Risk management in finance is a hot topic. Everything is a risk – finance lenders deal with market risk, credit risk, liquidity risk, and operational risk. This six-part blog series identifies the top risks facing lenders in all areas of secured finance – equipment, wholesale, working capital (ABL / factoring), and automotive finance. Then we’ll take a closer look at how SaaS technology can mitigate the top risks weighing on the minds of secured finance professionals. And how eliminating risk can drive growth with the right finance technology.
What’s the business risk for secured finance lenders in 2023 and beyond?
In its recent annual survey of 750 CFOs, US Bank reported that risk management was the top priority for finance leaders in all markets. And nearly half said they struggle to balance mitigating risk and driving growth.
With capital spending a perennial business concern along with the precarious economy, it’s more important than ever to make sure you get maximum mileage out of your investments.
Top risks for secured finance
The top risks currently trending, which we anticipate will impact business over the next 12 months, fall under the following categories.
- Rising interest rates
- Anticipated recession
- Supply chain issues
- Pandemic, political, and global events
- Customer behaviors/market demand
- Emerging technology such as connected assets, artificial intelligence (AI), machine learning, internet of things (IoT), Industry 4.0
- Localized compliance requirements, such as California and New York disclosure and the UK’s Consumer Duty
- Environmental, Social, and Governance (ESG)
- Scope 3 emissions on all assets (including leased assets)
- Ongoing state and federal compliance
- Internal compliance
Cybersecurity and fraud risk
- Cybersecurity threats and higher ransom payments surging
- Causing trillions of dollars in damage annually (source: McKinsey.com)
- Ransomware-as-a-service is a thing – a pay-for-service malware
- Financial services a top 10 target for ransomware (source: TechTarget)
- Data privacy and protection and liability
- Stringent regulations aimed at better-protecting consumers which may result in fines
- Brand trust and reputation risk
- Nearly 10% of respondents in a recent McKinsey survey severed ties with a supplier after learning about a data breach
- More jobs than there are people
- Attracting and retaining talent
Additional risks for secured finance lenders
In addition, there are the ongoing market risks, credit risks, liquidity risks, as well as operational system risks from manual human errors and outdated legacy systems and spreadsheets. Customers are demanding and expecting faster results. This need for speed to remain competitive and do more with less staff due to the great resignation and fewer people entering the workforce lends itself to introducing further risk.
This all sounds ominous and overwhelming.
But it doesn’t have to be if you do it right. And how do you do it right? You mitigate risk and drive business growth with the right fintech partner and the right technology.
What technology should I invest in to mitigate risk?
There’s not a single off-the-shelf tool or product to mitigate all risks. So the best way for secured lenders to mitigate risk is to create a seamless user interface – so all your systems are connected. This allows you to access real-time data from multiple sources to proactively identify and address any potential for risk.
With the right technology, nothing should surprise you.
But where to start? Solifi’s Open Finance Platform sets up the foundation to integrate current and future automated technology and disparate systems, such as APIs and datastreaming. And you’ll reap other benefits such as optimized workflows, data insights to make better business decisions, cost-savings, and improved customer experiences. Combined, this is the perfect formula to drive business growth, which, as mentioned previously, is something that 50% of finance professionals struggle to balance.
Here are the top emerging technologies in secured finance to help you mitigate risk and drive growth.
- Cloud-hosted SaaS technology
- Evergreen IT
- Standardized secured finance software with an Open Finance Platform
- Real-time data access via APIs, reporting, datastreaming
Move to a cloud-based SaaS technology provider
Moving away from on-premises technology is a great start to mitigate risk. While a cloud-hosted model provides advantages over on-prem, a Software-as-a-Service model is a much more powerful option. And here’s why.
An experienced SaaS provider, like Solifi, delivers much more than hosting on the cloud. In our case, we deliver a service that manages security, redundancy, backups, disaster recovery, governance, and regular updates, to name a few. And all of these features help you mitigate risk so you can focus on growing your business.
A cloud-based SaaS technology provider takes care of the software upgrades, so you don’t need to worry about it. Solifi’s software tools automate those low-value repetitive manual tasks. This enables you to focus on the crucial touchpoints with your customers.
SaaS also helps with the talent gap. If the labor shortage – especially with IT – is one of your highest risks, then SaaS is a perfect solution.
And if unfulfilled positions are not yet one of your risks, they may soon be.
A recent Korn Ferry study revealed that we’ll see a global human talent shortage of more than 85 million people by 2030. They predict this could impact up to $8.5 trillion in unrealized annual revenues.
A SaaS solution creates a scalable, repeatable, and trusted environment to mitigate risks – human errors, security, fraud, competition, and more. Automating your workflows means your resource-strained IT and other team members can focus on higher-value touchpoints to grow your business and improve the customer experience.
And if capital spending is a priority in this precarious economy, SaaS helps mitigate that risk as well because you only pay for what you use – making it a viable solution for any company of any size.
Evergreen IT mitigates risk
Adopting evergreen IT is another technology trend in finance software to help you mitigate risk while growing your business.
A reliable platform is always evergreen. This means your technology is kept current with frequent and smaller upgrades. With evergreen IT, you experience less risk, less burden, fewer resource constraints, and a quicker time to value.
Evergreen IT mitigates risk and helps grow your business in a number of ways.
- Applications, services, and security patches stay current – mitigating risk from cyberattacks to protect your data as well as your customers’ data
- Integrates easily with third-party apps to create a seamless user experience – giving you access to real-time data insights and potential risks
- Limited business disruption since evergreen IT updates are more frequent, smaller, and typically happen after hours
- No need to tie up limited IT resources in manually updating individual computers
- Stay more competitive with the latest technology to meet customer demands, regulatory compliance
- Ensures nothing breaks what’s already working
Unlike upgrading on-premise systems once or twice a year, evergreen IT keeps you ahead of constant change and mitigates your exposure to risk. Gone are the days, weeks, or months you need to commit personnel in testing and deploying. That’s especially valuable with labor shortages today and in the future.
And the added value of evergreen IT is that lenders gain more time to focus on growing their business with high-value touchpoints with their customers. That’s because the fintech partner takes on the bulk of the responsibility to manage the finance lending software upgrades all behind the scenes.
Standardized secured finance software with Solifi’s Open Finance Platform mitigates risk
A growing trend in the secured lender space is moving away from customized software to a standardized solution. Modernizing secured finance technology can solve many of the pain points, delays, and risks associated with legacy, customized solutions.
Rapid changes in the industry, technology, business models, and customer behavior place critical demands on your IT resources and your legacy technology. Moving to a SaaS Open Finance Platform helps ensure your business remains competitive and reliable.
What is Solifi’s Open Finance Platform?
Like building a house, our Open Finance Platform serves as a foundation for secured finance lenders. You can run business applications on it in a smooth, secure, and scalable fashion, which will streamline your processes.
Increased efficiencies help minimize your labor-shortage worries, human errors that occur in manual steps, and concerns about the security of your sensitive data. Trusted by the world’s largest banks and financial organizations, as well as startups, our Open Finance Platform consistently meets AICPA standards for System and Organization Controls (SOC) 1 and SOC 2 Type II guidelines. This means we are delivering continuous assurance that your data – and your customer’s data – is always kept safe and secure.
Read our related blog post: What is SOC and why is it important for cloud computing?
A platform standardizes technology and normalizes use – removes the complexity of customized systems, eliminates redundancies, and introduces economies of scale and more efficient ways of working. Standardization means customers of any size can afford to transform operations quickly and easily, launch new products, start businesses, expand into new markets, and integrate portfolios – all to drive their business growth.
Successful secured finance lenders are embracing the mindset that they don’t need to customize their software. They can differentiate themselves in other areas, such as customer relationships or pricing. That’s because standardized technology means easy, upgraded solutions without the heavy lift or need for additional IT resources. And that removes a lot of pressure while navigating labor-shortage constraints.
Access data to understand real-time risk with APIs, reporting, datastreaming
Fraud is a hot topic when it comes to risk. How do you detect it? How do you manage it? How do you get ahead of it?
Accessing real-time data for data insights is how you can proactively manage risk. And the technology that helps you do that includes APIs, reporting, and datastreaming.
Right now, you probably have several systems where you extract data from several sources. And it’s likely they are not integrated, which means that they don’t talk to each other so you incorporate manual workarounds. By the time you do the workaround, that data is obsolete. So how do you stay in front of it when data is coming at you fast in many different directions?
That’s where the right technology can help. APIs, data streaming, and reporting connect your systems with other systems via third-party partners to retrieve the necessary data to turn these multiple sources into business insights. Through this technology, you can identify irregularities and flag potential issues to help you make better business decisions and mitigate risk for you and your customers.
How APIs mitigate risk and uncover hidden insights
API solutions, made possible through SaaS technology, allow different application technologies to share data, connect software programs, and talk to each other in real time. Those APIs create a bridge between multiple platforms and data sets using third-party applications.
Working with timely data from multiple sources sets you up for success so you can approach risk proactively rather than reactively. You want to see what borrowers and clients are doing in the market – not just with you – such as with trade agencies, credit agencies, and other systems. All these different sources of data are pieces of a complex puzzle providing more visibility to what’s happening with your loan or risk exposure.
Ultimately, these prebuilt and proven APIs integrate systems and provide actionable insights in real time so lenders can make fully informed business decisions, mitigate risk, and increase profitability.
Data streaming and reporting insights help mitigate risk
While data is important, responding to what the data insights reveal in real time is crucial. Some of the most valuable ways data streaming and reporting insights can help you mitigate risk include:
- Identify powerful analytics by integrating and analyzing real-time data to control risk and make appropriate adjustments quickly.
- Forecast the risk of your portfolios to mitigate losses like bankruptcy.
- Recognize portfolio risk and new lending opportunities with trend reports.
- For ABL lenders, monitor, examine, track, and calculate borrowing base versus asset base with credit-monitoring technology using complex algorithms to identify irregularities.
The goal of this technology is to increase productivity, eliminate errors, and make quicker decisions based on real-time data, which facilitates reporting and datastreaming to allow you to better assess the risks. This means that you can get out in front and prevent or minimize your losses while building trusting relationships with your customers.
Risky business and the need for speed
That sounds like a clue for movie trivia night. What’s not trivial is adopting the right technology to futureproof and protect your secured finance business and your customers’ data from as much risk as possible. Agile technology and data insights enable you to react and respond to any risk much faster than legacy software, spreadsheets, and manual workflows. SaaS on an Open Finance Platform is a proven finance risk management tool to address risks with labor shortages, cyberattacks, inflation, a recession, regulatory compliance, emerging technology, and more.
And there’s a bonus with overlapping priorities. While you – as a lender or lessor – reduce risk, gain efficiencies, and grow business with technology, you are also improving the customer experience by reducing the complexity and letting go of control with self-service capabilities and shared responsibility.
Ultimately, with the right fintech partner and the right technology, you can connect all your different systems to create a seamless user interface to mitigate risk. Customers don’t really care how you do it. They just want to know that their money is where it needs to be when they want it to be.
Customers will not give up their demand for speed. So know your value, and invest in the right technology, like Solifi’s Open Finance Platform, to minimize your risk and help you meet your business goals and customer expectations. And then invest in the right people to support it.
How to manage risk with SaaS technology
Read part 6: Managing risk: Using tech to fix the labor shortages