Regulation has been a dominant feature of banking executives’ lives for several decades now. Governments and financial regulators have taken notice of the continued digital lending growth and are increasingly stepping in to regulate the sector, often providing guidance and support not to hinder growth but to strengthen lending standards and asset quality in the future.

This is also true for the revised European Banking Authority Guidelines on Loan Origination & Monitoring (or EBA GL) which will be taking effect in June 2021 for newly originated loans. They will significantly affect how European banks’ data, technology, methodology, people, governance and processes are structured. They will also have a tangible influence on client relationships and business lending activities over time.

At VeriPark, we believe banks should not consider them as a constraint, but as a as a catalyst to accelerate revenue, income and new account growth for the lending market through digital transformation.

Regulatory driven transformation

Regulatory expectations in the credit sector bring high data and IT requirements and a need to adopt innovative models for automated credit risk analysis and credit risk decision making. Institutions are encouraged to implement a data infrastructure to provide the capability to gather and automatically compile data regarding credit risk with little reliance on manual processes. This allows for artificial intelligence (AI) running in parallel or replacing traditional human analysis of the financial position of the borrowers.

According to a recent McKinsey report, using AI means much faster credit decisions, with customers getting cash up to 80 percent sooner; lower costs, with 30 to 50 percent less time spent on decision making; and better-quality risk decisions, lowering process costs and improving cost income ratio (CIR) of the process.

Increasing sales and profits

Regulatory expectations are also an opportunity to explore various lending models that benefit from speed and agility, offering financial institutions an unprecedented opportunity to improve productivity, bring more opportunities into the pipeline, close more loans and increase revenue per loan with cheaper, faster and automated services.

Faster reaction to market needs

Building digital products can not only increase lending volume, it can allow banks to reach a larger audience with greater efficiency. Banks can easily offer flexible loans with customised borrowing options for different clients and situations. Because the entire credit process is built on automated machine learning, the risk and credit policy departments can easily change, modify, recreate products and processes to rapidly react to the emerging and ever changing market needs.

Increased trackability and performance monitoring

Digitisation in lending also provides an appropriate system for increasing trackability and performance monitoring within the regular credit decision-making framework, including follow-up and escalation SLAs.

Better customer experience

A future-ready loan origination solution like VeriPark’s VeriLoan provides a true omni-channel experience both on digital and assisted channels.  It integrates with information that already exists in the ecosystem, reduces paperwork, and most importantly enables fast decision making on credit reviews and approvals. This is how banks can streamline lending and offer their customers the convenience of a fully digital, customer-driven borrowing experience.

Transparency across all channels

Customers expect complete transparency across all their transactions. Digital lending ensures transparency for the customers about what banks are really evaluating for a yes or no. While automation and end-to-end integration enables banks to implement this transparency, they can also incorporate real time status updates through all the channels to ensure that customers always get the most up to date information for every transaction.

In summary, a digital loan origination solution like VeriLoan, with careful architecting, can help lenders meet regulatory requirements while allowing them to keep their eyes on the future, be ready for change and upgrade fragile legacy platforms to support new market offerings.