Retail banking digitalization and the full automation of the loan origination process, aimed at transitioning offerings and sales from physical branches to online channels, have been standard practices in the banking industry for several years. Banks that have not yet embraced this digital shift find themselves at a competitive disadvantage.
In today’s market, the question is no longer whether a bank offers online cash loans, but rather which bank provides the most efficient process and the smoothest customer experience. The key differentiator is the speed at which a bank can approve a client’s application and disburse funds to their account.
With banks having successfully implemented online retail processes and completed a cycle of digitalization—reaping the benefits and identifying the associated risks—the time has come to take the next step: digitalizing processes for corporate clients.
In today’s rapidly evolving financial landscape, digitalization has become a cornerstone of modern corporate banking. The integration of advanced digital technologies is not just a trend but a necessity for financial institutions striving to stay competitive and meet the dynamic needs of their clients.
While digitalization is not a novel concept, its implementation in corporate banking is particularly challenging. Few banks have taken this step, and even fewer vendors offer comprehensive solutions to address the complexities involved. The differences between retail and corporate segments are significant, requiring distinct processes and considerable effort to achieve effective digitalization.
Although digitalizing retail processes was challenging and fraught with risks, it now seems straightforward compared to the complexities of corporate digitalization. In the following text, we will explore the fundamental differences in these processes to illustrate the intricacies of digitizing corporate banking operations for legal entities.
When dealing with individual clients, they typically provide information about their employment and income. The bank then conducts an assessment to decide whether the client qualifies for the requested product. This process involves performing a risk assessment and applying credit policy rules. Next, the bank evaluates the client’s creditworthiness by assigning a specific score, considering their income and obligations. The Debt-to-Income (DTI) ratio is calculated to determine if the client can afford the monthly instalment for the desired loan amount. Based on these results, a decision—either positive or negative—is made.
In contrast, the analysis and decision-making process for corporate clients is far more complex. The bank must determine the ownership structure and the structure of authorized persons. Risk rules and credit policy rules are applied to all participants involved in the request. If a company is part of a group, the entire group of related entities must be considered. The financial profile of the company is analysed based on financial statements, which can be either official or unofficial (year-to-date). Various rules dictate how many years back the reports are reviewed, the thresholds for financial statements, whether projections (annualization) are performed for year-to-date reports, and whether the financial statements are consolidated if the client is part of a group.
Based on these financial statements, financial indicators are calculated to demonstrate the company’s profitability, liquidity, and other business parameters. These indicators are used as input attributes when applying credit policy rules and during the limit calculation process. Additionally, a credit rating is determined based on specific criteria and calculations. For corporate clients, a credit history check and exposure analysis are also necessary. The limit calculation, which can range from basic to highly complex and granular with corresponding sub-limits, is performed based on all the previously mentioned factors.
Furthermore, the type and structure of the company can alter the rules, calculations, and process path. It is important to note that loans for corporate clients are typically secured, so the process must include collateral management. Covenants are also common in arranging loans for corporate clients, adding another layer of complexity. If the corporate client is new to the bank, the onboarding process is more intricate than for private individuals.
As you can see, the complexity of managing corporate clients is significantly greater than that of individual clients. It involves more paperwork, intricate assessments and calculations, and a more complex process with numerous integrations and challenges.
Given this complexity, it becomes evident that digitalizing corporate processes is more difficult, more challenging, and comes with higher risks and costs. This raises an important question: why should banks undertake this effort, and what benefits does it bring?
The Importance of Digitalization in Corporate Banking:
- Enhanced Customer Experience
- Seamless Interface: Digital platforms offer a user-friendly interface, allowing corporate clients to access banking services effortlessly. This ease of use translates into higher customer satisfaction and loyalty.
- Personalized Solutions: Customizable and personalized financial products are more easily accessible, catering to the specific needs of corporate clients.
- Operational Efficiency and Cost Reduction
- Automation: Automating routine tasks reduces manual intervention, minimizing errors and operational costs.
- Streamlined Workflows: Digital processes streamline workflows, enabling bank employees to focus on strategic activities rather than mundane administrative tasks.
- Data-Driven Decision Making
- Analytics: Digital platforms enable banks to collect and analyze vast amounts of data quickly, providing insights into customer behavior. This data-driven approach aids in making informed decisions and tailoring services to meet client demands.
- Regulatory Compliance
- Automated Compliance: Automated systems ensure that all processes comply with regulatory requirements, reducing the risk of non-compliance and associated penalties.
By embracing digital origination, banks can stay competitive and meet the evolving needs of their corporate clients, positioning themselves for long-term success in the digital age.
Benefits of Automating Corporate Loan Origination:
- Faster Time to Yes and Time to Cash
- Speed: Automation significantly speeds up the loan approval process. Businesses can receive approvals in minutes rather than days or weeks, providing quick access to funds for operations or expansion.
- Efficiency: Automated underwriting, risk assessment, and limit calculation tools process applications rapidly, ensuring timely disbursement of funds.
- Enhanced Accuracy and Consistency
- Error Reduction: Automated systems reduce the risk of human error in data entry and analysis. Consistent criteria are applied across all loan applications, ensuring fair and accurate decision-making.
- Standardization: Standardized processes lead to more predictable outcomes, increasing the reliability of the loan origination process.
- Better Customer Experience
- Transparency and Efficiency: A streamlined, transparent, and efficient loan application process enhances the overall customer experience. Clients can track their application status in real time, reducing uncertainty and improving satisfaction.
- Accessibility: Digital platforms provide 24/7 access to services, allowing businesses to apply for loans at their convenience.
- Improved Risk Management
- Advanced Algorithms: Automation incorporates advanced risk assessment algorithms that evaluate a wide range of financial indicators and historical data, accurately assessing the creditworthiness of applicants.
- Real-Time Monitoring: Continuous monitoring and real-time data analytics enable banks to dynamically adjust credit terms based on evolving risk profiles.
- Scalability and Flexibility
- Volume Handling: Automated loan origination systems can handle a large volume of applications simultaneously, making them scalable as demand grows.
- Adaptability: These systems are also flexible, allowing for easy updates and integration with other digital tools and platforms, ensuring that banks can quickly adapt to changing market conditions and regulatory requirements.
The digitalization of corporate banking processes is undoubtedly a complex and challenging endeavour. However, the benefits it brings—make it a worthwhile investment.
Conclusion
The digitalization of corporate banking is no longer an option but a strategic imperative. By embracing digital technologies, financial institutions can provide superior services, enhance security, and achieve operational efficiency. Specifically, automating the corporate loan origination process offers substantial benefits, including faster approval times, improved accuracy, better customer experiences, and enhanced risk management. As the financial industry continues to evolve, those who leverage the power of digitalization will undoubtedly lead the way in delivering value to their clients and stakeholders.
While the process of digitalizing corporate banking may seem complex and extensive, it doesn’t require the implementation of multiple disparate digital solutions. Our Digital Origination platform is designed to support the full digitalization of sales and underwriting processes for both retail and corporate segments. This ready-to-use solution is already implemented and delivering measurable results with ease.
Digital Origination provides comprehensive functionalities and modules for end-to-end implementation, allowing banks to define their desired level of automation. Our platform supports flexible process design, credit policy rules definition, easy integrations, a powerful limit calculation engine, decision-making tools, financial statement analysis, collateral entry, and covenants management.
To learn more about our Digital Origination omni-channel solution and other features, contact us for a free today.
