Long feted as the bread and butter of banks, balance sheet lending is the cornerstone of banking activity. Understanding the mechanics and monitoring of loans is crucial to earning a return from borrowers. The lifecycle of lending is the foremost consideration when investing in loan management software and solutions. Taking stock of borrower credit, KYC, lending requirements, asset characteristics, covenant tests, interest payments, and many other debt characteristics are just the basic specifications needed in software. More sophisticated commercial and institutional lenders will also demand further functionality – bespoke tweaks, cloud computing, collaboration with other parties, and intelligent loan management systems are innovations which complex lenders may ruminate upon.
The decision to invest in loan management systems can be complicated and costly. Reported to grow at 15% CAGR between 2017-2022, the industry is awash with choice. Both traditional loan work flows and new P2P software platforms are used to service loans. Boiling down the most basic investment questions for loan solution decision-makers:
- What type of loan business will be operating?
- What are the key elements of technologies to be delivered?
- What are the costs associated with full integration of new loan management software?
Conventional lenders seek innovative new loan management systems
The milieu of investment banking is extremely competitive, fraught with decreasing fees, increasing regulation and reporting. Investment banks and sophisticated lenders operating across multiple platforms in loan origination, syndication and management activities will need complex tools to monitor the loan lifecycle. Clunky, on-site loan management solutions may not be able to completely address the challenges facing the institutional lending market. Decision makers may turn to innovative loan management systems. Finastra and FIS offer comprehensive solutions, and can resolve questions around integration while using the most advanced technologies.
“Banking is increasingly becoming a commodity service, accessible through open APIs. Core banking systems are able to connect to innovative micro-services, delivered through a cloud infrastructure, powering the API economy. All that is needed an open platform to facility those collaborations,” says Finastra’s chief marketing officer Martin Haering.
Fusion.Fabric.cloud capitalises on Haering’s observation of the banking landscape by offering diverse actors the opportunity to collaborate and come up with solutions for loan management software and services. FusionFabric.cloud is layered on top of the company’s core systems of providing lending software. FusionCreator, the testing environment allows creators across universities, Fintechs and banks to simulate solutions on top of the core offering. FusionOperate allows users and creators to deliver over Microsoft Azure. Like Apple’s app store, these crafted fixes can then be sold over the firm’s FusionStore making use of the company’s global network.
Finastra offers solutions on a global scale and has significant clout in the industry. Self-reported to have generated $1.9bn in revenues, with over 9,000 customers, the firm services 90 of the top 100 banks globally. While not strictly catering to institutional investors, the firm’s powerful offering of open source computing makes good use of all available third-party solutions for lenders of any kind. Investment in loan management software from Finastra can be advantageous for firms looking to devise unique solutions while breaking into a network of developers.
A stalwart of the industry, FIS commercial loan origination and lifecycle management software takes a more traditional approach over Finastra’s open source coding. FIS takes commercial lender and borrower interactions, codifies the approach, and digitally maps out and manages the various stages of the loan lifecycle. Operating more along the buy-and-build approach, FIS’ commercial lending suite allows lending teams to supervise work streams and produce real time risk reporting and metrics.
FIS loan management software focuses on the credit and client metrics of corporate clients. The basic software suite includes four components: origination management, syndication, asset finance, and lending amendments. Useful for most lenders, the FIS Commercial Loan Origination components allow for a pick-and-mix compliance and customer centric approach – the rules for decision making and documentation can be customised to suit each institution’s guidelines. The loan management system is also compatible with loan syndication. SyndTrak connects with other dealers and arrangers, organising the exchange of documents and back-office settlement across all parties. Particularly useful for banks with syndication practices, the SaaS can potentially be cost-saving when compared with built-in infrastructure.
Powerful for corporate lenders is the LendAmend module. Allowing for loan extensions, covenant modifications, waivers, fixings, pre-payment, cancellation and restructuring, FIS’ caters to complex instruments and banks acting as agent. Since many loan amendments and terms include tailored packages, LendAmend is a successful tool in mitigating manual errors in voting and implementation.
Nucleus Software’s FinnOne Neo offers end-to-end loan management which can be deployed through the cloud and on-site for lenders. The off-the-shelf solution covers many types of loans from car loans to Islamic financing – giving lenders support across a breadth of products. FinnOne Neo can also tackle different ways of calculating interest, payment frequencies, reporting and balance sheet transfer. Simlar to FIS, FinnOne Neo can also be incorporated in existing banking infrastructure – straight through processing, automatic bulk processing, non-performing loan management and other functionalities are also part of the package.
Examining FinnOne Neo, Finastra and FIS, all work very well for sophisticated corporate and institutional lenders. Considering costs, while none are at the low-end of the spectrum, Finastra offers cutting-edge technology and potential for innovation, while FIS works well with companies operating more traditional work flows. However, for more cost-conscious firms, FinneOne Neo can also provide pay-per use pricing models.
P2P Lending and alternatives financing requires a strong origination platform
While banks are seen as traditional lenders of first resort, the value of P2P business lending has seen extraordinary growth. The value of consumer and business lending in 2016 was approximately £2.4bn, nearly doubling from figures seen in 2014. In such a short time, P2P lending has disrupted traditional loan management systems and frameworks.
P2P lending relies on the strength of the origination platform - it must facilitate the connection between investor (ie lender) and borrower. Covering the basics, FintechLabs’ P2PForce can provide white-label, scalable solutions for lenders looking to start their own P2P loan businesses.
Based in India, FintechLab’s P2PForce loan process is simple. Borrowers and lenders (groups of investors, traditional bank lenders) fill out an online application form. Lenders review the application and provide offers of funding. After a few exchanges of documentation, monies are sent across, and settlement occurs. The strength in FintecLab’s P2PForce is in its user-friendly application and matching process – the P2P origination process is boiled down to the API which can be scaled up as business grows. When considering P2P loan management software, simplicity across investor and borrower matching is central to the investment process.
“New finance will revolutionise traditional finance. It really is a case of the industry reinventing this space…we’re here to be the eBay of finance,” says Daniel Rajkumar, Found and Managing Director of Rebuildingsociety. Capturing the SME loan market which the credit crunch squeezed, Rebuildingsociety addresses the gap which SMEs face when locked out of bank loans, while emphasising ethical investments. With the success of the P2P lending platform, White Label Crowdfunding (WLCF) spun out. WLCF provides P2P and B2B loan management software, which includes loan disbursement, collection and repayment. With experience leveraged from the parent company, WLCF is able to launch bespoke SaaS platforms catering to clients looking for fund uploads, bidding, loan auctions and interest calculations.
TurnKeyLender also provides out-of-the-box P2P lending software. TurnKeyLender’s platform comprehensively covers all aspects of the P2P loan lifecycle. The web-based application provides users-owners with a new channel to match suitable investors and borrowers. For investors, TurnKeyLender improves upon credit scoring, relieving risk functions of much of the arduous work. For deep-pocketed firms looking to take the leap into the P2P market, TurnKeyLender provides customers with the technology to launch. Unsurprisingly, many of the software company’s clients are major banks looking to compete with alternative financing institutions.
Loan management software needs to address more than just the basics
Decision makers in the software investment process have many choices to digest. Foremost, is the question around what loans are being offered – retail, corporate and institutional loans all have different characteristics. Credit scoring, repayment periods, interest rates, consideration value, loan covenants, and reporting are only a few practical features of debt products which loan management services need to tackle.
Advancing upon the basics, further automation, and reaching towards further innovation is key. From an institutional perspective, Finastra offers significant potential for long term investors and lenders. The possibility of connecting with other Fintech developers is also attractive, as bespoke solutions can be offered at better value than committing to a single software provider.
The P2P market clearly cannot be ignored when choosing a loan management software – depending on the type of market offering, smaller, nimble Fintechs may also offer promising solutions to cut down administration. Some can also provide more accurate credit scoring and automate the matching between investor and borrower.
Given the multitude of options between out-of-the-box software and add-on components, the efficiencies gained from purchasing software over building from scratch is obvious.