What are the risks banks face by failing to integrate corporate lending IT systems?

The benefits of integrating systems that support the end-to-end corporate lending process are now well-understood. Banks need to respond to corporates’ expectations for a faster, more efficient service when providing loans, while also reducing the cost and risks associated with lending.

Yet there are still some financial institutions that have failed to face the challenge of replacing disparate systems with an integrated platform, often citing cost and disruption as their reasons for staying with the status quo.

We believe that there’s never been a better time to integrate systems, not least because vendors like Finastra can now facilitate integration and support the interoperability that banks, their customers and the broader loan market require.

So instead of focusing on the benefits of integration, it may now help to look at it from another perspective: what are the risks of not modernizing and integrating systems? We outline the five top risks below.

1. It’s challenging to attract the best people into an outdated environment

Banks often rely on complex systems that require a depth of user knowledge, not just to operate the systems, but also to integrate them with other platforms.

In the loan market, over the last few years, we’ve seen that it's getting increasingly difficult to hire people with the necessary experience, and there is a costly time lag in getting people trained up with the right skills.

We're also seeing fewer people overall, particularly younger professionals, entering the loan market. It means that hiring becomes more and more challenging – and that's right across the board, from banks to vendors to administrators. Integrating systems into a single platform is one good way of assisting with that problem.

2. There are growing difficulties in servicing higher loan volumes

The loan market has gone from strength to strength over the last 10 to 15 years, and the outlook continues to be positive. In recent years, we’ve also seen a huge increase in refinancing and loan agreement amendments. If you have truly up-to-date and integrated systems, users need less detailed system-specific knowledge, and you also need fewer people servicing the higher volume of loans that we're seeing coming through.

Without modern, integrated systems, banks need more and more people to service the loans, and when it’s hard to attract people with the right skills, there’s an increased risk of error, or the risk of being slow to service the loans.

3. Knowledgeable IT staff are leaving the corporate lending environment

Many banks are struggling with a retiring workforce – the people who understand how their disparate systems fit together are retiring and taking their knowledge with them. The exit of these staff puts even more pressure on automating lending systems.

In order to attract qualified industry professionals, the banks need to move to modern systems, instead of battling to keep older systems up and running.

4. The opportunity to digitize and modernize systems is difficult to achieve

Banks need to prepare as much as they can for their future state, not just for where they are today. The future may well include new technologies such as artificial intelligence, along with as yet unforeseen regulations.

Retaining the patchwork of systems used by some banks to support corporate lending processes becomes more and more prohibitive from a cost perspective as they seek to introduce new customer journeys, products and services. And it’s important to recognize that poor or incomplete integration can be worse than no integration at all.

The lineage and recording of decision making across lending systems is vital, given that banks are operating in a highly regulated market. The ability to show where decisions have come from, when they were made, and who made them requires proper integration that carries the right information through that journey.

5. Access to system providers’ ecosystems is impractical

Today’s system providers, including Finastra, are delivering lending platforms with robust application programming interfaces (APIs) which enable banks to plug in new features and functionality as needed, or requested by their customers. While integrating third party apps with legacy systems is not impossible, it’s a more complex process than simply selecting a program from an app store; for example, there is still some complexity in handling corporate client sign-on processes or extracting data to populate loan agreements, and plugging it into the bank’s core lending platform.

Despite the complexity, by taking the decision to integrate lending systems into one platform, banks can be confident that the API connectivity will remain robust and resilient into the future.

A software provider’s role is to deliver a platform that is flexible enough to meet the current needs of banks, while keeping it up to date with emerging regulations, supporting an ecosystem of functionality that provides solutions to the ongoing challenges the banks face.

When considering whether to migrate from aging legacy systems to an integrated platform, decision makers need to consider not just technical issues, but also the wider set of risks that emerge from skills-related challenges – which are only going to get worse as time goes on.

But above all, banks need to recognize the true benefit of adopting an integrated platform to provide and service loans, which is to deliver the best possible service to customers and take their fair share of the corporate lending marketplace.