BY JOHN WATTS
In an era of constant technological innovation, where competition for consumer loyalty is at an all-time high, financial institutions of all sizes are focusing efforts and countless resources on revamping their digital strategies, especially in the lending space. Community banks, in particular, are poised to be unique beneficiaries of this digital
age, as they are often consumers’ first choice for personal loans due to generally lower interest rates and origination fees.
To capitalize on this advantage, nearly one-fourth, or 23 percent of financial institutions have plans to implement a new or replacement consumer loan origination system, according to Cornerstone Advisors’ annual “What’s Going On In Banking” report. Additionally, the same report reveals that improving lending policies and processes is a top priority for 32 percent of bank CEOs
To achieve this, banks need to digitize the lending process from end-to-end, rather than just a portion of the process like the loan application. Many banks still require a visit to the branch to sign forms or ask that customers mail supporting documents to the branch. Yet, nearly all borrowers under the age of 35 would prefer that the entire process be digitized, according to research from Oliver Wyman.
By committing to full digitalization, banks can modernize the lending experience and infuse it with greater speed and convenience for the benefit of customers while empowering banks with more efficient processes to support a growing loan portfolio. Here are three key steps that banks should take to ensure a successful digital lending transformation:
1) Perfect the Application Experience Optimizing the loan application experience should be a priority when taking a digital approach to lending.This involves more than uploading a copy of the loan application online, as replicating the same paper-driven loan application process online will hardly improve the customer experience. First and foremost, make sure customers can complete a loan application online in its entirety, which includes the ability to submit supporting documentation without leaving the application, as well as e-signature capabilities so customers can sign loan documents.
Additionally, banks should leverage auto-fill features to minimize data entry for customers. Requiring an applicant to manually input every detail of their personal and financial information is cumbersome for the applicant and can even result in an individual abandoning their application out of frustration. A good online loan application will be synched up with a bank’s core system and will auto-fill application information ive with the applicant, ensuring a greater number of completed applications are submitted.
2) Don’t Forget to Digitize Back-End Processes Today’s consumers are accustomed to instant gratification, so if a customer can complete a loan application online in a few minutes from his couch, waiting several business days for a decision is frustrating. To address this issue, banks should also take steps to modernize back-end lending processes
like underwriting and decisioning of the loan. Banks can streamline underwriting by utilizing relevant, aggregated data to gain a complete view of the applicant and thus make sound lending decisions. Examples of data to aggregate may include an account holder’s cash flow, demand deposit account data, all added to current credit bureau data. For banks that are comfortable doing so, moving forward with a fully automated decisioning model might make sense, as
this minimizes the manual aspect of the underwriting process. As a result, banks can process a greater number of loans and more importantly, this approach can facilitate faster decisions for customers, promoting a positive borrower experience.
3) Boost Transparency with a Customer Portal & Clear, Consistent Loan Disclosures Lastly, an outstanding lending experience demands transparency. While there are less human touchpoints in a digitized lending process, customers may still have questions or request status updates for their loan application. Instead of forcing customers to
call the bank or hunt down information themselves,banks should offer a customer-facing portal, where customers can log in to review a status update regarding the approval of their application or upload supporting documentation as necessary. This is also a great way for banks to reduce the time spent following up with applicants for additional information. Such functionalities enhance customer trust in the lending process and makes them feel valued, rather than just another drop in the bank’s loan portfolio.
Beyond finding ways to increase the institution’s connectivity with borrowers during the lending process through tools like the aforementioned customer portal, banks should ensure the terms of individual offers are clear. Not only does this help borrowers understand their loan terms, it also helps banks differentiate their offerings from competitors. Between interest rates, origination fees, and other terms, there are multiple factors that drive the cost of a loan. This can make it challenging for a customer to truly comprehend the total cost of a loan. In fact, an Oliver Wyman study revealed that nearly one-third of borrowers indicate that understanding their loan’s fine print and terms is “frustrating” or “very frustrating.”
It is important to keep in mind that most borrowers compare offers from multiple lenders, but when loan terms are not presented consistently and clearly, it becomes difficult to compare options effectively.
To drive consumer loan growth through the remainder of 2018 and beyond, it is crucial that banks find ways to first, enhance the overall customer experience, from application to closing, and second, improve efficiencies to enable processing of higher loan volumes. Ultimately, those that take initiative now will be positioned for growth in an increasingly competitive market.
As Senior Vice President of Lending Solutions for Baker Hill, John Watts is responsible for the leadership and direction of the company’s lending solutions.