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Why digital transformation in corporate lending is needed

Written by Chris Papathanassi, Oneiro Solutions.

The Rubik’s Cube; a difficult nut to crack. It is multi-faceted, offers the player multiple paths to victory, requires patience, determination, and methodical problem-solving. One could say that corporate lending is the banking industries very own Rubik’s Cube.

For decades, financial institutions big and small have suffered the industry’s equivalent of aerodynamic drag. Operations managing highly complex, almost living and breathing, multi-party financing arrangements are slow and cumbersome. They require specialist resources with intimate knowledge of deals. They are heavy on user input and highly fragmented. 

Why transforming corporate lending is needed

A lack of transparency and connectivity between parties is a major challenge, particularly in syndicated lending. Communication of mission-critical information from the agent is instruction driven (fax and email-based). Borrowers and lenders maintain their own records such as interest and fee calculations. They monitor covenants and conditions themselves and spend a significant amount of time reconciling inconsistent data. There simply isn’t a single source of the truth!

Across the board this business operates at a high cost, high risk and the customer service is poor. The operating models that are employed by the industry today lie at the heart of the problem. They are founded upon legacy technology – technology that considers only the user experience of the institution rather than all parties involved in a transaction. This technology assumes the agent’s operational staff act as the engine of the operation and is required to do the heavy lifting when it comes to transaction processing, compliance monitoring and reporting for their customers. Technology designed to facilitate some aspects of the process but not all!

“The whole is greater than the sum of its parts”

I recently read this great phrase in Iain McGilchrist’s, The Master and His Emissary.

As humans, when trying to understand our surroundings, we aren’t concentrating on details or smaller pieces. Instead, the brain distinguishes objects as part of a greater whole and as components of more complex systems. The book argues that, over time, we humans have lost sight of the value of the ‘whole’ and the understanding that the whole is something different from the sum of its parts. This dominates our approach to how we live our lives, see the world, and influences the way we problem solve. As a result, our understanding of things is often limited and we miss the big picture as well as fundamental truths that come with it.

Applying this thinking to the world of corporate lending and in particular syndicated lending, I can see why it has been so difficult for the industry to move beyond the operating models and processes that cause it so much pain. You see, the general approach has been to introduce solutions that sit around existing systems and processes. Invoking high barriers to entry (cost and time-wise), associated with major integration exercises. Whether a market initiative or in-house development project, adoption has been slow and success rates low. What I have observed in my 15+ years of being in the industry is that historical approaches, with all the best intentions, have the wrong end state in mind. That end state is not the whole but the sum of its parts.

In the meantime, the Rubik’s Cube nature of this business is under extreme pressure and reaching a breaking point. Corporate customers are seeking a more retail-like experience. Regulatory and market changes are challenging the industry’s ability to adapt and introduce new products to market quickly and do so in a cost-effective and minimally disruptive way. 

If this industry is to effectively respond to the pressure and realise the digital transformation it aspires to, the approach needs to be different. It needs to consider the ‘whole’ from the outset. It needs to consider every party involved in a corporate lending transaction and not just the custodian of the deal. It needs to consider the challenges and needs and risks to the customer(s) as well as the agent and it needs to consider what a modern more user experience would look like if the technology was not a blocker.

The potential this offers is uncapped! Think entirely digital processes, no rekeying, no duplication of data. Think no more fax and email correspondence. Think data-driven insights, market places and more!

The road to transformation in lending

The road to transformation is a progressive one, but the destination needs to be a place that looks very different from the starting position for many organisations. That can only happen by taking a step back and looking at the bigger picture.

Oneiro (the Greek word for Dream) Solutions, set out to dream and re-imagine the world of syndicated loan administration considering the ‘whole’ not the sum of its parts. DLX assumes multi-party access, offers online portals to borrowers and lenders for complete transparency over in-flight transactions and deal-related data. Workflows are seamless and collaborative. The terms and conditions of the credit agreement are adhered to throughout. The operational effort, cost, and risk reduces, efficiency increases and the customer experience dramatically improves for all parties involved, massively changing the game of syndicated loan administration.