Easing integration woes with cloud-based platforms – a simpler way to meet commercial borrowing needs

In the wake of the COVID-19 crisis, financial institutions face a lending paradox. On the one hand, potential defaults, spurred by business closures and other pandemic related events, are impacting lender ability to provide new commercial financing. On the other hand, banks and credit unions continue to need loan revenues to support profitability.

As financial institutions adapt to the new reality, they are focusing more on borrower worthiness and adopting comprehensive underwriting strategies. While necessary to protect bank or credit union profitability and competitiveness, these steps add weight to the lending process, increasing days to decision and borrower frustration.

However, by automating key processes related to customer acquisition, origination, underwriting and servicing, online lenders can improve processing times and even operate at lower overheads. Fortunately, new advances in cloud-based technology, utilizing platforms and APIs, can put financial institutions on the fast track toward stronger performance, making it possible to serve more customer or member businesses.

Understanding the role of cloud, platforms and APIs

The easiest way to understand how platforms, APIs and the cloud work, is to think of each as an individual element in a digital community. The cloud provides the geographical location where the community exists. Inside the cloud, platforms provide the living space for each piece of software called applications.

APIs then form a digital connection layer, providing access to the outside world. Likewise, financial institutions connect to applications using the APIs.

While this description serves to simplify some complicated concepts, platforms and APIs are anything but basic when it comes to enabling financial institutions to meet commercial lending needs in today’s environment.

For one thing, a platform approach eliminates the need to migrate each new piece of software to internal servers where it can be used by the financial institution and its customers. Instead, banks and credit unions seamlessly connect to the products and banking services they want to consume through available APIs. Operating as an app on the platform, each piece of software can be configured differently, customized to the needs of account holders and the financial institution.

The functionality of APIs also make it possible to seamlessly connect applications to create an end-to-end solution that streamlines processes from origination through servicing. Finastra’s Fusion CreditQuest, for example, provides plug-and-play API functionality to a complete set of integrated products. Working together, each application interacts seamlessly across the lending lifecycle.

This digitization of the end-to-end lending journey removes many manual workflows, and instead, automates repetitive tasks. According to McKinsey, financial institutions can realize a 50% improvement in productivity and customer service by automating processes, such as workflows and decision making.ⁱ  However, the benefits of automation are not limited to efficiency improvements.

Automation can also support financial institutions in their quest to reduce risk and improve lending portfolios, by creating a more comprehensive credit decisioning process.  

Digital lending solutions can automate more than 20 kinds of key decisions, according to McKinsey,ⁱⁱ  using a broad range of sources and information to enhance decision making across key factors, such as capacity and likelihood to repay. A single view across consumer data, as well as the lending environment, enables deeper insights, providing a more complete picture of business and lender risk.

However, to manually collate and assess this amount of data could require up to 68% of the loan department’s time in repetitive tasks and vetting of loan applications, according to McKinsey.ⁱⁱⁱ  

Using platforms and APIs, financial institutions can create an integrated network of products covering the end-to-end lending process. Through the benefits of automation, financial institutions can enhance commercial access to credit, while realizing growth of 12% without adding on additional staff.^iv

_{ⁱ  Joao Dias, et al. “Automating the Bank’s Back Office.” McKinsey & Company. McKinsey Digital, 2012. Web.
ⁱⁱ  Renny Thomas. “Ten Lessons for Building a Winning Retail and Small-Business Digital Lending Franchise.” McKinsey & Company, Nov. 7, 2019. Web.
ⁱⁱⁱ  “Meet the Challenges of Compliant Loan Document Preparation Head-On with Fusion Laserpro.” Finastra. Retrieved from https://www.finastra.com/sites/default/files/documents/2019/07/product-insights_compliant-loan-document-preparation-fusion-laserpro.pdf
^iv  “Optimized End-to-End Commercial Loan Originations with Fusion CreditQuest.” Finastra. Retrieved from https://www.finastra.com/sites/default/files/documents/2019/06/infographic_optimize-end-to-end-commercial-loan-originations-with-fusion-creditquest.pdf.}