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Banking Sector Workflow Automation For Effective Risk Management

Banks have been the primary lenders to retail and corporate borrowers for ages. Banks mobilize funds from the investors and the governments to lend for slightly higher prices to support enterprises with a calculated risk. Most of the time, banks did calculate them without a scientific measure and often fell into trouble.

The 2007-2008 financial crisis is one the best examples of the financial risk banks encounter. 

There was a slump in the real estate markets because the finance sector institutes failed to recover loans from the Mortgage-Backed Securities (MBS), resulting in the collapse of the realty sector in 2008. Troubled Asset Relief Program (TARP was the immediate outcome of this incident.

This program authorized the U.S. Department of the Treasury to buy toxic assets up to $700 billion from companies, which could then replenish their balance sheets with safer assets. The Treasury Department had also brought $250 billion in bank shares to provide capital assistance to financial institutions. It bought $20 billion in shares each from Bank of America (BAC) and Citigroup (C).

The government had to pledge $245.1 billion to banks for TARP assistance and recouped $275.6 billion for an investment gain of $30.5 billion. This was not the beginning or the end of such acts. Governments across the globe have been spending public money to bail out banks from getting bankrupt.

What measures should the banks and financial institutes take to reinstate faith in investors?

No two-risk management technique is akin and can address diverse cases. Financial institutes can initiate measures to minimize risks and maximize profits. Let us observe them case by case.

Banks over the years are making lending decisions based on the biased information collected following unscientific methods. Fintech companies have effective solutions to mitigate such risks.

Simplified Operations

For ages, the banking business process has been very complex. Credit seekers that are retailers and corporates must approach the banks with several documents and proofs to prove their identity and eligibility to secure loans. Instead of the customer approaching companies with evidence, which may be fake, banks can collect customer information from independent sources such as credit card payment history, company balance sheet submitted to the tax department, and the company’s loan repayment history.

eSigns, the next-generation electronic signature tool with document management capabilities, can detect fraud by protecting documents with an electronic signature and a digital seal.  The platform maintains a digital ledger and digital log, allowing a digital audit trail. This feature prevents companies from producing fraudulent reports.

Finance sector institutes can approach business upfront with a simplified verification and underwriting process rather than the business approach them multiple times.  Electronic document signature authorizes remote verification of documents that simplifies and offers a scientific document verification process.

Standardizing Business Processes

Banks should standardize their business process by automating and digitizing their business process to avoid errors and manipulations that may happen due to manual operations. Digitized finance sector operations allow companies to produce paper-less application forms, contracts, and agreement documents to serve customers in a customized manner to avoid inconvenience to customers while producing solid, tamper-proof documents. Banks can allow customers to apply for loans by filling out an online form by attaching evidence in digital form with their electronic signature. A standardized lending process simplifies the lengthy loan processing procedure and enhances the customer experience.

Compliance with Local and Global Laws

Countries across the globe, including North America, Europe, Asia Pacific, and Australia have enacted laws to legitimize electronic signatures. Banks can accept documents produced as evidence in digital form with an electronic signature that is verified and legally valid. Banks can switch to legally acceptable digital practices to avoid risks.

Behavioral Economics to Assess Customers’ Background, Management 

Several fintech companies have introduced customized software solutions for the banking and financial sector institutes to predict customer behavior.

eSigns, the electronic signature software embedded with AI analytics, sheds insights on customer personality traits, including customer transaction history, credit underwriting, and early-warning systems for the retail and small, medium-size-enterprise segments. Using analytics, banks can sense the risky behavior of customers who overestimate their capabilities or hide fraudulent practices.

Centralized Data Management and Digital Dash Board.

Data-driven platform economies are vulnerable to cyber-attacks that expose customer data to fraudsters. eSigns offers digital document management solutions to integrate customer information in centralized data repositories, offering data safety while honoring customer privacy.

The electronic signature tool also integrates internal and external data with a digital dashboard to offer valid data for managers for unbiased decision-making backed by evidence. The digital dashboard also helps banks make budget allocations and design efficient credit and recovery policies.

Automating Workflow for Effective Credit Distribution and Recovery Management

Workflow automation creates an alert mechanism that warns banks and customers related to EMIs and loan repayment in time. An automated workflow dispatches emails and SMS messages to the customers on loan repayment deadlines. Workflow automation allows banks to create customized solutions to serve customers in a personalized manner to drive customer satisfaction.

Reduced Operational Costs Reduces Wastage

Banks spend more than 50% of the revenue they generate on operational costs that is repetitive, routine, and erroneous.

Automation of banking lending operations reduces costs spent on voluminous paper-based contracts, agreement forms, application forms, and credit deeds. Digitization and automation of credit workflow help banks reach customers effectively. Digital document management features streamline the credit distribution and recovery and build an efficient credit risk management model.

Effective Regulatory Mechanism

Federal governments worldwide have started enacting laws to regulate companies from exploiting customers. Banks are not exceptional to the regulatory measures of the governments.  cannot jeopardize customer interests at the cost of inefficient bank operations. Banks at the same time, cannot deny the customers’ right to earn profits. Efficient risk management measures alone allow banks to safeguard their customer interests.

Final Thoughts

 It is time for the banks and the financial institutions to have strategies that would not let banks on the receiving end. Banks must have an effective risk management strategy to remain competitive in the financial sector market.

Although risk-taking is inevitable for credit agencies to develop a thriving and sustainable economy, digitization and workflow automation allow banks to take calculated risks that minimize losses. Banks cannot rely on the government’s bail-out policies to overcome challenges. This would adversely affect the credibility of the banks and customer loyalty.

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