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Onboarding & Minimizing Friction
Over the last decade, tech giants like Amazon have disrupted every industry, including banking. This has prompted change within loan origination, with online lenders improving the loan application experience to meet customer expectations for convenience and speed.
Banks and credit unions must take steps to modernize their old, archaic approach (by converting to lending software) or else risk losing market share. This is especially critical as more and more consumers seek funding from online lenders due to the fast, seamless, and often paperless loan application process.
Their online application process with lending software typically takes less than 30 minutes, sometimes as fast as five. Even more, their systems have been designed to fund approved loans within just a few days. With basic credit requests, funds can be disbursed within 24 hours.
Comparatively, consumers who apply for loans at traditional banks cite frustrations with the “difficult application process” and “long wait for a credit decision,” according to the Federal Reserve. And can you blame them? On average, it takes a small business owner upwards of 25 hours to complete paperwork before obtaining funds.
This makes for a bad customer experience and poses severe challenges for a financial institution’s profit margins.
More often, financial institutions process a small business loan of $100,000 the same way they process a $1,000,000 commercial loan, which drives institutions to prioritize high-dollar commercial loans more significant profit margins.
On average, it takes a small business owner upwards of 25 hours to complete paperwork before obtaining funds.
However, by modernizing the loan origination process and leveraging lending software technology, financial institutions can reduce the transaction costs for small business loans to boost profit margins and ultimately provide more funding to small businesses.
Some banks and credit unions have, in fact, digitized part of the process, but there are still portions of the application that require a visit to the branch or mailing physical documents.
Additionally, according to the American Bankers Association, some institutions only offer a digital option for certain loans categories, like mortgages, personal loans, and auto.
Even of the banks that offer digital loans, an overwhelming majority (96 percent) have only digitized the application process. Financial institutions must also digitize document uploads, support e-signatures, and facilitate direct communication to customer service through digital channels like email or instant messaging.
Replicating a paper-driven loan application process online won’t cut it, as it does little to improve the customer experience.
To offer the level of convenience today’s consumers demand, financial institutions must go beyond converting paper into a digital document (with lending software) and instead digitize back-end processes, including minimizing data entry by providing pre-fill functionality within the online loan application, offering a “Save & Resume” function to allow prospective borrowers to upload supporting documentation without leaving the application; and making obtaining loan status updates easy through a customer portal.
These initiatives will require effort, but advancements in current technology mean that delivering a streamlined and more transparent experience is possible for institutions of all sizes.
Sound Portfolio Management is Critical
Once you have that deal, how do you manage it? Lending software can strengthen client relationships and maximize the return on an institution’s lending relationships through risk monitoring, proper credit decision-making tools, and insightful profitability analysis.
By combining effective risk management capabilities with data and scores, banks can save time, mitigate risk and gain a complete view of their loan portfolio with automated monitoring.
Continuous, automatic portfolio monitoring is essential. The system must monitor accounts daily, weekly, monthly, or quarterly with significantly less manual intervention. Lending software should flag high-performing loans for streamlined renewals and cross-selling opportunities while identifying and monitoring potentially troubled accounts.
Remember, it’s about striking a balance in this steel-cage match. The institution is minimizing risk while also uncovering growth opportunities.
Portfolio concentrations and stress testing are also critical. Financial institutions should develop strategies using the information for origination and pricing.
Lending software should drive concentration analyses either by specific regulatory requirements or even unique identifiers by the institution to determine a pool of risk within the portfolio. With the addition of statement spreading, stress testing can be conducted on a portfolio segment and for individual clients.
Robust data is also needed for this. Financial institutions must manage risk and enhance processes with current and accurate bureau data, loan, deposit, and collateral data, and financial statement data from internal and external systems.
In doing so, they gain a complete, 360-degree view of their portfolio, thus enabling more strategic, data-driven decisions. The data should also identify problem loan indicators before delinquency occurs using the complex score and behavioral logic daily, weekly, monthly, and quarterly.
Finally, lending software should be easily configured to import data from the bank’s core or other external systems. Data must be updated daily and continuously analyzed following the institution’s policy, and standard reports should include delinquency of scoreboard, frequency of trigger and statue, and triggers by delinquency.
By combining effective risk management capabilities with data and scores, banks can save time, mitigate risk and gain a complete view of their loan portfolio with automated monitoring.