5 Keys to a Successful Lending Portfolio Migration

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Migrating your lending portfolio to an improved technology system is among the most challenging initiatives for credit unions and banks. Though every lender wants a modern tech stack, the costs and difficulties of migrating data to a new platform can sometimes outweigh the benefits. This is why so many credit unions and banks are still scraping by with legacy infrastructure.

There are three key challenges that lenders face when embarking on a migration. The first is the risk of data loss or corruption. It’s common for unexpected discrepancies to arise, even with rigorous testing. Even seemingly simple issues like rounding can lead to disagreements between your new and old systems. A worst-case scenario is for your borrowers to log in and see missing or incorrect data in their accounts. This can jeopardize your customer relationships and create compliance headaches, even leading to millions of dollars in fines.

The second and third challenges common in migrations—the cost and the timeline—are intertwined. Lenders are typically dependent on their new service provider to conduct the migration. If the vendor approach is manual, inefficient, or error-prone, the timeline lengthens, increasing cost. It’s not uncommon for migrations to take six to 12 months and cost hundreds of thousands of dollars or more. Further, if you encounter challenges along the way, your progress may be further delayed by your vendor’s backlog.

Notwithstanding these significant migration obstacles, the opportunity cost of continuing to operate on legacy infrastructure is increasing. For starters, today’s lenders must have the infrastructure to offer the new and modern asset classes their customers are demanding, like BNPL. Lenders must also be able to accommodate evolving regulations with a high degree of flexibility. For many lenders, complying with even long-standing regulations, like the Servicemembers Civil Relief Act, presents technical challenges and requires significant manual work. Further, lenders need a modern platform that can easily integrate best-in-class vendors, equip their agents with robust servicing capabilities, and leverage automation and AI/ML to improve ROI.

Although the majority of tech vendors continue to use antiquated migration processes, things are starting to move in the right direction. If you keep the following five criteria in mind, you’ll be able to identify these vendors, significantly decreasing your risk and shrinking your costs and timeline when you migrate to your new platform.

Minimize the volume of data

Though it may not be obvious, your choice of servicing platform will determine the volume of data that you need to migrate. Many legacy systems require you to migrate every single data point associated with each loan. A better approach is to find a modern system that can recalculate daily interest accrual and interest/principal splits for payments based on a small subset of loan data. This gives you access to the full history for each loan in your new system while drastically simplifying the migration.

It goes without saying that the more data you move, the longer it takes to pull this data from your current loan management system, especially if gathering that data involves manual work. It also means a lengthier migration process and a greater chance of mistakes and inconsistencies transferring to your new system.

Avoid systems that recommend migrating a “snapshot” of each loan as a way to cut down on the work of migration. This won’t give you access to the full loan history in your new system, which will hinder your operations and compliance teams going forward.

Test in a “sandbox”

Out of the three biggest migration concerns for lenders—risk, cost, and timeline—the risk of unreliable or incorrect data is the most serious. It has the potential to hamstring agents, create compliance risk and upend customer relationships.

That’s why it’s imperative that your new system enables you to test your migrated loans in a sandbox system, an isolated testing environment that allows users to try out programs without affecting the large application. This way you’ll be able to verify that your configurations are correct, interest is being accrued as intended, and your data is moving in the way you expect.

Use APIs

Legacy servicing platforms typically rely on file-based migration methods. This introduces significant additional risk for large lending portfolios because it involves manual work. Additionally, seemingly simple issues like rounding can be difficult to remediate at a large scale. By contrast, modern migrations that use APIs to automate data movement save time and unlock automated approaches to ensuring data integrity.

Most servicers (though not all) still require significant involvement from their own team or from a third party during the migration process. This underscores the need to select a vendor that has minimal manual involvement in the migration, as this quickly drives up costs. Many servicers have significant backlogs for this type of manual support, which is one reason portfolio conversions almost always take longer than planned.

Programmatically reconcile interest accrual

Every system accrues interest a little differently. This means that there may be small discrepancies between the interest that shows up in your new and old systems. Clearly, it’s important to ensure that your customers never end up paying more than they originally agreed to. Your new servicing system should be capable of enforcing a finance charge cap to make this easy. Your new servicing system may also allow you to programmatically apply fees or credits to reconcile balances, automating the reconciliation process and saving manual effort.

Don’t forget about servicing cases

If you have operations cases in your current CRM to track agent workflows, plan for how you’ll service loans going forward. Some streamlined migration methods, like the above-mentioned snapshots, don’t give you a full window into loan histories and borrower interactions. This makes it very challenging to provide a positive and compliant customer experience going forward.

Whatever servicer and migration method you choose, ensure your new system makes it easy for you to migrate your existing servicing cases alongside your loan data.

About Author:
Eddie Oistacher is one of today’s foremost experts on modern lending technology. Eddie is CEO and Co-Founder of Peach Finance, the leading modern loan management and servicing technology platform, which helps lenders quickly launch and confidently scale new lending products. Previously, Eddie led the product team that built Affirm’s loan management, servicing and compliance software from the ground up.

At that time, there was no lending technology platform with the power to adapt to evolving technology, markets, regulations and consumer preferences. Eddie founded Peach to solve this problem, creating the first platform designed to power the lenders shaping our financial future—regardless of industry, scale or asset class.

Eddie lives in the Bay Area with his wife and three kids.


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