Digitalization projects in the credit industry affect a wide range of people and interest groups, from the customer to the IT department of the financial institution. Fulfilling the complex requirements of these stakeholders requires banks to adapt their traditional processes, which encompass all facets of the credit business. To master the digital transformation, an approach that focuses on the subject matter, but at the same time can respond flexibly to new requirements, is needed. The solution: A credit platform with modular solutions for Business Domains. Like gears in a clockwork, these components work together to digitally map all the major areas of the credit business.
Businesses are doing well economically and low interest rates allow plenty of room for investment – an optimal breeding ground for growth in the area of corporate credit. The other side of the coin: despite shrinking margins, the market is more competitive than ever before. Digital transformation is putting additional pressure on financial service providers. Even though initial efforts to create new digital processes are beginning to bear fruit, there is still plenty of room for improvement, especially in the area of corporate credit. The amount of information to be processed, customized processes and complex operations, as well as the harmonization of diverse stakeholder needs cause some difficulties for the institutes. So, how can banks manage their data with a digital solution while satisfying the needs of stakeholders, streamlining operations and still delivering highly personalized offerings and decisions?
The Digital Age Requires Flexible Solutions - Even for Complex Areas
Flexibility is the key word. Monolithic solutions that try to take in the entire spectrum of the credit world, or standardized software solutions, seldom lead to the desired success. Especially in the corporate credit industry, where individual solutions are in demand. Experience shows that such solutions in the dynamic credit environment do not meet the rapid change of the digital age. The development of interconnected, smaller-scale components that are provided on a credit platform, however, ensures the necessary individuality and a fast time-to-market. To distinguish the functionality of these components in the right places, it is advisable to use Domain-Driven Design (DDD) elements to place specialist knowledge at the center of solution development. This also prevents misunderstandings in the communication between developers and subject matter experts. The Business Domains and their interrelationships are used to model solutions for the credit business in a common language.
Important Business Domains in the Credit Industry
Modular solution components clustered according to Business Domains enable the flexibility required for digital transformation and the integration of complex technical issues. On the one hand, the components can stand alone because they are developed and managed independently of each other, but on the other hand, they can also exchange data and thus knowledge with each other when they are combined. Depending on the bank's digitization strategy, the digital transformation of the credit processes can be implemented in individual steps, culminating in a comprehensive credit architecture that covers all areas of the credit system. In the following, you will learn about some important Business Domains (these correspond to the dark blue honeycombs in the graphic) within such a credit architecture.
Loan Application Template
The Loan Application Template component is a central focal point of the digital transformation in the credit business: the digital loan application. Depending on the portfolio and strategy, a large variety of customers and products must be mapped here. In addition, in a modern banking environment, the different points of contact with customers are becoming more and more important. The focus on customers is increasingly on an uninterrupted customer journey. In the sense of omnichannel banking, the solution component is integrated into external as well as internal channels via various interfaces.
The Loan Application Template enables the processing of a digital loan application for all customers and products via all contact channels
- from private customers to corporate clients.
- from consumer credit to special financing.
- from the internal system to mobile apps and platforms of partners.
Customer and Affiliates
The customer plays a fundamental role in all solution variants. The clear presentation of the customer data is of central importance to the employees of the financial institution to gain a quick overview about the customer. This is an essential prerequisite to be able to quickly make more decisions: know your customer is the key phrase. For this purpose, the relevant data is linked together in the Customer and Affiliates component to create a 360° perspective on customers.
The Customer and Affiliates domain generates an overview of all relevant customer data, such as
- data refinement via external services, for example Northdata, or integration of internal systems.
- relationships from individual to groups, e.g. as part of a group of connected customers.
- different, contextual views of the business partner, e.g. as part of an economic network.
Assets and Collateral
Modern collateral and asset management means more than the systematic collection of collateral or assets. Banking experts know that a significant amount of work will start afterwards. Regular valuations or the release of collateral after the end of the financing period are typical examples of time-consuming tasks that ultimately do not yield the bank any return.
The use of the Assets and Collateral domain enables the administration of assets and collateral data and offers great potential for time savings in this area of work. This includes features like
- the digital representation of the land register.
- system-supported market value calculations.
- the editing of data along the complete lifecycle of assets and collateral.
Analysis
The analysis of the credit details is the heart of credit processing. As with the "customer" domain, data from existing systems can also be linked to data from external data providers and processed with a high level of automation. This could, for example, be information about the borrower and/or the financing object.
There is considerable potential for automation in Business Domain analysis, for example
- compare with previous analyses or current market comparisons.
- integration in existing rating and scoring systems.
- system-based decisions on whether an analysis needs to be supplemented by the individual rating of a credit analyst.
Covenants
Particularly in the complex credit business, it is customary that granting of credit is contingent upon the fulfillment of requirements, conditions and/or additional covenants (ABCs) that the customer must fulfill before lending, or during the term of the loan. This often results in manual and costly follow-up activities. From disbursement conditions to financial covenants: The agreement of ABCs is designed to minimize risk and their compliance is therefore meticulously reviewed to mitigate existing risks.
With the Covenants domain, it is possible to keep track of the various ABCs and their status. This Business Domain supports, among others
- the systematic management of ABCs beyond the date of the credit decision.
- automated verification of financial covenants.
- system-based risk warnings for failed agreements or missed reviews.
Credit Decision
The original data of a credit application must be supplemented with much more information, such as customer data, existing collateral or historical credit analyses. This link places the existing data in the appropriate context and results in a multifaceted overall picture that underlies the decision. The determination and compilation of the relevant data are usually very complex; decision-makers must first familiarize themselves with an extensive array of facts.
Transparent and informed decisions with the help of the Credit Decision domain are based, among other things, on
- cooperation in the initiation and decision-making process.
- replacement of physical signatures with digital signatures.
- use of various internal or external data link platform services.
Enriched with business rules, many of the credit decisions can even be fully automated.
Conclusion
Consistent digital distribution channels, efficiency, transparency and optimum adaptability of the application - these are just a few examples of the different needs of the involved stakeholders in the digital transformation in the credit system.
To meet all needs with a digital solution approach, complex and highly flexible solutions are needed. What at first glance appears to be a hard-to-predict, long-term mammoth project can, however, be realized in a clear and step-by-step manner using modern methods of application development, which focus on financial expertise and are based on small-scale architectures. Business domains are central to the overall professional know-how and play a key role in the modeling of digital solutions for the financial industry.
With this approach, financial institutions can move step-by-step down the path to digital transformation in the credit industry - all the way to a comprehensive credit architecture that covers all areas of the credit business.
Image Sources: Teaser: RapidEye - 822447138 - iStock; Infographic: knowis AG
