Technology experts from Lendscape, Solifi, ABLSoft and CODIX, discuss trends in asset-based lending (ABL), including real-time data sharing, artificial intelligence and software-as-a-service solutions.(This Q&A originally appeared in the US-based website ABF Journal).
By its very nature, technology is constantly evolving, meaning what was cutting edge last year may be commonplace today. In the asset-based lending industry, the last year has led to greater adoption of APIs and software-as-a-service solutions, but what has brought about this trend, where could the industry stand to improve and where will it go next?
Q: What have been the most important technological developments in the asset-based lending space in the last year, whether that be new product launches, greater adoption of established solutions or anything else?
KEVIN DAY: We see continued use of data extraction technology, such as our open accounting application, to streamline the digital experience for clients, many of which are already following the trend and are using cloud accounting packages. Many more banks are moving their lending technology to the cloud. The direction of micro-service architectures, API, cloud and “headless” architectures (MACH) will enable lenders to have more control over how they assemble solutions and more of a blend of off-the-shelf standard software vs. highly personalised user journeys.
ROSANNE DOYLE: We’ve seen increased adoption of software-as-a-service (SaaS) solutions for many products within the banking industry, including areas outside asset-based lending, as companies need the quickest and most efficient way for data to transfer between internal and external disparate systems. APIs — application programming interfaces — are a common request, as SaaS technology allows different applications to share data, connect software programmes, talk to each other in real-time and gather meaningful insights. In simpler terms, an API is the functionality happening behind the scenes to ensure applications work. For that reason, we partner with reputable vendors who offer pre-built, proven, third-party API integrations to create a seamless end-to-end digital customer journey across your entire enterprise.
NANCY LEE: As financial institutions incorporate digital transformation, this has been the perfect time to take advantage of automation strategies throughout the ABL workflow as well as real-time data sharing across systems via APIs. The most burdensome area is borrowing base certificate (BBC) processing where the workflow to submit and calculate continues to be manual, error-prone and labour-intensive. With our Instant Borrowing Base and API tools, we are able to cut the time of processing a borrowing base down from hours to minutes. Not only are lender users saving valuable time, but by eliminating the back and forth along with human error, lenders are building trust with borrowers and, ultimately, creating a better borrower experience.
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BILLY QUINN: From a technological point of view, there has been a merging of different product types into a more combined view. Artificial intelligence continues to evolve, but smart algorithms take time to develop and scale. What has been at the forefront of discussions we’re having is getting personnel into the mindset for change with new technologies. In this manner, we have seen organisations focus on the optimisation of workflows, including incorporating new technologies.
Q: How have newer technologies, specifically ones related to automation and cybersecurity, allowed asset-based lenders to survive and thrive through the economic turbulence of 2022?
DAY: Embedded workflows and straight-through processing are now key to business optimisation. Highly engaging customer portals which focus on user experience encourage self-service, which in turn increases efficiency and customer satisfaction. Fraud prevention is always a consideration, even more so as we experience more economic uncertainty. Again, technology can signal where transactions appear suspect and require more manual scrutiny.
DOYLE: Recognising the constant need to safeguard data for our clients and their customers, we put controls in place to ensure we continuously meet SOC guidelines, a validation from a third-party assessment. Additionally, we ensure the most secure environments by partnering with Amazon Web Services to host our solutions. Our lenders can take comfort in knowing that we’re very aware of cybersecurity threats and are vigilant in keeping their data secure. API solutions help mitigate risk by automating processes (ineligible calculation, loan application, credit-decisioning), maintaining full control of the data supplied and stored (protects data privacy) and working with timely data from multiple sources so customers can approach risk proactively rather than reactively.
LEE: With the increase in cyber-attacks and data breaches these days, our customers expect to have strong security technology built into their solutions. Fortunately, our customers benefit from our tech team staying on top of the latest critical technologies to keep them ahead of the curve. Our platform is SOC 2 Type II certified and implements the toughest security framework with data encryption, single-sign-on (SSO) and multi-factor authentication (MFA).
QUINN: Intelligent security, such as pattern tools that are non-intrusive to end users, is helping mitigate security risks. ABL users are also more aware of harder things to detect, such as phishing attempts. These tools allow users and organizations to focus on value-added ABL tasks. Automation continues to grow through native graphical workflow tools, APIs and seamless integrations with traditionally separate systems. Automation and automatic decisions, secured by information collected automatically from credit agencies and credit insurers, help to reduce the burden on operations staff.
Q: Are there certain technological tools that can help lenders and borrowers best weather the broken supply chain and increasing inflation?
DAY: Borrowers need cash-flow certainty, which asset-based financing provides. However, tools can be made available to provide predictions on cash needs and smart rules can optimise the amount of cash available against assets. To take it a stage further, tools such as Lendscape can allow the funding of sales orders borrowers have received and fund inventory and purchase orders issued to suppliers.
DOYLE: These are disruptions that you can’t necessarily plan for, so it just comes back to having the most current data available from multiple sources to make decisions, to react to disruption through APIs, real-time data awareness and updates. That’s how we can help our clients be prepared. If I’m experiencing a disruption with my clients because of inflation, I need to see their accounting information every day vs. every quarter so that I can see how they’re tolerating these disruptions. Then it’s very helpful to know at any point in time what their position is.
LEE: Artificial intelligence-based tools are playing a key role in the supply chain world. Given their heavy logistical nature, supply chains have numerous data points that can be run through machine learning for real-time modelling and prescriptive analytics. Imagine a tool that tracks goods in transit and offers real-time alternate delivery locations based on best distance and costs. Or imagine an AI tool that can help with demand forecasting and adjust for real-time inflation by pulling in price indexes dynamically.
QUINN: It’s important to have tools that provide flexible financing options to help adjust to challenges. We are seeing different types of ABL lending to help address working capital challenges. Lenders are trying to provide more working capital solutions than a single product, including working with other financial partners. Real-time tracking and updates as part of a core financing system are also critical from a lending perspective. Borrowers expect real-time self-service options from a lending solution.
Q: What is one area of the ABL process ripe for technological improvement, whether that be business development, underwriting, operations, asset management or anything else? Why?
DAY: An area of increasing need is to be able to fund inventory in this “just in case” world. The technology could be improved to provide lenders with more certainty that inventory is legitimate, for example, through the Internet of Things (IoT), inventory data extractions, verification via smartphone devices, etc.
DOYLE: As much as we can automate anything with collateral management, the better. We want to understand the day-to-day, moment-to-moment movement of all the assets that are being financed. The accounts receivable is easy to catch, but inventory is a bit different, and I’m receiving a lot of requests to manage inventory on a real-time basis. The desire is to ensure all client information from multiple sources communicates with each other. If you can accomplish this, you can optimise business operations, identify the risk that goes beyond a credit score, assess a customer’s buying power, reduce costs by eliminating manual processes and errors seamlessly transition to the next generation of emerging technology and create a better customer experience.
LEE: Borrowing base processing is still a burden because the information continues to come in many formats and lenders are still manually reconciling the numbers. The technology is there to digitally gather borrower information from disparate systems, offering a better experience for borrowers and lenders alike, but the adoption isn’t happening yet due to status quo inertia and lack of trust. Those that are forging ahead are gaining a competitive advantage.
QUINN: Across the board! Typically, back-office tasks have improved the most. The technology exists to link all processes together and provide a consistent flow of ABL areas and tasks. Single technologies exist to link all the processes/areas, but what needs to improve is the seamless integration of all systems in the ecosystem. We are seeing a particular drive for lenders to provide a sophisticated customer self-service portal that is efficient and easy to use.
Q: How have your expectations about the future of ABL technology changed in the last year?
DAY: During economic uncertainty, it is easy to hold back on technology investments, but this is a high-risk strategy in a fast-moving world where technology creates advantages but is also defensive. Having said that, we are very busy with a number of lenders around the world. In particular, we see a trend of lenders switching away from in-house systems and moving to cloud-based technology, which should provide cost savings and operational efficiency as well as compliant and secure environments. We expect to see continued activity and investment.
DOYLE: I wouldn’t say my expectations have changed but rather they have been confirmed. The ABL community has not only embraced the new technology that it has encountered, such as SaaS, automation and APIs, but demanded it in their day-to-day relationships with partner banks, borrowers and software providers. These are exciting times to see more of our customers embrace and invest in technology to grow their businesses. Even during these precarious times, successful business leaders understand they must continue to grow through business disruption to remain competitive. SaaS can provide added peace of mind because it is resistant to inflation and can help sustain your business during these disruptions. That’s because SaaS fees are calculated based on usage, meaning they are directly tied to your business activity.
LEE: I’m hopeful that at some point soon there will be a catalyst to instigate change. The tools and technology are available. At some point, as enough new entrants enter the space, we will see a tipping point where the benefits of implementing newer technology and workflow automation far outweigh sticking with the status quo.
QUINN: Given some of the world and industry challenges and looming recession discussions, it’s been refreshing to see a mentality of continuing to invest in technology. We expect this to continue despite some of the headwinds on the business front, whether they be due to customer retention reasons or streamlining costs and profits. There will also be further discussions around environmental, social and governance initiatives and how technology can help there. Having a technology solution that can help with that aspect will become important as time moves on.