Why lenders should modernize during economic uncertainty
According to Cornerstone’s 2023 What’s Going On in Banking report, 94% of banks have already embarked on a digital transformation strategy—or plan to do so by the end of 2023. This is a pretty convincing data point, and it leaves little doubt that financial institutions (FIs) are doing everything they can to modernize. And yet very few FIs are near the end of their modernization journey, which means significant opportunities remain.
For FIs, modernization can take many forms. One of the most obvious is the adoption of emerging technologies like cloud computing, APIs, machine learning and blockchain. At a more granular level, FIs are focused on modernizing around various themes like digital onboarding, digital lending initiatives and fraud management.
From our conversations with FIs at Peach Finance, we’re most familiar with initiatives related to modernizing core lending infrastructure—that is, loan management and servicing software. Because of the inherent complexity of lending software, modernization can feel risky due to the possibility of service interruptions, loss of data integrity and compliance violations. With potential downsides like these, it can feel like there’s never really a good time to take the plunge into lending modernization. But the longer FIs wait, the further behind they find themselves in terms of their flexibility, customer experience and support for novel product constructs.
So the question becomes, When is the least bad time to modernize? Generally speaking, FIs have more to lose when the economy is booming and credit is flowing. During these times, the risks of modernization loom larger and it can be harder to justify taking your foot off the gas to make platform improvements. So it’s times of economic uncertainty—such as we find ourselves in now—that may be the best opportunity for FIs to invest in modern lending infrastructure that positions them for future growth.
There are a few key areas of lending infrastructure where FIs should consider accelerating their modernization efforts.
1. Loan management system configurability
The loan management system (LMS) is the heartbeat of lending programs in the sense that it determines lenders’ flexibility to launch new products, accommodate evolving regulations and make product configuration changes on the fly. LMS modernization can go in a couple of different directions...(article continued on Fintech Nexus)