There’s a deepening uncertainty for bank credit exposures. Rising interest rates, constantly changing regulatory & business dynamics, and volatile macroeconomic atmosphere are leaving Risk Heads at lender organisations scrambling for new ways to navigate current conditions and spot potential opportunities.  

The challenge lies not only in formulating new risk/lending strategies but also in aligning the entire organisation to these new approaches and implementing them swiftly in routine credit decisioning processes.  

To address this overarching problem, lenders must reassess the entire credit value chain, and address challenges and opportunities related to origination and underwriting, credit portfolio management, loss mitigation, and credit modelling & advanced analytics.  

Creating lending policies that are factored for emerging risks throws a complex and multi-faceted challenge for risk teams.   The many problems across the credit value chain and their solutions  

1. Extended time to market: Risk teams struggle with long turnaround time (TAT) for making both strategic and routine adjustments to lending policies due to dependency on IT teams.

   Solution: Sentinel is designed to be act as a self-service tool that eliminates dependency on code/developers to create or change business rules powering credit decisions. 

2. Inflexibility: In digital lending, the frequency of adjustments to interest rates to cater to rate hikes, risk-based pricing, or partnership pricing structures is high. Lack of flexibility to change business rules erodes lender’s competitive advantage. 

   Solution: Sentinel allows risk teams to easily trace business rules and their interdependencies to make changes to them in a matter of minutes. It also offers a sandbox experience to policy makers for testing and validation.  

3. High cost: Frequent changes to business rules require deployment of considerable engineering resources — a costly affair — that too for mundane tasks such as publishing policy changes, running simulations, and retrieving analytics.  

   Solution: Sentinel is designed to help lending organisation focus on what they do best —lending policy creation. With Sentinel, lender can save on engineering resources for operations and maintenance of digital lending operations. 

4. Complexity: Modelling a lending process is complex. It goes beyond simple if-else conditions to involve intricate waterfall structures, varied terms based on partner channels, adaptive checkout journeys based on risk profiles, and more. 

   Solution: Sentinel's workflow builder offers a visual tool to automate intricate workflows effortlessly. With this intuitive tool, you can dissect complex lending processes into smaller, independent modules and seamlessly sequence them via simple drag-and-drop actions.   

5. Inability to test new strategies: Given the increased focus on new, niche borrower segments, historical data traditionally used to support credit decisions may prove irrelevant. Hence, it’s crucial to equip risk teams with innovative means to test new strategies, without raising risk limits.  

   Solution: Sentinel’s Canary Mode feature was created to tackle this challenge. It allows you to test up to five new policies in a live production environment. In this setup, the primary policy is activated to make real-time decisions, while the canary policies run discreetly in the background, recording their decisions for later analysis. 

6. Poor risk reporting: Risk teams often struggle with visibility into digital lending operations obscuring their view of where and why potential borrowers get rejected.  

   Solution: Sentinel serves as the single source of truth for digital lending operations, offering insights into user approvals, rejections, and reasons for flags at each stage. It offers a centralised view of applications marked for manual review and a comprehensive overview of policy and loan programme performance. This effectively resolves the typical visibility challenges encountered by risk teams.   

7. Partnership-based lending challenges: Digital lenders are increasingly partnering with anchor platforms for loan origination. However, there are three major hurdles that lenders must overcome to make partnership-based lending seamless. Firstly, lenders find it difficult to create and manage multiple policies tailored to unique requirements of each partner. Secondly, partner platforms often have diverse expectations regarding borrower experience, complicating the standardisation of lending processes. Lastly, the terms of partnership agreements vary widely, necessitating dynamic pricing strategies.

   Solution: Sentinel empowers lenders to create policies and journeys tailored to requirements of partner platforms and implement them directly within the live environment of their partner channels. With Sentinel's workflow builder, you can orchestrate journey touchpoints to suit partner expectations — typically aimed at minimising friction, and thereby reduce drop-offs or increase CLTV of partner platforms. Most importantly, you can implement a dynamic loan pricing mechanism adjusted to terms of each partnership agreement.

8. Opacity: Risk teams lack the necessary analytics required to construct workflows that are both efficient and optimal. 

   Solution: Sentinel equips risk teams with deep analytics to analyse performance at the level of individual rules, policies, portfolios, and more. You can aggregate a range of analytics reports of your choice for easy visualisation and diagnose the efficiency and performance of your workflows from multiple angles.  

9. Scalability issues: Scalability is a main challenge for digital lenders as they struggle to manage growing data volumes, maintain scalable business logic, and integrate diverse data sources & third-party APIs.  

   Solution: Here are four ways in which Sentinel addresses the scalability challenge;

    

   a. Equipped to handle large volumes of data 

   b. Aggregates data from multiple sources, including alternate data focused on new-to-credit segments, should lenders want to expand to new risk cohorts 

   c. Integrates with external data sources/ third-party APIs easily, allowing for the development of a scalable business logic 

   d. Generates advanced analytics and supports scorecards, supporting scalability as the system deals with more sophisticated decision models. 

   
   

10. Case management: Loan underwriters grapple with high volume of cases marked for manual review and struggle with quick resolution owing to siloed data and scattered documentation. 

    Solution: Sentinel’s case management solution addresses this by enabling a centralised view of all manual review cases. Underwriters can access analytics and download Credit Appraisal Memos (CAMs) for speedy resolution. This also helps with understanding the nature of exceptions, which could further inform automated decisions, reducing the number of manual review cases.    

11. Operational agility gap::  Lenders have no means to address risk incidents (for e.g. faulty policy made live) directly in the production environment.  

    Solution: Sentinel’s one-click rollback feature equips lenders to immediately switch to a previous lending policy in case of significant deviations from expected outcomes or instances of fraud.  

12. Lack of early warning systems: Monetary loss owing to erroneous disbursements are not uncommon in digital lending. This is because lenders currently lack an effective mechanism to promptly identify significant deviations from expected outcomes in their operations.   

    Solution: With Sentinel, lenders can set monitors to track deviations in real-time and provide immediate notifications. This proactive approach ensures timely awareness and allows for swift corrective actions, enhancing operational efficiency and risk management. 

13. Inadequate access controls: Many digital lending systems currently lack an organized method for managing user access rights, leading to potential security vulnerabilities and operational inefficiencies. 

    Solution: Sentinel’s Role-Based Access Control (RBAC) feature ensures a structured and secure system where access rights are assigned based on roles, enhancing security and enabling seamless collaboration within risk teams.  

Want to launch digital credit products at scale? Talk to our experts to know how you can leverage Sentinel to run AI/ML models to instantly deliver credit decisions via real-time APIs.