Keren Moynihan, CEO of Boss Insights, a provider of Big Data & AI to accelerate the lending process argues that the Paycheck Protection Program (PPP) may be the catalyst accelerating digitization in banking. Lenders are waking up to the importance of scalable data-driven automation, and an API based digitization approach may offer benefits ranging from improved revenues to better customer experience.
In March 2020, one-half of the world’s population, 3.9 billion people, went into some form of physical isolation. To address the global pandemic, the economy came to a halt. Governments worked tirelessly to see lenders and borrowers through. The US CARES Act and Paycheck Protection Program (PPP) is the centerpiece of the US government’s strategy for supporting small and medium businesses. Over 5,400 financial institutions lent funds to over 4 million businesses.
Automation was an issue from the start, and larger lenders that did not have APIs tried to use RPA (Robotic Process Automation) systems. APIs are like plumbing but instead of water, data flows. Manual processing is akin to going to the well for data. RPAs ignored the plumbing and worked instead to accelerate the speed to get to the well. In late April, the SBA banned RPAs as it was impossible for lenders without automation to compete in submitting loan applications. With that, two years’ worth of digital transformation has happened in two months.
The US market went from having 15,000 lenders lend in 15,000 ways to having 5,400 lenders lend in one way. Following the frenzy of the application stage, there was a lot of buzz around forgiveness. The SBA released guidance showing just how complex calculations are. Lawyers expressed that that “there is a lot of math, it’s intricate, it’s up there with some of the most complicated schedules on tax filingsâ€, per Gregory Fryer of New England-based law firm Verrill Dana LLP.
Customers are accustomed to retail technology, and some are looking for and willing to move their business to automated completion of SBA Forgiveness Form 3508. In fact, more nimble banks saw their digital account opening jump 20% since March of 2020.
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Change is the main constant of the PPP program. When legislation that normally takes years comes out in weeks, they are bound to change. There are already cases of fraud, reports of large businesses taking loans over small businesses, inequity on the representation of small businesses in large cities. The latest PPP Interim Rule (2020-0033) guidance advises that audits can happen on any account at any time, and accounts over $2M are particularly scrutinized. Both the House and the Senate passed Bill H.R. 7010, the PPP Flexibility Act, highlighting the need for more automation. Here’s why. The bill provides more flexibility for borrowers in exchange for more work by them and the lenders supporting them. With the new rules borrowers & lenders must go back & duplicate their work unless their platform fully automated the process.
That’s the power of an API hub, the backbone of the Boss Insight platform. With Boss Insights, borrowers trade in manual effort for instant forgiveness calculation. The Borrower’s work is reduced to three steps:
1. Connect their data via API,
2. Review pre-calculated forgiveness, and
3. Attest and submit. Most likely, we haven’t seen the last of the changes.
With anything short of true data automation, changes will lead to more work. The difference with an API hub is that the work is only done once.
PPP may be the catalyst accelerating the spotlight on digitization. As banks that normally process 1,400 loans for the entire year have been pushed to process 34,000 in just over a month. Lenders are waking up to the importance of scalable data-driven automation. PYMNTS released a Digital First Banking Study (May Edition) Opens a new window stating that 61% of customers are willing to provide open access to their data in order to receive tailored recommendations. Lenders who recognized and adopted digitization using APIs grew revenues 30% through increasing automation and personalization, 20% more than their peers in the survey.
The byproduct of COVID and PPP is digitization and collaboration. Digitization in months, not years, and collaboration between lenders, borrowers and fintechs. The shift in customer expectations is clear, with 60% more banking application downloads since the pandemic. Despite this, only 35% of banks are embracing APIs to work with digital customer data, with 65% still choosing manual PDFs and fax. The same APIs that solve the digitization for PPP’s forgiveness answer a deeper issue for legacy systems in banks and credit unions. A Mckinsey StudyOpens a new window “Core Systems Strategy for Banks†highlights that APIs can easily support the integration between core banks and other technology, drastically decreasing cost and increasing automation.
Boss Insights platform is built on over 800 APIs. The framework which allowed any business lender to serve any loan product, was quickly able to support SBA’s 7a-readapted PPP program in a week. This PPP period has shown that collaboration between fintechs and financial institutions can happen at rapid speeds, if the fintech offers a truly automated platform and the lender is committed to solving a problem (Boss Insights’ American Banking Association oped on Social CollaborationOpens a new window ).
Digitization will help beyond PPP by empowering banks and credit unions to have the clearest picture of their business clients. Knowing the customer better is key to delighting them. Yahoo Finance and S&P has forecasted the rise in digitization to be 20%, but after this pandemic, the PYMNTS study projects 30% as the new reality.
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Below we’ve highlighted how API-based digitization empowers lenders to support borrowers both during and beyond PPP.
1. SBA Relies on Lenders to Communicate and Liaise with their Borrowers
The SBA does not have the resources to communicate directly with borrowers and is relying on lenders, banks, credit unions and alternative lenders to meet this need. This requirement by the SBA expects the lender to have a platform in place to quickly view and share real-time business borrower data. Lenders must quickly communicate alerts with borrowers that then must meet tight deadlines, or risk non-compliance. A platform that automates the life cycle of the process will enable the lender to focus on borrower servicing, rather than being burdened with administrative tasks and delays of document transmitting.
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2. Lenders Choosing Third-party Data Sources Alleviate the Need for Extensive Review
Following the SBA guidance stating that minimal review of calculations on third-party payroll processors are acceptable, lenders have looked to fintechs to alleviate this burden. It might be alleviated, but only with true data automation provided by APIs. File management systems that merely direct borrowers to upload PDFs results in a lot of wasteful clicks, confusion and are often error-prone. For a data platform to excel, it should connect to the information directly, gather the key information and provide an instant calculation of forgiveness for the borrower, the need for an extensive review by the lender.
3. Lenders and Borrowers Must Keep Records for Six Years
In the urgency to get funds out to small businesses, the SBA opted for a solution that prioritized the quick approval of loans. Compliance issues were postponed. Several cases of fraud have already been identified and audit committees are increasingly vigilant. The latest guidance from the SBA calls for lenders and borrowers to keep documents for six years. No one knows how the audits will be performed, but at a minimum, there will need to be an easy way to show forms 2483 (the application form) and 3508 (the forgiveness calculation worksheet) and all relevant supporting documents. Non-compliance will result in the clawback of processing fees as well as losing of SBA’s loan guarantee.
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4. Changes in Legislation Mean Heavy Uplifting for Borrowers and Lenders Unless an API Platform is Used
The power of an API hub is that it not only enables instant forgiveness calculations, but the platform will automatically configure any updates meaning that the work needs only to be done once. With anything short of true data automation, changes will lead to more work. Any manual process will have to be redone if there are errors or updates to guidelines. A file management system will likely cause increased manual and redoubling of efforts.
PPP is an emergency measure. Legislation that normally takes years to pass was passed in weeks. We likely haven’t seen the last of the changes, both within PPP and to lending in general. A platform automating this data intake and forgiveness calculation eases the burden on the borrower by providing instant results. Borrowers complete forgiveness calculations instantly and lenders can submit forms to the SBA.
5. Digitization Facilitates True Partnership Between Financial Institutions and Businesses
Prior to COVID, digitization was required, but it was not a priority for lenders. PPP may be the catalyst, as digital functionality is quickly becoming a core part, not only of business continuity but in dazzling customers.
We’re in the midst of digital transformation. It was happening slowly and now because of COVID, it’s happening overnight. Digitization will help beyond PPP by empowering banks and credit unions to have a clear picture of their business clients. Knowing the customer better is key to delighting them.
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