The syndicated loan market has ballooned the past few decades, but technology has lagged, badly.
Syndicated loans represent a $5 trillion corner of finance, and $1.4 trillion of that is traded annually through private instruments widely used for financing in corporate America. The loans themselves can reach into the tens of billions of dollars.
And yet, despite the sheer amount of money changing hands, back-end processes are antiquated as banks and lenders juggle everything from faxes to emails to phone calls to transmit data and get trades done.
As Versana CEO Cynthia Sachs told PYMNTS in an interview, “the quality of data has generally been poorer than it should be for a massive asset class like this.”
Forging a Digital Platform
The time is ripe — and the technology is ready — to bring those analog processes into the 21st century. To help get there, Versana has launched an industry-backed syndicated loan platform.
“We’re trying to bring new, modern technology and real-time data, digitally, into this marketplace to allow it to function much more efficiently,” Sachs told PYMNTS. “Getting the foundations and infrastructure rebuilt will be revolutionary.”
The effort is notable, too, because it brings together some of the keenest competitors in financial services. Versana’s founding investors include J.P. Morgan, Bank of America, Citi and Credit Suisse. All four founding banks are now Versana subscribers. Sachs noted that the collaborative effort between the competitors fills an industry-wide need.
“The market really wants one centralized platform,” she said.
In terms of the mechanics, the platform digitally captures agent banks’ deal data on a real-time basis using technology that Sachs said has never been used before, including smart contracts.
The centralized solution connects banks, institutional lenders and their service providers — a connectivity that winds up improving transparency, operating efficiency and velocity of the loans themselves. Versana centralized corporate loan data, flowing from leading administrative agent banks’ books and records, facilitates straight-through processing. Loan and position level details that traverse the Versana platform range from global borrower commitments and loans outstanding to historical transaction cash flow and contract details.
“As soon as a change happens at the banks, it’s ‘hitting’ Versana, and that’s how we’re centralizing the market,” she told PYMNTS.
The centralized approach also addresses the pain points that have traditionally marked syndicated loans, where enterprises have had disparate and fragmented systems in place that had not been able to “talk” to one another.
The negative ripple effects have included a lack of transparency where the loans, marked by floating rates, have been dynamic, and risk exposure could change rapidly. Sachs pointed out that the platform is permission-based and secure, so that parties are only able to see the data that they’re “entitled” to see — a form of selective sharing that ensures the integrity of the market.
Looking ahead, the initial focus will be on the U.S. institutional market. But there are other facilities that are held by banks, including revolvers and term loans, said Sachs, that are prime candidates for modernization too. To get there, Versana will look to partner with other software firms and to build out its own offerings, all the while expanding its roster of agent banks.
As Sachs told PYMNTS, “we’re just at the beginning — call it Version 1.0 — of creating a new paradigm for this market,” and added that “the first mandate is to create a healthier market for everybody.”
“We absolutely want to change this market,” she said. “We think it’s long overdue, and we’re excited to do it, and we don’t want to do it alone. So, I think the big takeaway is four banks who are fierce competitors have come together to stand this company up and get it going, but we want others to join us.”