A number of stakeholders need to align and remain constantly aligned over a prolonged period (two to three years in banks that have executed ambitious programs successfully).
Moreover, there is no single “owner” of the credit process with the discretion to drive change at scale. A few familiar frustrations include legacy IT systems a general lack of trust in automated decision making insufficient cooperation between businesses and risk, IT, and operations functions limited data access and scarce digital talent. While most banks are digitizing parts of their business and operations, many are dissatisfied with progress, especially in credit. Avoiding slow starts and piecemeal results And data aggregation can be automated so that relationship managers (RMs) have the most relevant data and risk-monitoring scores at their fingertips-including financial performance, industry performance, market and sentiment data, and pertinent news and external risk factors. Low-risk credit-line renewals, for example, can be automated, while valuable human review time is focused on more complex or riskier deals. Some banks’ digital strategies let corporate-transaction approvers focus their time on those clients and deals that matter the most. Rather than reworking the entire customer experience, banks are enhancing common processes-for example, digitizing credit proposal papers and automating annual reviews to improve both time to yes and “quality of yes.” Furthermore, both traditional banks and fintechs already offer compelling digital propositions in SME lending, featuring dramatically shorter approval and disbursement times-a key factor for customers when choosing a lender.ĭigital is also advancing in corporate lending, though naturally corporate banks are moving with greater caution and less urgency (given the relatively lower transaction volumes in this segment). The reasons are clear: costs are high, and the opportunities to improve customer experience are significant. More than one bank has set an aspiration to automate 95 percent of retail underwriting decisions.īanks are now treating SME lending as a digital priority. Mortgage lending is more complex due to regulatory constraints, yet banks in many developed markets have managed to digitize large parts of the mortgage journey.
Personal-loan applications can now be submitted with a few swipes on a mobile phone, and time to cash can be as short as a few minutes. Digitization is becoming the norm for retail credit processes. The varieties of digital ambitionĪs digitization proceeds apace, the dimensions of banks’ digital ambitions vary among segments and products. In this article, we will look at the six design principles that successful banks have used to build digital-lending capabilities and transform their institutions. Our analysis suggests that a bank with a balance sheet of $250 billion could capture as much as $230 million in annual profit, of which just over half derives from cost efficiencies (such as less “touch time” and lower cost of risk), and the remainder comes from revenue gains (increased applications, higher win rates, and better pricing). One large European bank increased win rates by a third and average margins by over 50 percent as a result of slashing its time to yes on small- and medium-enterprise (SME) lending from 20 days to less than ten minutes, far outpacing the competition. For the bank, successful transformations enhance revenue growth and achieve significant cost savings. Credit is at the heart of most customer relationships, and digitizing it offers significant advantages to banks and customers alike. That’s the profound result of a top priority for banks around the world: the digital transformation of end-to-end credit journeys, including the customer experience and supporting credit processes. Leading banks have embraced the digital-lending revolution, bringing “time to yes” down to five minutes, and time to cash to less than 24 hours. In our view, these times will soon seem as antiquated and unacceptable as the three weeks it once took to cross the Atlantic. 1īased on data and interviews with approximately 20 financial institutions, mainly in Europe, and some in Asia and North America.Īverage “time to cash” is nearly three months. Today in traditional banks, the average “time to decision” for small business and corporate lending is between three and five weeks.
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