August - 20199rigorous underwriting, as well as for downstream collection management and cross sell, all in real time.3. Use digital processes to enable end-to-end risk managementTraditionally, risk management has been a standalone function arising from handoffs in other parts of the customer cycle.At the same time, every activity within the financial institution impacts the risk, ranging from origination, technology, underwriting, customer management, cross-selling, servicing and collection.Digital ensures that each function impacting portfolio credit risk leverages all available data and technology for excellence in risk management across the entire life cycle. The key is that a digital lending organization captures information in a scalable way and makes it broadly accessible for both customers who have received loans and also their repayment track records.This can lead to better customer scorecards which can be distributed across the organization through digital workflows. Marketing can monitor credit quality by channel and help make changes in real time. Similarly, sales can prioritize customers by scorecard metrics for outreach and cross sell. Servicing, collections and even legal can similarly be impacted.4. Build internal and external ecosystems to jump-start originationA major priority for digital lending within traditional institutions is generating volume from the outset. While the growth rate of digital lending might be high, the fact that it initially has a small amount of volume means that it can be disadvantaged on managerial attention and resource allocation, limiting its future potential. For this reason, it is essential that managers plan how they intend to grow loan origination in parallel with the implementation of digital technology.The first and most natural place to look is the existing customers of the financial services company. For example, within a retail bank, it could be deposit customers, wealth management customers, business banking customers or others who need lending products. E-mail campaigns, preapproval offers and technologies (such as API interconnects) that enable cross-selling can be prioritized.The above is what can be referred to as an internal ecosystem. Digital capabilities also lend themselves to building powerful external ecosystems. These consist of partnerships with other companies, enabled by technology and data science. For example, a bank could launch new lending products with a payments processor, insurance company or other strategically important customer aggregator. Robust internal and external ecosystems can enable rapid volume growth following the launch of digital lending.5. Transition the organization to a digital mindsetA common perception among managers in traditional financial services businesses is that digital is just one more channel among many. In fact, success within digital lending requires a completely different way of thinking.Many traditional lending institutions simply put their existing business process for lending online, which often imposes a heavy informational burden on the customer. This typically results in a large drop off in customer applications. Instead, they need to design their customer journey to effectively manage the trade-off between customer convenience and risk management mentioned previously.Digital lenders also need to learn how to execute continuously. Within small business lending, for example, more than 50% of applications arrive outside regular business hours or on weekends, requiring customer attention and underwriting on a 24/7 schedule.A successful digital lending organization needs to be a learning organization. It continually has to experiment and have the capability to learn from past mistakes. Experimentation can be through A/B testing, both for intake of customer applications and also at the back-end with risk management. Each activity will generate data which can be further analyzed using AI tools.Nowhere is the necessity for a new way of thinking more relevant than within risk management. One instance lies in what can be called credit forensics. This process consists of systematically analyzing historical underwriting decisions with the information available at the time and identifying factors that are predictive of subsequent defaults. Due to the ready availability of retrospective digital data, the level of actionable insight that can be achieved is striking and can substantially lower default risk.More broadly, the risk function can be tasked with analyzing vast amounts of digital information and disseminating it efficiently and effectively across the organization. Risk managers, rather than being specialists who interact primarily with each other, now need to communicate extensively with non-specialists in other departments to ensure credit risk is properly managed throughout the organization to enable the goal of end-to-end risk management. BCA successful digital lending organization needs to be a learning organization. It continually has to experiment and have the capability to learn from past mistakes
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