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BirdsEye View

 The production process for commercial loans has remained stagnant for over 100 years.  And then, thanks to emerging technologies and the democratization of development, things changed.  New entrants such as nCino and Sageworks changed the landscape of loan originations forever, and the floodgates opened.

My friends at PwC keep close tabs on that end of the market, and this article is based on their market intelligence and viewpoints.

The current LAS state falls short on four key factors:

1.     Workflow:  Exception-based workflow and task capabilities

2.     Limited customization: Limited ability to customize to bank-specific or client-specific requirements

3.     Data and analysis: Difficulty to conduct data and metrics analysis; no single-view of the customer

4.     High costs: implementation, configuration and maintenance costs are high

Thankfully, the market continues to evolve, and new points of differentiation are offered in the future state of both LAS and commercial servicing.  Opportunities to differentiate include:

1.     Streamlined operating model: Transitioning from a decentralized operating model to a client-centric, fit-for-purpose operating model with market and industry expertise for specific target segments.  Benefit: improving customer-centricity

2.     Segmented service delivery: Design a differentiated servicing model based on specific criteria, such as industry experience, client size etc., to offer differentiated engagement and servicing experiences to optimize the client experience based upon their complexity and needs. Benefit: Efficiently eliminating our current state of “one-size-fits-all” for right-sizing effort to customer complexity and needs.

3.     Architecture, integration and conversions: Establish clear architectural guiding principles along with enterprise data, automation, security and reporting elements. Benefit: Standardization improves efficiency and reduces integration and operational pain, cost and risk. 

4.     Straight through processing: Automate management of simpler loans and reduce manual work required to manage complex, multi-faceted deals, delivering a faster “time to yes” and “time to cash” customer experience. Benefit: Right-sizing internal processes while optimizing client experience.

5.     Enhanced self service: Develop self service capabilities to improve experience and reduce cost of service requests, offer real-time analytics and data and providing more timely and easier communication channels to clients.  Benefit: Appeal to the fast-growing self-service segment across industries and customer size.

6.     Modernize case management system: Centralize case management (such as a CRM plug-in) to help structure, prioritize and standardize service requests handling using automated workflows and AI.  Benefit: Reduce customer friction points and alleviate need for non-value-add human involvement.

7.     360 view of customer: Enable display of complete client relationship across the enterprise.  Benefit: Enhance one-stop customer servicing while increasing cross-sell opportunity identification.

8.     Clearly defined roles and responsibilities in your team: Reduce overlapping activities and identify accountabilities.  Benefit: Improve employee productivity, engagement and job satisfaction.

The current LAS state has yielded many benefits, but with them come continued frustrations at the system shortcomings mentioned above.  The opportunities for improvement are plentiful.  As a result, there are many new entrants into this evolving space, and even traditional players are working on upping their game.

A quick review of the landscape of key players of the commercial servicing market highlights the following companies: AFS, Finastra, FIS, FiServ, Finxact, McCracken, Q2 (through CloudLending) and Technisys. Others are entering the space almost daily.  Each one of these players offers some advantages, and many are targeting a specific segment of the market, such as large loans, or syndications.  Make sure the vendors you are evaluating focus on the functionality that is central to your strategic objectives.

The first problem commercial lenders must address is the challenges their legacy operating model present on the way to transform the servicing experience.  

• Fragmented workflows fraught with data entry duplication results in inefficiency across the board and many manual workarounds.  Impact: The benefits of straight through processing (STP) remain out of reach.
  
  
• People end up bridging the gaps of the operating model that emanate from lack of standardization and the legacy technology. Impact: One can’t develop a 360 view of the customer, and staff is continuously frustrated at duplication and errors.
  
  
• Disparate, non-integrated solutions and supporting technology continue to stand in the way of realizing the company’s strategic vision.  Impact: High cost of ownership and inability to integrate (via APIs) with multiple systems and 3rd party vendors, siloed within specific LOBs, a paper-intensive environment and limited opportunities for improvement, streamlining and efficiency.
  
  
• The data itself is also a problem.  We all have data quality issues, lack of governance around key data domains and lack of enterprise-level information management strategy.  Impact: Our ability Tom leverage data analytics is severely limited.

The problems seem too daunting to overcome, but incremental solutions within a global strategy are the way to make affordable and impactful progress.  The key decisions here aren’t just the vendor selection.  They involve a broader range of quandaries.

Organization and people

• What is your underlying strategy and vision? Aspirational goals
• With that is mind, what is your optimal servicing model?
• With that in mind, what will your future loan portfolio look like, and which LAS best services the need of that portfolio?

Process

• What are external and internal key pain points you must solve for?
• What are the key differentiators you are looking for?
• What processes can you standardize to reduce error rates and boost productivity, even initially without automation? 

Technology/data

• What will your future end-to-end integrated data and architecture look like?
• How would cloud-based architecture impact your enterprise technology staffing and skill set requirements? 

You, the reader, have many questions that need answering.  The driver, in my mind, is the anticipated future state of the organization.  For example, if growth is in your plans (a safe bet), the loan you will be making when your balance sheet doubles are likely to be larger than those you are making today.  The vendors you are evaluating must be able to handle the complexity embedded in large loans.  

Further, there are four major operational areas you need to envision, examine and prioritize:

• Boarding
• Maintenance 
• Collateral Management 
• Customer Care

The driver of your LAS modernization should be your strategy, coupled with a candid self-assessment of where improvement is most needed.  Effective execution of an LAS and commercial servicing upgrade will make a meaningful difference in your competitive posture, your capacity to grow and, most importantly, your customer experience.