The deluge of regulations to have hit financial markets since the banking crisis has without a doubt completely reshaped the industry. As well as the burdensome nature of reporting obligations as regulators have attempted to create more transparent markets, capital requirements have fundamentally changed the makeup of each bank and lending entity’s balance sheet. The fact that the Basel accords – built to monitor and control systemic liquidity risk by imposing strict capital requirements – have gone through a number of iterations and forced market participants to continually guess as to what the rules may eventually look like.
As lenders re-evaluate their balance sheets, the proposals and those rules that have come into force have had substantial consequences on global lending markets. As economies attempt to recover, banks and financial institutions have been forced to be reluctant to lend. That’s had a huge impact on a range of sectors, such as the SME market which has traditionally been considered an area where lenders struggle to profit.
However, some – such as Rabobank – have found innovative ways to enter these markets while complying with regulations. Working directly with the Dutch multinational bank and financial services provider is Cloud Lending, which has helped Rabobank transform its place in the market. Here, bobsguide spoke with Auke Veenstra, managing director, EMEA at Cloud Lending, to find out more about how new types of automated lending can benefit the marketplace.
What regulations do you feel have shaped Europe's lending markets the most, recently?
There has been a lot of speculation about the effective implementation date of the Basel 3&4 solvency requirements since a lot of people thought that they would be postponed. That did not happen, leading to a great impact on those lending companies with large mortgage, SME, and real estate portfolios. That is why what we did for Rabobank in hybrid lending is so transformative: we provided them with a hybrid lending platform where they take a loan partly on the balance sheet, and partly have it funded by their private banking clients in a peer-to-peer way to optimize their solvency position. Rabo & Co. in that sense is truly visionary, and we don't see that much in Europe.
Of course, PSD2 and GDPR will keep lending institutions busy for quite some time as we see an active role of the regulator in the implementations. Also, there are quite a few banks that have been fined for selling the wrong products to clients. At Cloud Lending Solutions, we receive many requests from these banks to come up with a highly automated origination workflow that leave less room for error. This automated configurable workflow is at the heart of the proposition to build the ultimate borrower experience for our clients.
Banks have long attempted to make SME lending profitable but struggled. What impact has that had on SMEs?
SME loans are relatively low in value and high in volume, and at the same time cumbersome – and expensive – to process if you do not automate the application to funding process. Therefore, banks would rather spend their money and solvency on larger loans for bigger corporations than on SMEs as we also witnessed during the recent crisis. That explains the rise of alternative finance players, who leverage technology in a big way. Therefore, the only way to make SME business profitable is to automate the origination tasks as much as possible throughout the complete value chain.
And what can fintechs do to better the situation, from a market perspective?
FinTechs can help traditional lenders – who have volume – to innovate their lending experience building together smart client-centric borrowing experience leveraging technology in a scalable SaaS way. Customers like to do certain things themselves because it is convenient, for example, change their address or skip an interest payment. These things can only be automated if lenders allow borrowers to perform such tasks on their lending platforms and can help make the lender’s SME business more profitable.
How competitive is SME lending likely to get in the coming years?
We see a further increase of alternative finance lending in many European countries. The UK is definitely leading the pack but since the impact of the Basel ruling is significant, a further increase of hybrid lending will also be seen.
Tell us what Cloud Lending Solutions offers in this area, specifically?
Cloud Lending Solutions is the technology of choice for financial institutions leading the next wave of lending. Through our integrated front-to-end lending platform, financial institutions can simplify the borrower experience, accelerate loan processing, increase application volumes and reduce operational inefficiencies through automation & configuration. This enables our customers to quickly get to market with new market-leading lending products and see same year ROI.
How do you differentiate with your competitors? What sets you apart?
We provide software as a service (SaaS) solutions that digitize origination, underwriting, servicing and collections that enables our clients to achieve outstanding results. What set us apart is that our platform is 90% configurable so there is no expensive hard coding needs. We also empower with configurable, out-of-the-box solution so they can make new products or add distribution channels in a matter of hours.
Who are your typical clients, and in which geographies are you gaining most traction?
We started five years ago with the smaller fintechs but now work with larger financial institutions who we make more agile and for whom we help being costs down with scalable solutions. For example, we delivered a completely digitized POS platform for ABN Amro – who also became an investor in Cloud Lending – within five months. We were both very excited about the speed and functionality we build together. With clients in the North America, EMEA and APAC, the one aspect of our clients that is universal, or typical, is a deep desire to bring a transformative lending experience to their borrowers, to leverage cloud-based software for speed to market deliverables, and a continual embracement a digital, borrower centric lending environment. From alternative finance institutions to banks to equipment lessors, they all recognize that the borrower has a lot more control over where, how, and from whom they receive funding.