks against their peers; when in the financial cycle they typically need access to funding; or how lending will impact your portfolio considering factors such as ESG.
Above all, AI gives commercial lenders the ability to draw on a wider, richer set of data, not only historic financials, but also covenant, transaction and market data, news feeds and social media. It’s these more current data sources that can show how things are for business customers – and predict where they could be heading.
Whether falling share prices or negative news stories, early warning signs that a business is in trouble empower lenders to intervene before a problem takes hold. The trick is to sift through a mass of constantly changing information, pull out the salient points and alert the right people at the right time so they take the right action.
That’s what AI does best, and with greater pace and accuracy than a human ever could. By drawing on more data and digging into the details, it could now help banks identify lending opportunities that lesser technology might reject out of hand.
Speed is still important, and automated workflow will continue to help traditional banks keep up with alternative lenders and customer expectations. But now, with credit risk back on the rise, banks will also have faster, deeper insights to inform their decisions, outthink the market and overtake the competition.
Learn more about FIS Commercial Lending Suite https://www.fisglobal.com/en-gb/banking/lending