Advanced Operating Models
Nov 29, 2018

Becoming the lender of the future: a four-part growth equation

The commercial lending market has grown at a healthy rate for some time now, particularly in the mid-market space. However, lenders find themselves struggling for market share with the recent entry of several non-bank players into the market. Asset management companies and institutional investors are finding the big-ticket loan market lucrative. Fintechs and non-traditional lenders, such as Amazon and PayPal, are also using their proprietary data, digital technology, and customer experience to differentiate themselves.

To stay ahead in this environment, traditional lenders have to become more competitive and better differentiate themselves from the new entrants. And to achieve this they must understand and implement a growth equation with four key components. Getting a strong handle on these four elements is vital to increasing revenue and market share. As such, in order to grow, the lender of the future needs to:

  • Increase the pipeline inflow
  • Execute on the pipeline with greater velocity or speed
  • Create scale to manage the additional capacity from an increased inflow
  • Exercise vigilance to quickly identify and respond to adverse credit events

Let's take a closer look at each of these aspects:

Inflow. Improving loan-application inflow comes down to increasing the quality and quantity of the origination pipeline. To do this, lenders must measure the time that relationship managers spend on prospecting and work on ways to reduce it. A great way to cut prospecting time is by adopting a methodology called predictive selling, which uses big data and artificial intelligence to prospect faster and more effectively.

Velocity. The second way to grow is by speeding up the processing time, or velocity, of loan applications. In executing on the pipeline faster, the key metric that is measured is time to close. Lenders measure time to close in different ways, but, generally speaking, it's measured by time to underwrite or time to fund.

Scale. The third part of the growth equation is to solve for scale. Here, it's important to create the capacity to address an increased pipeline or increased scale. Improvement in this area is measured by the reduction in cost per loan originated, as pipeline capacity grows.

Vigilance. Last, but not least, is to make sure to focus on enabling the detection of credit-quality issues faster. Success is measured by how fast you identify and respond to an adverse credit event, so that losses are minimized. 

About the author

Anu Sachdeva

Anu Sachdeva

Senior Vice President and Practice Leader, Commercial Banking

Follow Anu Sachdeva on LinkedIn