Fintech Insights

In the new normal, commercial lenders need a digital response

David Ratnage | director of product management, FIS

July 15, 2020

When the world last confronted a global crisis, it’s fair to say that banks were at the center of the problem. This time around, the industry has been doing all it can to form a big part of the solution. And in the wake of COVID-19, commercial lenders are mounting an increasingly digital response to what’s rapidly becoming a normal way of life.

From the start of the pandemic, a top priority for banks – and indeed all commercial organizations – was to keep their employees safe by enabling them to work remotely from home. Clearly, digital technology was key to making this possible, with many more organizations exploring the opportunity to move IT systems to the cloud and keeping services up and running online.

In this sense, the pandemic has only accelerated the digital journey that many commercial lenders had already started. It’s also highlighted a growing need for banks to hand over the operation of their software and its supporting infrastructure to trusted technology partners.

Throughout the crisis, leaving IT to the experts has allowed traditional commercial lenders to both maintain business continuity and focus on what they do best – working with and understanding their customers’ needs.

The pandemic has made this an even more important USP for banks in the digital lending marketplace. While some customer segments are suffering as a result of the pandemic, others are doing better. But the balance could shift at any point and you need to be vigilant.

So, in my view, the lenders that will emerge strongest from the crisis will be the banks that retain their relationship ethos, look beyond the numbers – and, above all, can pivot to their customers’ individual circumstances and requirements.

Again, technology can help. With a digital lending framework, banks can differentiate their services by giving customers a clearer view of their current position and allowing them to easily request a repayment adjustment, a change in terms or even a bridging loan.

Digital services are also great for educating customers, giving you the opportunity to impart complex information without a lengthy phone call. During the pandemic, for example, banks have used their portal to expand on the details of government-backed business loans.

But the portal must never replace people – and relationships should remain the core of what the bank can offer. In a specific situation, the customer might not need another loan; an overdraft facility may be more appropriate. Only the relationship banker can make that kind of distinction.

In other words, digital lending needs more depth than ever at the moment, especially when it comes to risk management. Credit risk is front of mind for banks once more, which calls for the kind of advanced analytics that only the most sophisticated lending systems can provide.

With many banks relaxing their terms in these difficult times, complete transparency has also never been more important for lenders and their customers. Historically, the terms of a loan have been locked away and buried deep in a document; end-to-end digital platforms make them much more accessible and therefore easier to review and adjust, supported by automated workflow and processes for projecting the impact of any changes and securing approval.

Who knows how long the new normal will last or whether the old normal will ever return? Certainly, with stringent terms to government-backed lending schemes, it will be even more critical for banks to closely monitor the life cycle of loans for at least the next few years.

Armed with a digital framework, commercial lenders will be in a stronger position to do just that and manage the multiple ongoing impacts of COVID-19. And beyond the crisis, they will be better equipped to help customers meet their needs and plan for the future.