Where are the banks in fintech? I came across an article by McKinsey today which outlines how a bank can move towards digitizing lending. Lending is a cornerstone of banking, and it forms one of the more important parts of a relationship with customers. I think a great lending experience is so important for a bank’s success. And what is great right now is digital. The main reason is that digital is faster. Banks can lower their costs, improve conversions, and generate more leads by going digital, but what matters to the customer is that they can get an answer faster. Everything in banking right now is moving towards better and faster closure. Lending is at the forefront of this, but its difficult for banks. In my previous life as a consultant, I designed and implemented automation procedures for a few banks. Most bank employees do genuinely care about speeding up their decision for customers. There’s always initial excitement, but sustaining that and following through is where we usually experienced the most difficulty. Below is McKinsey’s advice for banks, and it generally follows our approach with the exception of adding agile at the end, which I think is just a way for McKinsey to charge more. You don’t need agile to transform your bank, you just need the right people.
- Determine the current state. Measure the lead and approval times in the credit process (touch time, time to cash, and time to yes). Identify potential pain points in major end-to-end credit journeys, such as repeated hand-offs, lengthy written reports, reentry of data, process-error rates, and periods of dead time. Know what you’re solving for.
- Determine the right sequence for automation. The relevant factors for establishing priorities include available material gains (“materiality”), ease of eliminating pain points, and overall complexity in execution. The most common credit journeys selected for automation at the outset of credit transformations are retail mortgages and SME lending (including business banking). The initial focus is usually on existing customers that are refinancing or increasing limits.
- Learn from leading banks. Teams can use success stories from leading banks as starting points for proposing innovative ideas and ideal solutions, before working out how these can be made operational. One large Western European banking group gathered its credit experts from various countries to share key elements of its credit origination and underwriting processes across segments and products. The innovative ideas that participants exchanged became the foundation of a high-level blueprint for the credit journeys of the future.
- Use the target state to motivate the transformation. We have emphasized the importance of the destination—the end state of the transformation that has been defined by the business, risk, and operations functions. Supported by compelling value analysis and clear performance targets, this goal can be used to motivate real progress while dispelling potentially crippling misperceptions that digital transformations are not customer focused. A large US bank, for example, set as a goal a two-day limit for coming to conditional decisions on at least 80 percent of all corporate lending applications.
- Mobilize the agile team. The agile team establishes the parameters of the MVP, determines the target IT architecture for the solution, and begins working across functions (business, risk, technology, and operations) on the components of change, following well-defined timetables.