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Why A New Account Processing System Should Be A Priority For 2020

November 11, 2019 at 2:59 PM

Financier_Logo_blackRecently Principa announced their partnership with UK-based Welcom Digital. Welcom Digital’s platform Financier is one of the leading account processing platforms. Principa is now the sales and delivery partner in South Africa for Financier. We speak to Principa’s Eric Hay – a technical specialist with over 25 years’ experience with credit systems include account processing systems – who has been now appointed technical delivery head for Financier.

1. How have account processors changed over the years?

The biggest change over the years has been in breaking down the components of account processing into specialist solutions. Originally, account processors did it all: account origination, management and collections. These solutions would authorise spending, manage credit limits and switch transactions to 3rd parties. The sheer amount going on in these solutions make them difficult to maintain and unable to quickly react to market changes.

FinSmart Universe1Over time specialist solutions came to be, which did the job much better. Account processors too became specialist. Incorporating tools like business rules management systems (BRMS) and configurable integration layers make these specialist solutions highly flexible. The FinSmart platform is a new generation account processing solution that offers a high degree of configurability through Financier for account processing, AppSmart for originations, CollectSmart for collections and recoveries, DecisionSmart for business rules and BridgeSmart to easily integrate all the components.

Another point to make is that account processors are beginning to migrate away from the mainframe.

2. What are the challenges with a mainframe solution?

I think that the biggest challenge has to be cost followed closely by flexibility and ease of integration. In addition to platform costs being higher than alternatives, the very nature of the mainframe environment adds to the cost. It is more difficult to test individual changes, and mainframe resources tend to be specialised in what they do. There are no “full-stack” developers. This leads to bigger teams and generally slower turnaround times.

While parameterisation offers a degree of flexibility, it does not compare to that of rules engines. Entire processes can be configured in DecisionSmart with BridgeSmart fetching data from Financier and other sources, calling DecisionSmart and updating the result to Financier.   

3. How is the account processor architecture different with the new generation of account processors like Financier?

The difference is in the tools available to the client, allowing them to implement change with very little IT technical support. For instance, the Financier “additional information” capability allows users to add new data fields at a customer or agreement level. Financier workflow allows a user the ability to read customer or agreement data, perform calculations, implement conditional splits and update data to the account or agreement. Integration with BridgeSmart makes integration to any number of data or decision services simple. This combination allows the client to be agile, innovative and self-sufficient.

4. In the UK, there is pressure on credit granters to offer different credit options to customers. How is Financier suited to do this?

I think the first important thing to note is that SA (and other countries) often follows the UK from a legislative perspective, whether it be consumer protection, data protection, debt rehabilitation, etc. If it is happening in the UK, then there is a good chance we will see it in SA in the next few years. And so, we will probably see pressure on credit granters (for example retailers) to offer variety in the future.

To answer the question, though, Financier allows you to build both product and sub-product. You can quite easily clone a product/sub-product and make interest, fee or term adjustments on the clone. There are currently 23 different interest calculations, and Financier can cater for a plethora of fee structures whether they are fixed, variable or conditional based.

Through catering to their different client’s needs over the past 40 years, Welcom Digital has incorporated many of the requirements as configurable settings or processes within Financier.

In addition to this, the integration of SmartSuite to Financier allows users easy access to additional data sources, services and complex decision solutions to offer the most appropriate product to the client.  

5. How long does Financier take to deploy?

Welcom Digital have deployed Financier in as little as three months. Some deployments have run considerably longer. The factor most affecting the length of time to deploy is whether data-migration is necessary. As a core system within the organisation it is important that a rigorous deployment process is followed. Welcom Digital and Principa (as South African deployment partners) follow a very detailed process to ensure Financier is deployed correctly.

6. What industries could benefit from adopting Financier?

Financier has been deployed at several different types of organisations. These range from unsecured lenders, fashion retailers, furniture retailers, SME loans, vehicle finance houses, insurers, medical loans, mobile loans and several others.

7. What size companies would be suited to adopt Financier?

Financier has been adopted by companies that manage many millions of agreements right down to start-ups who still need to onboard their first customers. The pricing structure is normally a rental model, and for start-ups Principa/Welcom offer a low-and-grow model. More information is available on request.

To learn more about Financier, click here or get in touch to discuss how Financier could be implemented at your company.

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Eric Hay
Eric Hay
Eric heads the projects to integrate our proprietary software and an industry-leading loan management solution to produce an exciting new platform to manage the customers across the credit life cycle. He is responsible for managing integration, client relationships and driving sales of the new platform in South Africa and the UK.

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The 7 types of credit risk in SME lending

  It is common knowledge in the industry that the credit risk assessment of a consumer applying for credit is far less complex than that of a business that is applying for credit. Why is this the case? Simply put, consumers are usually very similar in their requirements and risks (homogenous) whilst businesses have far more varying risk elements (heterogenous). In this blog we will look at all the different risk elements within a business (here SME) credit application. These are: Risk of proprietors Risk of business Reason for loan Financial ratios Size of loan Risk industry Risk of region Before we delve into this list, it is worth noting that all of these factors need to be deployable as assessment tools within your originations system so it is key that you ensure your system can manage them. If you are on the look out for a loans origination system, then look no further than Principa’s AppSmart. If you are looking for a decision engine to manage your scorecards, policy rules and terms of business then take a look at our DecisionSmart business rules engine. AppSmart and DecisionSmart are part of Principa’s FinSmart Universe allowing for effective credit management across the customer life-cycle.  The different risk elements within a business credit application 1) Risk of proprietors For smaller organisations the risk of the business is inextricably linked to the financial well-being of the proprietors. How small is small? The rule of thumb is companies with up to two to three proprietors should have their proprietors assessed for risk too. This fits in with the SME segment. What data should be looked at? Generally in countries with mature credit bureaux, credit data is looked at including the score (there is normally a score cut-off) and then negative information such as the existence of judgements or defaults; these are typically used within policy rules. Those businesses with proprietors with excessive numbers of “negatives” may be disqualified from the loan application. Some credit bureaux offer a score of an individual based on the performance of all the businesses with which they are associated. This can also be useful in the credit risk assessment process. Another innovation being adopted internationally is the use of psychometrics in credit evaluation of the proprietors. To find out more about adopting credit scoring, read our blog on how to adopt credit scoring.   2) Risk of business The risk of the business should be managed through both scores and policy rules. Lenders will look at information such as the age of company, the experience of directors and the size of company etc. within a score. Alternatively, many lenders utilise the business score offered by credit bureaux. These scores are typically not as strong as consumer scores as the underlying data is limited and sometimes problematic. For example, large successful organisations may have judgements registered against their name which, unlike for consumers, is not necessarily a direct indication of the inability to service debt.   3) Reason for loan The reason for a loan is used more widely in business lending as opposed to unsecured consumer lending. Venture capital, working capital, invoice discounting and bridging finance are just some of many types of loan/facilities available and lenders need to equip themselves with the ability to manage each of these customer types whether it is within originations or collections. Prudent lenders venturing into the SME space for the first time often focus on one or two of these loan types and then expand later – as the operational implication for each type of loan is complex. 4) Financial ratios Financial ratios are core to commercial credit risk assessment. The main challenge here is to ensure that reliable financials are available from the customer. Small businesses may not be audited and thus the financials may be less trustworthy.   Financial ratios can be divided into four categories: Profitability Leverage Coverage Liquidity Profitability can be further divided into margin ratios and return ratios. Lenders are frequently interested in gross profit margins; this is normally explicit on the income statement. The EBIDTA margin and operating profit margins are also used as well as return ratios such as return on assets, return on equity and risk-adjusted-returns. Leverage ratios are useful to lenders as they reflect the portion of the business that is financed by debt. Lower leverage ratios indicate stability. Leverage ratios assessed often incorporate debt-to-asset, debt-to-equity and asset-to-equity. Coverage ratios indicate the coverage that income or assets provide for the servicing of debt or interest expenses. The higher the coverage ratio the better it is for the lender. Coverage ratios are worked out considering the loan/facility that is being applied for. Finally, liquidity ratios indicate the ability for a company to convert its assets into cash. There are a variety of ratios used here. The current ratio is simply the ratio of assets to liabilities. The quick ratio is the ability for the business to pay its current debts off with readily available assets. The higher the liquidity ratios the better. Ratios are used both within credit scorecards as well as within policy rules. You can read more about these ratios here. 5) Size of loan When assessing credit risk for a consumer, the risk of the consumer does not normally change with the change of loan amount or facility (subject to the consumer passing affordability criteria). With business loans, loan amounts can range quite dramatically, and the risk of the applicant is normally tied to the loan amount requested. The loan/facility amount will of course change the ratios (mentioned in the last section) which could affect a positive/negative outcome. The outcome of the loan application is usually directly linked to a loan amount and any marked change to this loan amount would change the risk profile of the application.   6) Risk of industry The risk of an industry in which the SME operates can have a strong deterministic relationship with the entity being able to service the debt. Some lenders use this and those who do not normally identify this as a missing element in their risk assessment process. The identification of industry is always important. If you are in manufacturing, but your clients are the mines, then you are perhaps better identified as operating in mining as opposed to manufacturing. Most lenders who assess industry, will periodically rule out certain industries and perhaps also incorporate industry within their scorecard. Others take a more scientific approach. In the graph below the performance of an industry is tracked for two years and then projected over the next 6 months; this is then compared to the country’s GDP. As the industry appears to track above the projected GDP, a positive outlook is given to this applicant and this may affect them favourably in the credit application.                   7) Risk of Region   The last area of assessment is risk of region. Of the seven, this one is used the least. Here businesses,  either on book or on the bureau, are assessed against their geo-code. Each geo-code is clustered, and the projected outlook is given as positive, static or negative. As with industry this can be used within the assessment process as a policy rule or within a scorecard.   Bringing the seven risk categories together in a risk assessment These seven risk assessment categories are all important in the risk assessment process. How you bring it all together is critical. If you would like to discuss your SME evaluation challenges or find out more about what we offer in credit management software (like AppSmart and DecisionSmart), get in touch with us here.

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