Digitized credit risk management: Approach and benefits to lenders

digitized credit risk

When you lend money and provide credit, you put yourself in a vulnerable position. Smart lenders minimize their risk by knowing exactly what they are getting into, and how predictable they can forecast activity on the loans. To boost the quality of the overall loan portfolio, lending firms need to reset their value focus and digitize their credit risk process

 Financial sector is becoming increasingly competitive and facing several threats from

various areas. Threats like, those coming from regulators, the expectations of investors, emergence of new competitors, expectation of customers who expect to access funds and make loan requests through a multitude of digital channels, all put the lenders in weak position.

To withstand all these threats, it is high time for lending firms to implement digital technology on risk management.

Digital Expectations

Digitalization offers huge potential to improve credit risk management. It is likely to result in more transparency of risk assessment. It allows banks to make rapid assessments of the credit worthiness of applicants quickly.

Though digitization is on top of the agenda, many firms find their digital initiatives struggle to deliver results. Either they stay small and marginalized, or transformation programs get mired in debate and move so slowly that the organization runs out of patience. Only 17% of banks and credit providers currently offer mobile account opening. While 35% of organizations still have no plans to allow account opening via mobile devices, this rises to 47% among small community banks. Larger banks and credit unions are much more likely to be trying to keep up. If lending firms or small credit bureaus fall by the digital wayside, this may not be good news for consumers in the long term.


Trends that are transforming financial industry and make digitization a ‘must-have’

  1. Changing customer expectation. Customers demand for online and mobile experience. Mobile payments are expected to grow four times by 2020
  2. New regulations and increased enforcement action
  3. The growing importance of strong data management and advanced analytics
  4. New digital attackers disrupting traditional business models
  5. Increasing pressure on costs and returns, especially from financial-technology (fintech) companies

Going Digital: The approach

Digitization of a traditional lending firm is like redesigning an aircraft while flying. The organization’s leaders need to have a high degree of belief in the digital future and determination to see it through, to endure such surgical changes while continuing to deliver quarterly performance.  The whole organization needs to be involved. Line managers need to champion the redesign and its implementation in spirit. Most importantly, digital technology throws up opportunities for radical new ways to run a process. The new process could pose new risks that are not envisaged earlier. So, the only way to go about digitization is to create multidisciplinary teams that are collectively responsible end to end, i.e. from design to full-scale roll-out.

When developing or re-designing the digital strategy, financial institutions should consider:

Customer demand: Organizations need to develop a much deeper understanding of their customers and build a value proposition that addresses the needs of the target audience. Every new design and development should start with the customer and work back, focusing on their experience, needs and satisfaction.

An effective digital experience delivery: The future is real-time, relevant, personalized, and interactive. Delivering this experience requires a modernized organization with fully automated processes and driven by data — geared for speed and customer centricity

Digital monetization: Every interaction or initiative must drive value in the form of a better customer experience, revenue growth or both. This requires a new approach to product development, distribution, staff capabilities and organizational culture.

Risk and compliance management: The challenge for FIs is to revise the role of internal legal, risk, and compliance teams to be innovation partners and ensure digital initiatives can move forward in a balanced way.

Digitizing credit risk management allows lending firms to withstand new pressures and create value. It can bring value in areas like sales and planning, mortage process and insight and analysis. Digital credit risk management uses automation, connectivity and digital delivery and decision making to create values in protecting revenue, reduce cost of risk mitigation and reduce operational cost.

How Insight consultants can help you in digitizing your credit risk management process

We help financial institutions manage risk along the entire credit value chain, addressing challenges and opportunities related to origination and underwriting, credit portfolio management, loss mitigation, and credit modeling and advanced analytics. We can help you to develop, test, and deploy new business models. In the journey of digital transformation, we will walk along with you to identify the right mix of sustaining, adjacent, and disruptive innovation based on your growth ambitions and risk profile.  We can assist you in redesigning your customer journeys, using automation and advanced analytics and there by improve your customer experience and grow lending volumes without compromising credit quality

The ever-changing, heavily-regulated, and competitive landscape of the lending sector demands solutions that are highly flexible and will provide organizations with the kind of operational agility required to not only achieve business objectives, but also ensure regulatory compliance. At Insight Consultants, we recognize and understand the challenges industry faces, and we harness our technical expertise and industry experience to build and maintain next-generation lending platforms and business solutions across the mortgage lending life cycle. Our in-depth mortgage industry experience helps us to craft flexible solutions that keep up with industry trends and organizational objectives.

We have technical expertise in building cutting-edge software applications for both small mortgage lenders and medium financial product companies, which uniquely positions us to help deliver desired results.  We look at a client’s business problem in a systematic manner that eventually gives both, Insight Consultants and the client, a clear view of what’s required and why, what needs to be done about it, and how its impact in your organization can be measured for success.

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Digital transition: must consider points

digital transition

Modern lending systems are all about providing access to funds anytime, anywhere, for customers who are increasingly tech savvy.  Digital channels fulfil the customers’ need for convenience and continuous availability, while at the same time offering lending firms’ new opportunities for growth.

But transitioning to a fully digital lending firm is not always easy. Lack of robust software solutions, concerns over compatibility of new systems with legacy systems, costs of transformation, regulatory compliance, and management and budget restrictions have all deterred firms from digitizing the lending process.

The path to becoming a true digital lending organization involves:

User Centric Design: Lending firms should employ a user-centric design which can orchestrate the process, keep it focused on customer needs, inspire people, and ensure that the organization doesn’t allow its new vision to be limited by the way it does things today.

Data Driven Decision Making: The consumer lending business is centred on the notion of managing the risk of borrower default. So lending firms should follow the art and science of analysing and modelling data to gather insights that can be used to make meaningful decisions. It includes mathematical techniques, machine learning techniques and processes that are applied to historical data, identify trends and make a best valuation of what will happen in the future.

Flexible Infrastructure: Firms need a software-based architecture to future-proof their IT infrastructure, which enables flexible transformation to adapt to future competitive threats.

Organizational Agility: Must be able to come up with new ideas, test them quickly in the market, make quick decisions about what you’re going to pursue or not pursue, and how you’re going to change and evolve.

While these demands might look intimidating, the benefits, once digitization is properly implemented, are huge. Not only will it give a distinct competitive advantage to the firm in a cluttered marketplace where quality borrowers are spoilt for choice, but also have a disproportionately positive impact on its bottom line.

Digitization make multiple demands on firms like:

  • Reduce lead to disbursement lag
  • Better utilization of loan officer’s time
  • Fraud reduction
  • Relevant, simple and easily bought offers
  • Better decision-making, utilizing customer risk and marketing data
  • Consistent cross-channel execution
  • Better understanding of the customer and his behaviour
  • Paperless processes
  • Zero compliance slip-ups
  • Any-time, anywhere service


The future is here and now

Any lending firm that does not digitize immediately risks falling by the way side. Even as we speak, newer technology like Artificial Intelligence, and Blockchain, the technology that underpins cryptocurrencies currently, is further revolutionizing the space. More importantly, borrowers have actively started demanding many of the benefits afforded by digitization. It is no longer a question of whether to digitize or not, but how fast a firm can digitize and keep pace with the changing demands of its customers.

So, can you afford to be left behind? How far is your firm on its digital journey?  How can digitization transform your business?

Talk to us to move your firm to a fully digitized one