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Declining risks in the provision of digital business loans will help them flourish, writes Bill Lumley.

Risks associated with digitalising bank loan drawdowns are decreasing, say banking IT specialists, after Standard Chartered unveiled a module to initiate and approve business loan drawdowns digitally.

Last month, the bank announced the global launch of its working capital and lending capability, S2B Loans, on its business online banking platform to manage transaction banking functions.

Jia Yu Liao, Standard Chartered’s global head of working capital transaction banking, says that instead of completing a paper-based loan application and then routing that internally for authorisation, the process now occurs digitally on the bank’s Straight2Bank platform.

“For our clients, S2B Loans brings about efficiency, especially in a hybrid or remote work arrangement, and at the same time allows for a secured workflow to authorise for short-term drawdown or repayments,” she says.

The new module is being piloted in the bank’s four key markets, but there is no formal timescale for the global rollout. “While there will be a roadmap to bring this to more geographies, this is still in the planning stage as some markets may be subjected to the standard regulatory notification/approval,” says Ms Liao.

Atelier, a non-bank lender providing development and acquisition finance to small and medium-sized property developers, launched its own digital platform similar in function to Standard Chartered’s S2B Loans 18 months ago to enable borrowers to view and manage their loans digitally.

Joint CEO Chris Gardner says the lender has digitalised processes that were previously manual, but in terms of risk oversight and the processes themselves, they are ostensibly the same. And when it comes to governance and oversight, there is more traceability through the digital experience. “We certainly wouldn’t advocate [digitalising] a process at the expense of security because of course we’re dealing with many millions of pounds in these transactions and have no appetite for financial crime or loss,” he says.

Tim Doman, CEO of Top Mobile Banks, says that while a number of banks are now launching modules enabling business customers to withdraw money electronically as part of term loan drawdowns, the chance of higher risk as a result of lower friction in transaction banking is a potential concern. 

“A paperless loan application procedure may result in less oversight or due diligence being carried out by the bank, which may increase the risk of default or fraud,” he warns. But, he says, many banks have taken steps to reduce these risks through sophisticated digital verification processes, risk management protocols and employee training programmes.

Liam Gulliver, senior software engineering manager at MMT, says the risks associated with online loans can be mitigated by use of best practices such as using data encryption keys and scanning cloud storage for malware. 

“Online loans, like any digital service, will come with cybersecurity risks, and should be a concern for all stakeholders. However, these risks can be mitigated by following best practices such as implementing strong internal policies for shared files, using data encryption keys, and scanning cloud storage files for malware,” he says.

The further up the lending value chain you go in terms of loan size and complexity, the more manual the process becomes

Helen Orton, Finastra

And, he insists, “[digitalisation] is now a necessity rather than nice to have, and even traditionally offline companies must [digitalise] their services to remain relevant in today’s digital-first markets”.

Jeremy Ladyman, banking partner at UK law firm Irwin Mitchell, says the Covid-19 pandemic accelerated the use of existing technology and demonstrated it can be used to address a lack of physical presence of an individual or paper contract at the point it is due to be signed. However, he says, an electronic document signing platform should include minimum criteria for security, functionality and safety, and should be able to demonstrate clear evidence that the signatories intended to sign the agreement. 

“Electronic signing has actually been legally recognised for decades, but it is only recently that popular concerns with electronic signatures have been de-mystified,” he says.

Helen Orton, senior product manager for lending at Finastra, a financial software company, says adopting digital means banks and organisations benefit from mitigating operational risk, which can eliminate human error, for example avoiding typing mistakes when manually rekeying data across the loan process.

“In my experience, the further up the lending value chain you go in terms of loan size and complexity, the more manual the process becomes. Retail lending is highly automated, corporate lending is relatively automated, but the syndicated loan market remains highly manual,” she says.

Natasa Kyprianidou, senior director of financial services at digital transformation company Publicis Sapient, says credit risk can be mitigated by leveraging technology that contains artificial intelligence (AI), machine learning (ML) and deep neural networking capabilities. These calculate the probability of default, generate more accurate and reliable risk rating and affordability scoring, she says.

“By harnessing intelligent workflows to orchestrate the collection and integration of internal and external data, then applying AI/ML to the data fabric at the core with APIs and cloud as the backbone, banks can largely automate manual processes and credit decisioning for eligible commercial customers intelligently. This helps meet the increasing demands for responsible lending from regulators,” she says.

“The risk of doing nothing is far greater than that of embracing technology and data to overhaul commercial lending.”


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