Automated Credit Decisioning for Enhanced Efficiency

Europe’s banks are sailing in choppy waters. The ECB’s low interest rate policy, increasing competition from innovative FinTechs, and ever-stringent regulation are all ramping up the pressure. The key to success lies in digital transformation. Banks that seek to be more agile, competitive and profitable need to automate their loan decisioning processes.

Difficult conditions in the EU financial sector

Over the last few years, the operating environment for the EU’s financial sector has severely deteriorated, leading to rising costs. This is mainly the result of the long period of low interest rates, which has put pressure on margins. Since March 2016, the European Central Bank’s main refinancing rate has stood at zero percent, and no change to monetary policy is on the horizon.

There is also fierce competition from FinTech and Big Tech companies, which are increasingly penetrating the traditional banking industry with fully digital solutions. These include creative, agile start-ups and multinational tech giants like Google, Amazon and Apple, with their huge customer bases. Compared to traditional banks, these innovative newcomers are committed to automation, thus ensuring lower costs and higher margins.

On top of this, banks find themselves under intense regulatory pressure. Since the global financial crisis, the EU’s banking sector has been adversely affected by a deluge of laws and regulations. All these factors have resulted in declining earnings and rising costs for financial institutions.

They have to find a way out of this downward spiral if they are to remain competitive.

Digital technology brings increased efficiency and reduced costs

The key to success lies in intelligent digitalization, because automating processes can significantly increase efficiency and reduce costs. For banks, automation is particularly important in the lending sector, which is a key source of income. Until now, the process has incurred high labour costs because of many time-consuming steps involved, from screening applications to making the final lending decision and even managing loan disbursals and collections.

Advantages of automated credit decisioning

Automated credit decisioning brings many benefits. It relieves loan officers of most of their routine tasks and streamlines the approval process by preventing long, cumbersome paper chains. This not only slashes the time required to process a loan application but also makes credit decisions more objective, traceable and transparent.

New technologies and data sources are driving this development; mainly rule management systems, decision management, machine learning, artificial intelligence and new information services such as PSD2 and XBRL/DiFin. On the technical side, they are underpinned by highly scalable platform-based applications and coordinated IT and workflow systems. As a result, financial institutions are in a position to introduce almost 100 percent automation of complex lending and decision-making processes, including credit assessment and risk assessment.

The bottom line? Investing in these systems can significantly enhance a bank’s position in the market and increase its profits.

To sum up

Automated credit decisioning is a key factor for sustainably increasing profitability. Through an intelligent combination of decision management, machine learning and new account information services, it is possible to automate many complex, costly processes. Digitalization in the credit sector is the key to cutting costs, increasing profitability, enhancing customer service and improving compliance. It ensures that banks have the tools they need to succeed in the face of ever-growing competition.