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

For decades, financial institutions big and small have suffered the industry’s equivalent of aerodynamic drag. Lending 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 (the party that administers the deal) 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 high cost, high risk and the customer experience is poor. Errors are no stranger to this business and the impact can be catastrophic, take for instance the rather large $900M error made by one institution, which made the news recently. The current status quo means reputation and financial stability is at risk.

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 a single party rather than all parties included in the financing arrangement. This technology assumes the agent’s operational staff act as the engine of the operation, doing all the heavy lifting when it comes to transaction processing, compliance monitoring and reporting for their customers. It is technology that is 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 every small detail. Instead, the brain distinguishes objects as part of a greater whole and as components of more complex systems. McGilchrist 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 the 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 the fundamental truths that come with it.

Applying this thinking to the world of corporate 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. Creating high barriers to entry (cost and time wise), associated with the integration projects required to implement them. 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-like 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. The rise of alternative lenders, Bigtechs and Fintechs threaten traditional banks’ market share through the allure of seamless next generation technology.

If this industry is to effectively respond to the pressure and realise the digital transformation to which it aspires, 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 (that is, the challenges, needs and risks to the borrowers and lenders) and not just the custodian of the deal. It needs to consider what a modern 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 corporate 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, has re-imagined the world of syndicated loan administration considering the whole, not the sum of its parts. If you would like to learn more then please get in touch.