Automating the Credit Process
We have all heard the concept of better late than never. However, it seems that when it comes to banks wanting to put in the time and effort to automate their credit process, the excuse is “we’re too busy and have a portfolio to manage” or “the auditors are about to walk in and we don’t have the time to focus on it today”. In this blog post, certain strategies and tactics will be provided to add value to the subject and as bankers like to say, “minimize risk”.
Banks know they must automate, make processes better, faster and react quickly to their customers. But, where do they start? Do they have the expertise in house, do they hire a consultant, or do they rely on technology partners to help? Like most credit approvals, the answer is “it depends”.
First, let’s look at some trends in the industry. Based on our experience over the past 20 years helping banks automate their credit process, we have noticed that most of the larger banks have already started to automate by leveraging their vast internal resources. Mid to smaller banks require greater automation as they may not have the human capital to compete, therefore creating a higher level of need to automate and stay competitive. Most smaller banks also tend to have a lower net interest margin and must be highly competitive/do more with less, which translates into a greater need.
In order to justify the project, banks typically focus on two primary reasons for automation. First, and easier to obtain approval, is the Regulatory reason. In this scenario, their audit or regulatory agency has mandated that they come up with an automated process that is measurable and repeatable. Second, and a little more difficult to quantify is the Efficiency reason. In this case, management sees a need to become more efficient to lower their cost factors and to be able to allow them to process more loans. While credit automation (if done correctly) almost always translates into greater efficiency for the bank, software alone will not solve the problem. Process is equally as important in the project.
Based on our industry analysis, the following lists a few themes that drive banks to automate:
- Connect Disparate Systems throughout the Lending Process
- Integrate Core & Loan Documentation data
- Digitize Paper and Credit Files
- Automate Approval Routing
- Provide Multi-level Insight into Portfolios
- Manage Risk, Regulations & Exposures
- Streamline and Enhance Business Processes
- Reduce Costs and Improve Efficiencies
Armed with these criteria, banks set out to create a project to search for vendors that will help them solve their challenges. However, there is no magic bullet. In many cases, the bank’s selection criteria can give too much credence on product features and functions and not enough on process change, data integration, project management and the vendor’s “banking” expertise. Many times, they are quick to select a vendor due to their “name recognition” and not based on the criteria described above.
If the bank is not willing to change their process, look to finding new/streamlined ways of doing business, realizing that software alone will not solve their problems, the overall efficiencies they are looking for will not be fully realized.
Now that we recognize those challenges, how do we begin? First, the bank should set out their objectives, variables and constraints. Defining a set of objectives such as business drivers, scope, requirements, budget, measurement of success factors, etc. In many cases the bank’s internal political climate should also be considered.
Consider other influencing variables and constraints such as:
- INFLUENCING VARIABLES
- Executive management buy-in
- User buy-in
- Strong emphasis on Requirements
- Methodology/Project Discipline
- “Right” Technology Partner
- Lack of vision
- Politics/Kingdom building
- Organizational Culture
- Lack of Business Process
- Resistance to Change
- “Wrong” Technology Partner
As part of the overall project initiation, define and quantify the benefits of the project. Keeping in mind whether the project leans to a “Regulatory” or “Efficiency” solution:
- Reduce processing time (automation helps consolidate steps) by x days
- Eliminate/Reduce Paper (electronic credit files/imaging)
- Reduce the cost of loan processing (automate the steps in the process) by x dollars
- Improve accuracy (minimize duplicate data entry errors) by x%
- Provide insight to x% of management for visibility of the loan lifecycle
- Satisfy Regulatory Issues
Before beginning the project, consider developing a checklist and include the following outline:
- Consider Business Requirements/Process and “Modify to Simplify”
- Plan and include IT in scope and research
- Plan to review and modify business processes
- Define measurable “end results”
- Talk to banks, peers and colleagues
- Research the web, blogs and whitepapers
- Use Industry Associations
- Trade Show Exhibitors
- Develop an RFP (or mini-plan as a baseline to compare apples-to-apples)
- Don’t just select a “brand name” – in many cases they may not have an incentive to compete
- Determine functionality
- Determine vendor’s flexibility – customization vs configuration
- Determine vendors staff/knowledge of the industry
- What methodology will you use to evaluate vendors? Must be both qualitative and quantitative
- References – what will you ask them?
- Negotiate, Negotiate and Negotiate
- Ask for an ROI analysis – provide specific metrics around time/employees
Implementation – Project Management Process
- Provide a PM (or bank champion) for the vendor to work with
- Obtain management and user buy-in (involve them in the process)
- Conduct Training
- Pilot Roll-out
- Mandate usage
Discuss Project Management Principles
- Review methodology to successfully implement a workflow project
- Develop a process to measure post project benefits
Once there is consensus among the project team, document these items and start the search for a business partner. Too many times banks see software companies as simply a “vendor”. Those banks that truly believe a software company is a partner and not just a vendor are more likely to benefit from a successful project. Be open and honest with your software partner, they are there to help.
While any project that requires money and more importantly the bank’s time, ensure the project and software fit within the bank’s culture. For instance, if the bank is not focused on “selling” and has a limited business development team, investing in a CRM or automating the sales process doesn’t make sense. Instead, focus on the back-end of the credit cycle where greater automation eliminates steps in the process or eliminates the need to push around paper.
As someone who has experience in banking, process automation and project management, I am passionate about this topic. I have been helping banks as both an internal and external consultant. I have seen firsthand what makes a project successful versus what makes it fail. If you approach the project with the steps indicated above, have a team that is focused on the same vision and work to partner with your vendor, the project will be successful. Who knows, maybe even the timing may be right!