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Insights and Expertise

Heads up! upgrade their systems due to cost or resource constraints.
Around 15 percent of participants in Carleton's survey
The lending industry indicated that upgrading their systems would cause
serious disruption to their business.
may be heading What is interesting to note is that 5 percent said they
were happy with their current system. This means 95
percent of respondents recognize the need to upgrade and
into a crisis understand their current systems may be holding their
businesses back, but many cannot yet afford to modernize.

This points to a potential crisis. Many companies are
spending their resources on maintaining their current
systems, rather than developing new systems. In fact,
some companies indicated that up to 80 percent of their
budget was spent purely on maintenance.

However, many also understood that if they did upgrade
their systems, then maintenance costs would go down.

By Chat Otar Why this looks like a crisis
Lending Valley The main issue is legal compliance. Many lenders are
moving closer to falling foul of the law, and the longer
he lending industry is under growing pressure they delay modernization, the greater the risk becomes.
to modernize its systems to meet new compli- However, this is not the only issue and, for many
ance and security requirements while continu- companies, not the most important one.
T ing to support business growth. However, a
new survey from Carleton Inc. revealed that while 87 Nearly a quarter of respondents said they believed that
percent of lenders surveyed are in the process of transi- their current systems are not accurate in their lending
tioning from legacy to modern platforms, only 8.7 percent calculations. This could impact legal compliance,
of lenders have fully completed the process. trigger enforcement and harm borrowers along with the
company's reputation. This can lead to significant losses
Seventy-five percent of respondents said they still rely for businesses in this situation.
primarily on legacy systems. This indicates that the
lending industry may not be evolving as fast as it should Since lenders are not updating their systems fast enough,
be. there is a fear that, eventually, regulations will rapidly
outpace system upgrades. More than 10 percent of
Carleton is a provider of loan calculation and disclosure companies reported that their processes are so slow that it
solutions. The company helps lenders navigate increasingly can take upward of a year to adapt to a regulation change.
complex compliance requirements while automating many If a lender is hit with too many changes to make at once,
aspects of the lending process. Because it serves many of the lender could be unable to do so and end up looking at
the nation's largest lenders, it has a strong vantage point serious fines.
from which to assess the industry's migration from legacy
to modern systems. What this means for the future

Lenders must evolve The outlook remains challenging for lenders that are as
yet unable to upgrade their systems. There are too many
The survey indicated that lenders understand they need financial limitations in place and, unless lenders can
to evolve. Most lenders understand the risk they are dedicate vast sums of cash to handling the problem, it is
undertaking by not upgrading their systems. Indeed, likely lenders will be dealing with this problem for years to
76.5 percent of those surveyed said their need to move to come. The challenge is no longer recognizing the need for
more modern systems is urgent, yet many still have no modernization. It's finding the money, time and resources
firm timetable for completing the transition. This means it to make it happen before compliance requirements move
may be years before those who define their need as urgent even farther ahead.
come close to modernizing their systems.
Why lenders are not upgrading Chad Otar is CEO of Lending Valley Inc. For information about the
company, please visit www.lendingvalley.com. To reach Chad, send an
Unfortunately, the lending market is not in the best position email to chad@lendingvalley.com.
at the moment. Almost a third of lenders are unable to

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