Not two banks are created equal, and in terms of a bank’s digital ambitions, these are very different depending on size, region, and even products. Banks with more aggressive digital goals have managed to digitize personal loan applications that can now be submitted with a few swipes on a mobile device and time to cash can be as short as the same day. Large portions of mortgage lending, even with all the regulatory constraints, has been digitized by many banks, financial institutions, and private money lenders; many others are still trying to get there just to be able to compete.
The reasons for pursuing a lending digital revolution vary almost on a case-by-case basis but there are clear benefits to doing so, including revenue loss to competitors that offer shorter approval and disbursement times, and also increased win rates significantly when compared to traditional lending processes.
In one study by McKinsey&Company on how digital credit is changing banks, it was reported that one large European bank increased win rates by a third and average margins by over 50 percent as a result of slashing its time to yes on small and medium enterprises lending from 20 days to less than ten minutes.
When looking at banks and financial institutions that have successfully digitized their lending operations, there are some factors that are similar between them. In this article we explore these factors.
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Enhancing the Customer Journey is Key
Whether for a business loan, a mortgage, or personal loan, having a clear end-to-end understanding of the customer journey is crucial when designing a digital experience. Attempting to improve the credit process by changing only portions of the lending process at a time, typically leads to disappointing results and creates customer confusion and even frustration.
Creating a new digital experience in lending is no different than creating any other product that relies on technology, and this includes focusing the scope of a first wave of the lending transformation on a minimum viable product (MVP). The MVP should include a substantial scope that delivers real value, generates momentum, and creates excitement within the organization and customers. However, remember that shooting for fancy or extensive features at MVP is not wise and leads to extended implementation timelines, going over budget, and ultimately frustrated executives and process owners, and also clients.
Keep borrowers engaged
Let’s put ourselves in the shoes of a borrower for a minute; would you like not hearing from the bank in days after applying for a business loan? Or how about not knowing if I’m missing any documents until it’s too late? In general, customers like clarity and it is the lender’s responsibility keeping them engaged throughout the lending process.
Focusing on touch points and interactions that make the customer feel engaged, less anxious, and even excited about the loan application process is crucial. It is well known by tech giants and now in banking that customers more than ever are making choices based on the quality of their digital experience. Lending processes vary by product type, market, industry, and many other factors but there are common factors that improve customer experience in lending, such as:
- Ongoing notifications on where a customer stands in the approval processes
- Providing easy ways to submit documents
- Ability to use multiple channels of communication
- Provide options and even recommendations for other products
Consider Partnering with Fintech Companies that Specialize in Lending
In McKinsey’s Future of Risk Management Survey, 85% of participants viewed legacy IT infrastructure as the main challenge in digitization. By establishing partnerships with fintech companies, banks and other lenders reduce the need for IT resources to develop, operate, and maintain complex lending solutions. Some banks, credit unions, and alternative lenders have become IT shops in order to create the perfect solution to support their lending products; however this has been proven costly and ineffective.
Fintech partners offer great value to banks and other lending institutions, including:
- Packaged end-to-end lending platforms that can rapidly adapt
- Aggregate experience from working with many other lenders
- Offering new approaches to old problems in lending
- Advanced automations through the use of connectors / APIs
- Ongoing feature and functionality updates
Prioritize the Culture and Adoption
The issue of resisting change is not unique to lending or banks; it is a byproduct of human nature. We tend to distrust a process, method, or technology that we have not seen in operation while we favor the ones that we know, even if understandably inefficient and antiquated. This is why it is essential for leadership to take charge and establish the foundation for a successful adoption of new technologies that will change the way people work and interact with customers. When justifying why change should happen, it is important for leaders to demonstrate that there is an evolution, and provide context for the need to evolve, all with the aim to provide context to employees.
Successful change and adoption of a new technology requires developing a context-sensitive approach, and under those conditions employees’ behaviors embrace the change. In addition, adoption comes from understanding the impact on the day-to-day and of the technology itself. Including staff from all levels in working sessions and training is necessary in order to reach high levels of adoption and even excitement within the teams.
In the end, one thing is certain: there are many challenges in digital-lending transformation and the journey to digital revolution is long and uncertain. Success is achieved when clients receive speedy credit decisions, when borrowers get cash disbursements much sooner, and when your teams spend 50% less time on decision making and more time on quality risk decisions.
Interested in learning more?
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Cory Thompson, Loan Servicing Lead
Cory is a loan servicing solutions engineer at FUNDINGO with several years of experience in lending at large financial institutions and now several years engineering SaaS lending solutions for clients in banking, mission, and alternative lending.