Feeling the Urgency: How New Technology Will Reshape Asset-Based Lending

What is the asset-based lending industry’s relationship with current and emerging technologies?

Kevin Day: Traditionally, ABL has used technology to underpin the business and provide a secure system of record. More recently, the rise of innovative players in the fintech space has allowed for greater adoption of digitalization to manage risk better. Additionally, the harnessing of open data trends offers increased specialization and more tailored, meaningful products and value-added services.

Nancy Lee: Asset-based lenders reside along all stages of the technology adoption curve. You would think that more lenders would jump to adopt new technologies, but with the characteristics of ABL — specialized underwriting processes and human relationships — this industry has not felt as much of the urgency to adopt the latest tech. That said, incoming fintech lenders have led the way with innovative lending terms, personalization and approval processes catalyzed by new tech, which could eventually morph the concept of ABL as we know it.

What are the bare essential technology solutions an asset-based lender should be using today?

Doyle and Maxwell: We recommend that asset-based lenders use technology solutions that automate workflows and allow customers to access their information easily. At a minimum, an organization needs to provide borrowers a self-service portal with 24/7 access. This technology is a clear indication of the maturity of an organization and how it values its customers. Of course, we recommend our ABL customers move to a software-as-a-service solution so they can leverage the technology throughout their entire business.

We are also at a point where being on the cloud is becoming mainstream. It is often a requirement by auditors and investors for their lenders because it enables better auditing, data accessibility for distributed teams, less IT hassle, and it meets borrowers’ minimum expectations.

How can and why should the usage of emerging technologies be accelerated in the ABL industry?

There are large banks that want a bank-wide system. These are big systems, but ABL-specific models won’t play in that big-system game. Workflows will get customized and built out over time, but they’re rarely cutting-edge. Smaller lenders seem to adopt what is known, good or new.

Doyle and Maxwell: The hesitation to embrace digital transformation typically comes from fear of change, an aversion to risk and/or a lack of understanding. To help accelerate digital transformation among ABL lenders, we need to make it easier, affordable and accessible for all organizations, regardless of size. The most progressive companies are adopting technology like software-as-a-service in the cloud, data insights and data streaming, conversational AI, application programming interfaces (APIs) and open finance platforms. Those who embrace emerging technologies are the most successful; it sets ABL lenders up for future success to match business scale needs, enable rapid innovation and create a positive customer experience.

Quinn: It depends on point of view and different organization capabilities. What can accelerate usage is removing old ways of thinking, such as a paper-driven approach. When true ROIs are established, it is clear how much cost saving is possible with investment in technology. Also, the COVID-19 pandemic has democratized the use of technology, like electronic/digital signatures, for most contractual engagements, which is important to integrate throughout the commercial lending process.

Caplan: Areas like factoring, where invoices are purchased and cash can be applied electronically. Emails or a portal to get borrower reporting documents is also widely used. Field examination report generation has a massive “fidget factor” to combine examiners and divisions and then summarize all that information. However, the limited file format uploads and unusual reports that we get in the ABL space are tough to translate back as machine readable reports.

Doyle and Maxwell: Everything that can be automated will be automated — and should be automated. But that doesn’t mean human intervention goes away. It means you shift your staff to focus on those areas that require more personal attention, which enhances the customer experience.

Lee: There are three main areas where automation is suited for ABL. First, is the underwriting process, and for ABL specifically, this would be in the BBC submission process. The next area is in back-office loan monitoring, which has been the most advanced to date, although there is more that can be done to further automate these processes. The last area is enabling real-time data connections between multiple software systems like CRM, accounting, loan management and reporting using web APIs.

Will emerging technologies like artificial intelligence, machine learning and blockchain become more standard in the ABL industry in the next few years? Why or why not?

Blockchain is interesting, but the problem for lenders is they don’t necessarily finance companies that are selling like that or have access to blockchain query tools. In more than 10 years, it might be possible to do a 100% audit of deliveries with blockchain, but right now, it is mostly being used to track specific shipments.

Opportunities exist to harness open banking and other API-based technologies to provide an enhanced experience for the borrower. Cloud computing and software-as-a-service are now mainstream in the world of ABL, with many banks adopting this going forward to provide more scalable, cost-efficient models in the future.

Lee: It’s going to take a few more years for tech like AI, machine learning and blockchain to become standard in this industry. I recommend focusing on digital strategies, utilizing APIs to achieve seamless workflow and efficiencies within the financial ecosystem. Analyze the data to find ways to personalize the borrower experience and to identify better risk indicators, with a future goal of leveraging AI and machine learning technologies to hyper-automate these processes.

What is one area of technological innovation that is not yet being discussed in relation to the ABL industry but could (or will) be a major force or trend in the next decade?

Day: Traditional banking is very siloed and product-led. In an increasingly customer-centric world, an outside-in approach will dramatically change the way lenders and borrowers interact.