No end in sight: How to grow profits beyond end-to-end commercial lending
When bankers discuss commercial lending, they often cite the desire for an end-to-end experience, or end-to-end technology. What they mean is this: They want a smooth process in place to bring a loan from the application stage all the way through funding, where it will be considered final. Signed, sealed, delivered—and forgotten.
Yet this mindset—adopted by a bulk of the industry—presents several limitations that impact banks’ ability to best serve their customers and maximize margins. By viewing the commercial lending process as a linear progression with a definite beginning and end, bankers miss the opportunity to proactively continue relationships with their business customers—and pursue new revenue that drives opportunities beyond the life of the loan.
Instead, bankers should consider how to renew or continue their relationships with business. A commercial lending platform should enable lenders to create, fund and manage the entire lifecycle of the business customer from one loan experience to the next. Just because a borrower has paid off a loan doesn’t mean they should fall off a bank’s radar. Banks can actively monitor and manage relationships after a loan closes as they evaluate and consult around risk ratings, cash flow and credit scores. This helps banks to bolster business relationships and proactively push relevant offerings at the right times.
So, how is it done? To successfully transform commercial lending from loan lifecycle management to customer lifecycle management, data must be taken out of silos. Banks have a pot of gold when it comes to customer details and information, but this critical data is often hidden and scattered among several disparate systems, preventing a comprehensive view of the business customer. Instead, data should be housed in a centralized, integrated environment beside banks’ loan origination systems, core business data and other systems used to underwrite and document commercial loans. Data is useless for business intelligence and performance improvements until efficiently mined, consolidated and presented through easy-to-digest dashboards.
A data integration strategy allows lenders to access a more complete view of customers, with deeper insight into businesses’ financial records, line utilization rates, time in business and other criteria. With these details, lenders can closely monitor and accurately predict borrowers’ future financing needs. Advanced analytics make it possible to present calculated offers with wider thresholds and options, given the right parameters.
For example, consider a business that completed a loan with a bank several years ago. One day, a lender reviews their interactive dashboard of customers’ current financial status and notices the business’ cash flow is getting low—but its credit score remains high. This presents an ideal opportunity for the lender to reach out with an offer that fits the bank’s lending criteria and meets the business’ current financing needs: relevant, personalized and timely.
But a focus on relationship lifecycle management won’t be enough to win this customer back—not if the overall loan process remains largely manual, slow and inefficient. In an environment where borrowers enjoy seemingly endless financing options, financial institutions still have the advantage of the relationship. Customers want to borrow money from someone they trust, with a proven track record of managing funds and protecting the consumer.
Still, commercial lending is notoriously paper-based and tedious. Regional and community-based financial institutions need to break the perception that they lack the tools to provide a quick, modern customer experience. Banks must offer a digital, streamlined process to compete in today’s marketplace.
Better relationships coupled with automated efficiencies can end the detrimental effects of the 80/20 rule (that 80 percent of profits come from 20 percent of customers). More accounts can be grown into profitable clients if bankers offer them the right opportunities; it’s about identifying those opportunities. Relationship-based lending concerns the future more than the past. Knowledge of the customer is a given but we must anticipate the customer’s next moves vis-a-vis the future of the banking relationship.
Bankers talk more than ever about transforming the loan process with new technology but this alone isn’t enough to succeed. Banks must also abandon the notion that commercial loans have a beginning and an end. Instead, consider each customer relationship as ongoing.
The steps are clear: Leverage available data, update technology and incorporate automation into the loan process. By doing this, lenders have a chance to seamlessly manage business customer relationships beyond the life of a loan. This ultimately strengthens relationships and drives new revenue—and provides proof positive that in commercial lending, all good things need not come to an end, and all endings can regenerate into new beginnings.
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