What Exactly Is Cloud Lending?

Posted: 12 April 2022
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What Exactly Is Cloud Lending?

Cloud Lending is a FinTech innovation in the form of a digital platform specifically developed for the retail banking sector, for credit management. If you were hesitating to turn to a Cloud Lending architecture, discover all the benefits it could bring to your lending business.

First, in order to understand what Cloud Lending is all about, it is important to understand the concept of Cloud or Cloud Computing in general. The Cloud refers to a set of services based on servers external to the bank’s infrastructure, accessible via the Internet and including servers, storage, databases, networks, software, analysis, and intelligence. 

Cloud Lending is a digital platform that enables financial institutions to automate and accelerate their underwriting and loan management processes, as well as to enhance the customer experience. This translates into tailored and fully transparent support, with easy-to-access, configurable and simple-to-use digital tools, as well as a customized structure tailored to the customer’s needs. 

This innovative platform is designed with modular services that can cover part or all of the credit life cycle. That varies depending on the Cloud Lending solutions available in the market.   

Changing the architecture

Currently, the credit granting process of traditional banks is complex and time-consuming. Digital transformation is affecting the banking industry and is pushing traditional banks to rethink their systems and architecture. Indeed, in order not to be sidelined by innovation, adopting a cloud-based architecture allows banks to migrate to more agile and flexible tools in the form of centralized bricks within the same platform, like a kind of Lego box. 

Moreover, banks are not the only ones in the midst of change. Indeed, customer behavior and expectations are also evolving towards a much more digital world, in line with their daily lives, as well as the regulations that govern them, creating a complexity that is difficult to manage for banks.

Having a cloud-based credit management platform then offers financial institutions the possibility to offer an optimal service for their customers, faster, digital and especially at the cutting edge of technology, allowing traditional banks to remain competitive. The arrival of the neo-banks, making their digital edge their trademark and their primary advantage, has accelerated the digitalization of financial institutions and strengthened the competition in the banking sector, especially in terms of customer experience.  

If for many years the tech industry thought banks were resistant to the cloud, the current situation shows a very different trend. In fact, according to a report published in December 2020 by IBM,

“91% of financial institutions are actively using Cloud services or plan to use them in the next six to nine months.”  

In reality, how does it work? 

The most important word to remember is API, Application Programming Interface. It’s basically an interface that allows you to link systems and create a data flow. In the case of a Cloud Lending platform, APIs will allow to connect the banks’ Core Banking System (CBS) to the Cloud Lending solution chosen by the financial institution, for example TheLoanFactory created by Circeo, in order to integrate the functionalities offered by the latter.   

 Some Cloud Lending solutions even identify themselves as Core Lending Systems (CLS). More precisely, they will centralize Front Office (FO), Middle Office (MO), and Backoffice (BO) operations, by simply adding an integration layer to the bank’s or partners’ third-party systems to meet credit-related needs.   

 To take the example of TheLoanFactory, which identifies itself as a CLS, it has integrated different functionalities or in other words third party systems in the form of bricks to complement its offer. Such as electronic signature, KYC (identity verification) services, calls to credit bureaus, calls to AML and PEP type lists, scoring on Open Banking data, CRM, etc. And all this thanks to an API gateway.  

Protecting your Data

Migrating to a digital solution always raises questions about data protection, both for the financial institution’s data, but especially for the users’ data. Having a cloud-based architecture is as secure as traditional architectures. The cloud is preferred over on-premise servers because of the shared responsibility for security, which reduces the workload for organizations. Many cloud lending platforms use cloud computing.  

Financial institutions will privilege a service such as the one provided by IBM Cloud for Financial ServicesIBM. This is a system based on artificial intelligence solutions that allow banking entities to reduce risk, accelerate innovation and reduce operational expenses, while complying with regulations, such as the RGPD. Circeo is currently part of a growing ecosystem of partners with IBM.  

In conclusion, migrating to a Cloud Lending platform means opening up to new opportunities. It gives the possibility to have a technological hub in the credit ecosystem and to be able to integrate third party players and systems in a centralized way. It also provides flexibility to respond to regulatory or market changes, cost savings, improved customer experience and enhanced security.     

Written by: Eva PELLETIER