Why lenders must embrace regulatory challenges

Why lenders must embrace regulatory challenges

Digital loan origination solutions are empowering banks to improve revenue and customer service  

Elly Yates-Roberts |

When the latest European Banking Authority (EBA) Guidelines on Loan Origination and Monitoring entered force in June 2021, banks across Europe will need to reconfigure their lending processes for newly originated loans. This will significantly impact how banks structure their data, technology, methodology, people, governance and processes. In addition, it will affect the way they manage client relationships and business lending activities over time. 

Banks have been contending with a growing number of regulations for several decades and often consider them as constraints. However, VeriPark believes they should view EBA’s new guidelines as a catalyst to accelerate revenue, income and new account growth for the lending market through digital transformation. By implementing a digital loan origination solution, banks can achieve EBA regulatory compliance while responding intelligently to customer needs, driving customer loyalty and increasing productivity. 

Regulatory expectations in the credit sector necessitate high data and IT requirements, as well as the adoption of innovative models for automated credit risk analysis and credit risk decision-making. Therefore, financial institutions are encouraged to implement a data infrastructure that enables them to automatically compile data regarding credit risk with little reliance on manual processes. This allows them to analyse the financial position of borrowers using artificial intelligence (AI) which, according to a recent McKinsey report, leads to much faster credit decisions, with customers getting cash up to 80 per cent sooner. Using AI also cuts decision-making times by 30 to 50 per cent and ensures banks make better-quality risk decisions, lowering process costs and improving the cost income ratio of the process. 

The introduction of the new EBA regulations also gives financial institutions the opportunity to experiment with quicker and more agile lending models that will help them to improve productivity, close more loans, and increase revenue per loan with cheaper, faster and automated services.  

Moving to digital loan solutions empowers banks to customise borrowing options for different clients and situations, enabling them to offer more flexible loans and reach a larger audience. As the entire credit process is based on automated machine learning, risk and credit policy departments can easily update, alter and recreate products and processes to rapidly react to the emerging and ever-evolving market needs.  

Digitising the lending process also provides an effective system for increasing trackability and performance monitoring within the regular credit decision-making framework, including follow-up and escalation service-level agreements.

Drawing on the expertise we have gained by working with hundreds of banks worldwide for more than two decades, VeriPark helps financial institutions to keep pace with industry regulations and compliance standards such as EBA, General Data Protection Regulation, and Open Banking through technology-based innovation.

VeriLoan, our loan origination solution, integrates with information that already exists in the bank’s ecosystem, thereby eliminating paperwork and facilitating fast decision-making on credit reviews and approvals. Hence, banks can provide customers with a seamless experience both on digital and assisted channels.  

The automation and end-to-end integration give customers the complete transparency they expect across all their transactions, allowing them to fully understand which factors banks evaluate when approving loans. Banks can also incorporate real-time status updates across all channels to ensure that customers always get the most up-to-date information for every transaction.

According to a recent independent third-party assessment, VeriLoan proved to be fit to support banks in meeting the highest compliance standards with the new EBA Guidelines. Consequently, it’s clear that a carefully architected digital loan origination solution can help lenders meet regulatory requirements while allowing them to keep their eyes on the future, be ready for change and upgrade fragile legacy platforms to support new market offerings.  

Bohumil Hyanek is general manager of VeriPark Germany 

This article was originally published in the Summer 2021 issue of The Record. To get future issues delivered directly to your inbox, sign up for a free subscription.

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