APIs Improving Small Commercial Loan Underwriting

Several components are involved in underwriting small commercial loans, such as assessing a borrower’s creditworthiness, verifying their legitimacy, and maintaining appropriate compliance processes to collect relevant KYC or KYB information. These challenges can be approached in a variety of ways, and financial institutions (FIs) had previously been free to develop their own solutions that leveraged their unique strengths. 

In an ordinary business environment, lenders could specialize in different aspects of small commercial loan underwriting to serve unique segments of the market. The extraordinary circumstances of the COVID-19 pandemic made those strategies obsolete.

The pandemic-driven economic crisis caught lenders between two opposing forces: they were pressured to distribute funds that could keep small business afloat, and they were targeted by criminals trying to steal government stimulus money. Firms now needed to distribute funds quickly without compromising the accuracy of their lending decisions. 

This challenge meant different things to individual lenders. Some firms had robust processes in place to verify identities, but they were less skilled at determining creditworthiness. Other companies had strong compliance processes, but they needed to improve their customer conversion rate and decrease the cost of new customer acquisitions. Narrow profit margins in the small commercial underwriting space meant that none of these firms could afford to overpay for a generic, “one size fits all” product. 

The flexibility of the AWS platform allowed Demyst to create custom-built API solutions, automating  access to data sources that clients had already been using, and making it possible to add incremental new sources that further strengthened their small commercial lending processes. 

One such client was a leading financial institution operating in 32 markets, providing banking services to more than 8.5 million retail and business customers. It worked with Demyst to develop an online business lending application whose sophisticated technology allowed the lender to provide a decision on conditional lending in less than 20 minutes and full approval within two days.

Another online lender was looking to expand its nascent SME lending and cash advance offerings, but it was relying on information from a single credit bureau and using off-the-shelf scoring products to price risk. Its ability to grow was limited by its need to evaluate and score borrowers effectively. Demyst provided a solution that linked information from 3 business bureaus and 12 non-bureau sources to increase revenue, reduce losses, and accelerate credit decisioning. 

Demyst also developed a solution for a financial institution that performed time-intensive manual reviews of potential customers. It needed to collect information to meet KYB requirements, perform basic creditworthiness checks, and verify the identity of business owners. With AWS cloud infrastructure, Demyst helped the client automate its processes for more than 50% of its applicants, decreasing the time and costs involved in initiating new loans. 

More businesses are conducting their activities online, and temporary pandemic-driven changes have now become established practices. Lenders will need to adapt their own processes to meet the demands of the small commercial underwriting market. 

The adaptability of the Demyst platform comes from its access to thousands of data connectors from hundreds of data providers — its speed and flexibility enable rapid, scalable solutions capable of meeting the most difficult challenges.