After a period of low interest rates and credit abundance, Financial Institutions are now debriefing on their successes and mistakes, and more importantly, reviewing strategies and plans to win in a much more challenging and competitive financial market.  

Players have been legitimately pursuing lending processes that are personalized, simple, efficient, and accurate, but during favorable credit demand conditions observed in the past, players failed to keep discipline. Consequently:  bad NPLs, high provision levels and capital allocation in risks.  

The Lending Business is not trivial, and before exploring how lenders can overcome their challenges, let’s recap the reasons why they may fail: 

1. Low credit concession accuracy, not managing risk-return properly (scoring, pricing) 

2. Highly concentrated credit portfolio in non-collateralized products, segments, or partnerships. 

3. One-size-fits-all go-to-market approach. 

4. Not predict and run stress-test scenarios. 

5. Technology, processes, or expertise gaps. 

6. Outdated lending policies and procedures and inefficient decision-making processes. 

7. Funding sources inefficiencies, making the product inviable. 

Lenders Self Reflection  

Here are questions that organizations should consider about their existing Lending Business and operations: 

• Are my lending decision-making processes fed by the desired data set necessary to improve accuracy and assertiveness? Is the model’s learning curve effective? Is there a single source of data (SSOT)? 
• Are there limitations in terms of technology or processes that jeopardize business? 
  • Expand current value proposition. 
  • Customer experience and staff productivity 
  • Risk protection and monitoring 

• Is my company delivering the best customer experience? What is done differently than the competition? How about the staff experience? What is the degree of automation of internal activities? Are there opportunities to remove steps? 
• Is the company leveraging all collateralization mechanisms available to mitigate risks?  

• How clear is the Lending strategy evolution? Is the IT roadmap converging with it?  

Regardless of the product (credit cards, mortgage, auto-loan, payroll-loan, personal loan, and segment, consumer or commercial), the constant self-reflection helps organizations be prepared for the next cycle of optimism, potentially driven by more favorable macroeconomic conditions. 

Key-Topics as part of a Lending Transformation Plan 

By simplifying the particularities of each business, here is a set of tangible actions organizations have in mind: 

1. Transforming data into insights with AI/ML: convert available data into tangible actions, applied to end-to-end value chain: 1) customer identification 2) pricing strategy 3) processing and closing 4) collection 5) portfolio management 6) renew or cross-selling. It is expected to reach consumers by offering the best-personalized experience at the appropriate price, anticipating potential risks, being more assertive to mitigate losses and maximizing the LTV. In addition to AI/ML services, might be worthwhile for organizations to mine revenue assurance learnings and segmented pricing strategies. 

2. Potentialize portfolio protection through the appropriate product strategy, leveraging the usage of customer financial data to innovate in collateralized mechanisms (investments, salaries, assets, among others).  

3. Simplifying internal processes: constantly review the entire journey, regulatory and compliance requirements, and staff experience to eliminate unnecessary steps and validations. It is recommended that financial institutions keep track of the time spent in each step of the lending process and define goals for their teams to constantly optimize the SLAs while keeping the risks under control. 

4. Building the technology foundations: have the set of capabilities in terms of technology infrastructure, AI/ML services and core systems integrated and linked to business decision-makers and executors. Partnering with external providers can be recommended to accelerate the implementation of the transformation initiatives. 

5. Monitoring (360) all aspects of the business performance and operations, anticipating risks and mitigation actions.  

Also, note that lending transformative covers many support functions (Data, Risk, Technology, Back-Office Operations, Customer Support, Treasury, and Finance), so collaborative work is key. 

Partnering with Compass UOL 

Financial services are going more personalized and tech-driven than ever, and key principles are shaping how the world sees and works with money: client-centric services, smart data and AI applications, digital-first products, effective cost management, fintech agility, accessibility, and compliance readiness. 

From strategy to technology execution, Compass UOL has a set of capabilities to support your company across the entire Lending Transformation, combining deep business and technology domains to accelerate all aspects of the differentiation to win. See below examples of what Compass UOL can do for your business: 

Real-time Credit & Risk Solutions: make data-driven credit assessments and decisions. Provide faster responses to loan applications and sophisticated risk analytics tools to assess the risk profile of existing loan portfolios, reduce turnaround time, and enhance operational efficiency and customer satisfaction.​ 

Real-Time Decision-Making: instantly respond to customer needs and opportunities with real-time decisions. Use the power of contextual data and Machine Learning algorithms to gain deep insights into customer behaviors and preferences, delivering timely offers and optimizing interactions across multiple touchpoints, from online banking to mobile apps and contact centers.​