Data, Where Art Thou?
Banks and credit unions rely on their borrowers for updated information, which they in turn use to make accurate credit decisions. Financial statements, tax returns, collateral appraisals, rent rolls, loan agreements, economic data, credit reports, images, etc. all factor into credit decisions, making document and data management a big deal for bankers.
If the institution uses a desktop-based software or file system, there are some positives and likewise some negatives. It’s the same situation with web-based or cloud-based applications.
Practically, here are data-management criteria to consider when choosing between systems for your bank or credit union.
This concept has come up repeatedly in the context of preparing for the FASB’s CECL model. But the benefits of having information readily available extends beyond loan-level archives to include financial-statement data from borrowers, as well as other types of information. To check the “accessibility” box, any software that an institution uses should offer:
1. Query-able format – in working with institutions across the country, there have been occasions where Abrigo consultants go onsite, and the bankers are enthused because “They have all the data!” Then they proceed to handover PDF documents… Suddenly those institutions face a data-entry problem because those PDFs – without an OCR technology – really won’t help them meet the data needs with CECL or other portfolio reporting. There are some new technologies like the Electronic Tax Return Reader that help alleviate but do not solve this problem.
2. No expiration date – some institutions use data warehouses to store information but only for a set number of months or quarters. While the warehouse may be more than sufficient within that period, it would make historical reporting very difficult without another archive method in place.
3. A central location – if the application will be housed on different workstations or even at different branches, will the data be accessible from other stations? How easy would it be to get customer support or consulting help if the support personnel cannot access the same information? Disparate spreadsheets create similar obstacles.
4. Back up – any data application that a bank or credit union chooses to employ should offer some type of data redundancy or back-up service. In the unfortunate event of a natural disaster or technology blunder, something as important as your institution’s data can’t be at risk. The “accessibility” factor has to be constant.
5. Transferability – if/when the institution elects to leave one vendor to move to another one, will the institution be able to take that data with them? How difficult would the transition be? Some vendors, including Abrigo, see institutions commonly making these changes and have prescriptively built conversions that ensure the institution does not lose any of this information when adopting an Abrigo solution.
It’s often assumed an institution’s data is most secure when kept on the institution’s own servers and machines. But while the institution may have top-notch security, that’s not the only option. In fact, it may force the institution to (1) spend more money for their own IT resources including people and equipment, (2) limit the productivity of officers who need to work onsite with borrowers or may choose to work from home and (3) potentially make it impossible to work with a CUSO or other loan review consultant without having them in office. This is when USBs or remote-in desktops – which may pose their own risks – are frequently leveraged.
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Cloud and web-based applications, as an alternative, likely check the “security” box, too. These vendors are often subjected to as rigorous of IT audits as the banks themselves and, as a result, have built up security measures equal to a bank. Clearly, information security will be a component of any institution’s due diligence procedures, so it is wise to ask questions like how access to data can be restricted (by IP address or other means) as well as redundancy and transferability of data.
IT Resources Required
We touched on this before, but the price of software is more than just a license fee. To help determine the full cost of an application, ask about:
- Hardware the institution has to buy and support
- Costs for enhancements
- Costs for maintenance, training and customer support
- Fees that may arise to convert existing data sources or integrate into core systems
- Time that goes into implementation
- Time dedicated to applying updates for each workstation
- Time dedicated to maintaining the hardware
- Time wasted by-product downtime or updates
- Potentially fees paid to a consultant to perform additional vendor due diligence
This list isn’t exhaustive. However, for an institution evaluating different software options, it provides some practical and meaningful discussion points.