IT Science Case Study: Creating More Efficient Loan Transactions

Operational inefficiencies and lack of transparency in the merchant cash advance business can be a profit-killer. However, it’s possible to increase lenders’ operating margins, reduce market risk and still offer borrowers competitive rates. Here’s how the problem was solved.

This is the latest article in a new feature series in eWEEK called IT Science, in which we look at what really happens at the intersection of new-gen IT and legacy systems.

Unless it’s brand new and right off various assembly lines, servers, storage and networking inside every IT system can be considered “legacy.” This is because the iteration of both hardware and software products is speeding up all the time. It’s not unusual for an app-maker, for example, to update and/or patch for security purposes an application a few times a month, or even a week. Some apps are updated daily! Hardware moves a little slower, but manufacturing cycles are also speeding up.

These articles describe new-gen industry solutions. The idea is to look at real-world examples of how new-gen IT products and services are making a difference in production each day. Most of them will be success stories, but there will also be others about projects that blew up. We’ll have IT integrators, system consultants, analysts and other experts helping us with these as needed.

Today’s Topic:  Getting Big Bottom-Line Rewards from More Efficient Loan Transactions

This IT Science article was put together using information from Biz2Credit, which needed to smooth out operational inefficiencies in loan creation and allow more transparency throughout financial transactions. Biz2Credit is a hub connecting small business owners with lenders and service providers who seek solutions based on their online profiles.

The company engaged AuraBlocks, an integrator that enables blockchain-based systems of record for enterprises, to solve the problems it was having.

Name the problem to be solved: There are often operational inefficiencies and a lack of transparency in the merchant cash advance (MCA) business. By developing a solution that addresses that problem, it’s possible to increase lenders’ operating margins, reduce market risk to their MCA book and ultimately offer borrowers competitive rates.

Describe the strategy that went into finding the solution:  The CEO and CTO of AuraBlocks (Richard Brownstein and Kiran Murphy) took time with Biz2Credit’s CEO, chief risk officer and other senior leadership members to understand the MCA business. AuraBlocks is a member of Oracle PartnerNetwork, it is one of the few firms that specializes in the implementation of Oracle Blockchain Cloud Service.

As often happens with conventional loans, it was apparent that the MCA business also involves multiple parties with conflicting interests that transact with each other on a daily basis. As a result, the current transaction workflows produce friction and lack required transparency. AuraBlocks found that by deploying a platform that enables secure, transparent and frictionless transactions, Biz2Credit can offer new service offerings while leveraging borrowers’ financial KPIs (key performance indicators) to assess and mitigate risk.

List the key components in the solution:

  • Oracle IaaS Cloud and Blockchain Cloud Service 
  • Docker containers
  • Smart contracts developed using GO Programming Language 
  • Integration with Oracle GL NetSuite and Credit Card Merchant Files 
  • iOS Mobile SDK and Postman tools for mobile app development and testing

Describe how the deployment went, perhaps how long it took, and if it came off as planned:  Engineering the solution took a total of two months. Of those two months, 75 percent of the time was spent on product ideation, workflow design, UI/UX, Smart Contract and iOS mobile app development. Most of the iterative process was around upgrades to the smart contract code based on feedback from application validation cycles. the integrator employed daily sprint cycles to assess the progress of parallel teams working off well-articulated design specifications.

With three teams from two countries, the entire process went ahead as planned. Oracle’s blockchain product team was constantly on standby and helped throughout the project.

Describe the result, new efficiencies gained, and what was learned from the project: AuraBlocks showcased how powerful and simple engineering one solution can be with an emerging technology such as blockchain, and that transformative adoption need not be an arcanely complex exercise.

Oracle’s blockchain product made it a viable conversation, and, as a result, customers realized the power and benefits of a transformative platform such as blockchain in a short amount of time.

Efficiencies were realized in the following areas:

  • gaining the ability to track, analyze and react to borrowers’ performance communicated via financial KPIs;
  • reduced collection cost
  • more competitive borrowing rates; and
  • making existing data work for both parties, both producers and consumers.

Describe ROI, carbon footprint savings and staff time savings: In summary, based on the analysis conducted by Biz2Credit’s risk team, the implementation could lead to Merchant Cash Advance OPEX cost reductions of more than 21 percent and overall OPEX cost reduction of about 3.6 percent, leading to improvements in operational margin and a potential growth of up to 25 percent of a $1 billion book of business.

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Chris Preimesberger

Chris J. Preimesberger

Chris J. Preimesberger is Editor-in-Chief of eWEEK and responsible for all the publication's coverage. In his 15 years and more than 4,000 articles at eWEEK, he has distinguished himself in reporting...