The Digital Transformation in Banking Is Good for Agricultural Finance
The past few decades have seen a shift toward digital transformation in banking, but not all financial institutions are moving at the same pace. According to Forbes, “Banks have a long, long way to go,” with nearly half of the banks in one survey reporting that they had yet to launch a digital transformation strategy as of 2021. Among those that had, there was still a noticeable gap between perceived implementation and reality:
“Roughly four in 10 banks who think they’re halfway or more through their digital transformation strategies have yet to deploy cloud computing or APIs.”
While digital transformation in banking is putting pressure on financial institutions of all kinds, the ag finance sector is one that stands to benefit most from digitizing their data. Risk data management in agriculture is changing quickly, requiring more granular datasets and parcel-by-parcel analysis to account for climate change-induced risks in portfolios. While the learning curve is steep, digital transformation will ultimately be a boon for the agricultural sector.
This post will explore the ways that current data management in ag finance is no longer sufficient to meet the risks of today, and how ag professionals can use GIS tools to acclimate their banking data.
How Data Management in Banking Can Improve
Ag lenders and investors, Farm Credits, and other ag finance institutions have long relied on data to make informed financial decisions. But traditional methods of data collection, – from onion papers to spreadsheets – are no longer suitable for today’s risk factors paired with the need for speed in closing loans.
As a report published by the World Bank Group explains,
“Unlike past technological revolutions in agriculture, which began on farms, the current revolution … is driven by the ability to collect, use, and analyze massive amounts of machine-readable data about practically every aspect of the value chain, and by the emergence of digital platforms disrupting existing business models.”
In other words, banks that use digital data management tools can aggregate data from multiple sources and make faster, more informed decisions about loans and investments.
Ag finance professionals who don’t have a digital transformation strategy in place may be at a disadvantage, resulting in a slower due diligence process that results in fewer deals. Without digital data management tools that incorporate risk data into owned financial data, the increasing amount of reporting compliance rules will be a roadblock.
Digital technology helps strengthen relationships with borrowers; better understand the value of agricultural land and other assets or the status of water rights, water deliveries, and water banking participation.
By using digital tools such as GIS Connect, stakeholders at all levels – internal and external – can get on the same page about water and climate risk and find opportunities for mitigating those risk factors. Activate proprietary data with seamless integration of borrower and risk data.
The Digital Transformation in Banking
Digital transformation in agricultural banking can take many forms, but a big part of it is being able to make loan decisions quickly and efficiently based on geospatial data. For example, because climate and water risk are geospatial in nature, it matters whether a borrower’s parcel is located in a watershed that’s at high risk of drought, flooding, or wildfire. Factors such as water rights, quality, and more create a complex yet crucial high-definition picture of a borrower’s risk.
Even when multiple borrowers are located in the same region, their risk profile may be different based on their water rights situation and access to water resources. Effective drought risk management comes from understanding impact data and determining a farming operation’s vulnerability to water allocation cuts and lower crop yields.
This digital transformation in banking isn’t just about making the due diligence process easier for financial institutions, however. As borrowers and other stakeholders come to expect a more streamlined loan application process with faster approval times, those banks that can offer it will be more appealing than their competitors.
Even the USDA’s Farm Service Agency has begun to digitize some of its operations, such as making it easier for farmers to apply for coronavirus assistance online:
“FSA is also leveraging commercial document storage and e-signature solutions to enable producers to work with local service center staff to complete their applications from home… Through the portal, producers with secure USDA login credentials … can certify eligible commodities online, digitally sign applications and submit directly to the local USDA Service Center.”
Ultimately, this digital transformation is good for the agricultural sector because it allows for better enterprise connectivity and more informed decision-making.
Using GIS to Acclimate Banking Data
Financial datasets need to be unlocked using granular climate and water data that puts existing bank data into context. But analyzing the growing amount of climate risk data simply isn’t possible using traditional data management methods. Obtaining standard climate analytics gives financial institutions insight, but it is not actionable in the loan and investment process until it is acclimated with their own financial data.
GIS tools make it easier to perform this kind of analysis, by incorporating a cloud-based interface that seamlessly aggregates and integrates data from multiple sources through a secure API. This makes it possible for ag professionals to acclimate their data to account for climate change, by using continuously updated third-party datasets.
Tools like AQUAOSO’s GIS Connect can help users understand risk data on a granular, parcel-specific basis, by providing data such as water rights, water delivery information, watershed boundaries, and more, all in one place.
By viewing this data in a map-based format, users can easily zoom in and out of different parcels in their portfolio, toggle map risk layers on and off, and export reports for compliance purposes.
GIS software is just one aspect of the digital transformation process but represents crucial growth for ag finance institutions that require an understanding of geospatial risk factors such as water stress and drought risk and how they impact each unique parcel in their portfolio.
The Bottom Line
Digital transformation is already having an impact on the agricultural banking sector, as financial institutions seek out ways to incorporate modern data management practices into their loan decisioning and risk mitigation strategies. This transition will require the adoption of new tools and technologies that can make better use of climate risk data and parcel-specific analysis than traditional risk assessment methods.
AQUAOSO worked directly with our Farm Credit and ag lender customers to develop the purpose-built GIS Connect platform. By aggregating multiple datasets using a secure API, and presenting them in a map-based format, GIS Connect can help Farm Credits, ag lenders, and investors bring their decision-making process into the 21the century – saving time, money, and capital.
PRESS RELEASE For Immediate Release AQUAOSO showcases GIS Connect, a climate intelligence platform that helps US financial institutions mitigate climate risk during the recent OnRamp Agriculture conference. AQUAOSO shares their story of substantial growth as...
In late 2021, world leaders gathered in Glasgow for COP26, better known as the UN’s climate change conference. With over 25,000 attendees meeting to discuss the efforts needed to address climate change, themes of sustainability, renewable energy and the reduction of...
With real-world impacts like rising global temperatures, climate change is one of the biggest risk factors agriculture faces today. NOAA reported that 2020 was the second warmest year and the EPA explains a consistent increase of 0.16°F in average surface temperature...