| With the demand for credit by C&I entities having increased in the years following the GFC, lenders need to reduce the lengths of time required to field lending opportunities, underwrite them and document them.
Although an enabler of customer responsiveness, speed is also an enabler of scale. After all, the faster underwriters and relationship managers can process deals, the more deals they can process in a given period. Such an increase in throughput means lenders can grow portfolios without increasing headcount, a benefit of automation typically sought by senior management and referred to as scale.
Used to the simplicity and speed of services such as Uber, Pandora and Amazon.com, principals and decision-makers of banks’ commercial borrowers are seeking similar levels of convenience when conducting borrowing transactions.
Banks’ participants in the lending process have also come to demand more convenient and digitized processes for tasks they complete across the loan life cycle. An alphabet soup of regulatory regimes requires banks to document and justify, with a high level of granularity, all of their risks and decisions.
Aite Group explored some of the key trends within the global market for commercial loan origination systems and discusses the ways in which technology is evolving to address new market needs. By leveraging the AIM, a proprietary Aite Group vendor assessment framework, this Impact Report evaluates the overall competitive position of each of the leading vendors in the commercial loan origination space. Four areas in which vendors can excel – vendor stability, client strength, product features and client services – are the focus of this evaluation.
It also compares and contrasts the offerings and strategies of the leading global vendors of these systems and highlights their primary strengths and challenges. Finally, to help financial institutions make more informed decisions as they select new technology partners, the report awards vendors for their strengths in critical areas.
Lenders
Automation, an opportunity long overlooked by too many lending institutions, is now more heavily embraced as a way to achieve scale. Digitization is also a trend. Due to regulations that came into play after the global financial crisis, data sets must be readily available and analytics-ready, a compelling promoter of adoption of the commercial loan origination systems that can bring productivity to lenders and a digitized experience for customers. In sum, commercial and industrial lending is no longer the automation backwater that it has long been.
Banks active in the commercial lending space are in a position to achieve scale, competitiveness and cost reduction due to the presence of 12 relatively competitive vendors of commercial loan origination systems. Among the best- in-class vendors are nCino, Finastra – through its offerings acquired from Misys and D+H – and Sageworks.
Amplifying the opportunistic state of the CLO market for lenders is the rapid growth of nCino, which has used its user-friendly Salesforce.com-based platform, aggressive pace of new capability introduction, and aggressive pricing to win deals and deliver a more attractive value proposition than has traditionally been available in this market.
Despite the presence of competitive vendors in this industry, lenders seeking to improve their C&I lending operations with automation should closely examine the vendors profiled in this report to find for their shortlist the vendors that are most stable and have the strongest product offering for lenders with similar profiles.
Lenders who have passed on CLO automation in the past should reconsider their decisions. Vendors’ improvements to the usability of their capabilities, their simplifications to the buying process, and the entrance of nCino as a catalyst for market change mean the landscape has changed dramatically in a way that is favorable for lender. Only 11 vendors are profiled, 10 if Finastra is counted as one vendor.
Vendors
In the marketing of their CLO systems, vendors face a highly competitive environment in which 12 vendors with relatively competitive offerings vie for a large market comprising lenders seeking to use automation as a path to scale, competitiveness, a better customer experience, and cost reduction.
Among the factors intensifying competition for vendors in the CLO space are vendors’ revamping of their user interfaces, their efforts to simplify the buying experience and consolidation, which has caused former rivals D+H and Misys, both of which possess best-in-class systems, to reside as siblings and affiliates within the newly formed fintech firm Finastra.
Vendors benefiting from incumbency at banks active in the commercial lending space have been put on notice that there is a new sheriff in town. In just a few short years, nCino, by under-promising, over-delivering, and pricing aggressively, has won CLO deals at lenders large and small, many of which had long-standing incumbents that were displaced.
Vendors now benefit from a preponderance of adoption promoters over adoption inhibitors. Among the most compelling adoption promoters, and also dominant as industry trends, are the desire to use scale to increase competitiveness, the need to use scale to reduce costs, the pursuit of a digital customer experience and the need to generate back-end data sets for regulatory purposes.
David O’Connell is a senior analyst with Aite Group’s wholesale banking team, where he primarily focuses on lending. To learn more about Aite Group’s research coverage of retail and wholesale banking and payments, please contact Aite Group at info@aitegroup.com.
