Talking to Senior Leadership About Automated Lending

Mitch Woods: Welcome back to Baker Hill’s podcast, Lending Made Easy. Today we’re going to talk about lending automation. It’s a scary topic for a lot of bankers out there.

I think automated lending implies a hands-off approach, but it’s all about doing more with less. How do you empower your people with the technology to do more in less time and focus on those value-added tasks?

Automated loan origination still feels like a four-letter word for many financial institutions. The question today is how you would bring that up to senior leadership, knowing that a lot of the business is built around the people. We talk about that a lot on the podcast.

Banks are built around the people, and the people are the ones that are driving those relationships that make the bank profitable. How would you take this concept of automating processes and sell that to your executive leaders?

Brian, David—who wants to take this one first?

Bryan Peckinpaugh: Yeah, though, this one drives me nuts. 

We are obviously in this business of automated lending. I’ve worked across all kinds of aspects of process automation throughout the financial institution ecosystem in my career. I’m sure we’ll speak specifically about the lending automation aspects of this but take a step back to just process automation inside a financial institution.

Everybody wants to talk about digital. Everybody wants to talk about new capabilities, this, that, or the other thing, and completely discount the change management aspect of it.

When I think about what’s essential from a senior leadership perspective, it is driving an understanding from the top down that no matter what solution you put in place, whether it’s a market-leading commercial loan origination solution. You’re picking from one of the automated lending providers in that space, whether it’s a treasury management, sales, and onboarding solution or a sales and service solution for your call center.

You have to factor in and start from the change management. You have to identify the target operating model that you want to work under, the value of getting to that operating model, and then align the technology to it. That’s what’ll drive the adoption. Because it’ll have the buy-in from the leadership perspective, you’ll have the anchor to come back to why you’re doing the things you’re doing.

Where you see some of these things fail, where you see people overwhelmed with lending automation is they don’t understand the why. They’ve got this new technology in place, and they’re told you have to click these buttons and do these processes.

They don’t know why and they don’t know why it’s changing from what they’re doing with Excel and Word and maybe paper and pencil. They don’t see the vision of the value that the operating model brings.

When I think about senior leadership, it’s all about that. It’s all about defining the why. What are we moving to? Why are we moving to it? And, then sell that value throughout the organization.

Loan origination software becomes almost an afterthought, right? Because it’s just you’re layering it in to fit that vision.

David Catalano: Yeah, that’s a good point.

We—internally to our company—have a CRM solution. It took us three different tries to get our company to use it, and part of it was the process wasn’t correct. Once we started to use it as an organization, the “why” became obvious:

• It’s the reporting that you get from it. 
• It’s the ability to know where you are within that business at any time.

As people running the business, it’s beneficial to understand and use that tool. We’re fully operational on it now, so we have a digital workflow within our organization, but it took a while to get there. 

The “why” for us was never really explained to anybody. That’s what was missing. 

If you think about a bank, you’ve got a policy, process, and technology. But new technologies are never going to fix bad processes or bad policies.

Your point on change management is key to explaining to the staff and folks why we are going about doing this. Why do I have to change what I’ve been doing a certain way for a certain amount of time?

The benefits of lending automation are significant concerning capacity and your ability to do more work with the same team. From a leadership perspective, finding good employees is challenging, and keeping good employees is tough.

So how do you go about doing that and keeping them working on value-added tasks and value-added work? How does the tedious nature of what would be a traditional commercial lending process where you’re entering the same information ten times probably an excellent idea from a leadership perspective?

It will keep your morale up, especially when you get newer employees that have always had technology in their life from when they were little. They understand what good technology is and what bad technology is.

If you don’t have good technology, it’s going to become really apparent to new employees, who will wonder what’s going on here. Why is this so antiquated? Why don’t we change this? The “why” could change over time. 

It could be because you’re not going to be able to attract the right talent to run the organization. They’re just not going to want to work in that environment.

Bryan Peckinpaugh: Mm-hmm. David, you raise a lot of good points.

As you define these things, apply the same thinking to those sacred cow systems.

There are things that maybe we would think of as antiquated, right? Maybe I’ve got an Access database that some Ivy League gurus built for me that houses all of my internal thinking about pricing and profitability of commercial lending, right? So, like all my relationships, pricing, et cetera.

If that is truly special, if that does make you different, if you have created a better mousetrap, don’t throw that out and think you can replicate it in other software.

It’s important as you think about how you identify the things that make you different and derive value in your process.

When you’re building that operating model, plug them in so that I understand I know I need this same engine to be operational, and if I can’t replace it with what I’m doing, I either need to keep it in place or find something else that will do it.

Instead of just trying to replicate it for replicating sake, applying that same thinking to how I implement technology, so you know, I can buy a lending origination platform. It doesn’t have to do everything for me.

It can handle the foundational elements while I still do my prices outside the system. I may find that 90% of the spreading that I do for commercial deals fits nicely in the solution that I buy, but there’s 10%, based on any number of factors, where I need to do a unique look at global cash flow, as an example. Identifying those going into the process and having those part of your decision criteria helps set that up for success in the long run, which is what the leadership will measure once you get there.

Again, just more upfront work and due diligence to understand I don’t have to solve everything as long as I know the answers. I’m going to implement an origination system. I’m going to keep it. My pricing solution may or may not integrate into it because it’s, again, the value in it is the decisions it makes, not necessarily the effort in using it.

The same thing with spreading. I’m going to make my decisions on what solves the majority of my problem for the right price point, for the good experience, for the right broader use cases, not thinking it’s going to do a hundred percent of the work if there’s 10% that certainly deserves to be done outside the system.

Looking at all that in the view of what the future state looks like and accounting for it before you make decisions drive success throughout.

David Catalano: Yeah, I would agree with that. You want to make sure that those sacred cows are kept safe. I would also try to get a sense of what’s possible.

Like within your current ecosystem as a bank, what is possible, what systems connect to which and how do they connect, and what’s the integrity of those connections? And can the connectivity or the sharing of data be automated?

If we can eliminate duplicate data entry, we’ve gone a long way in creating a lift for the institution.

Based on what I’ve seen, in all different size institutions, there are lots of disparate systems that do not talk to each other. You don’t necessarily need to automate the task that that system is doing, but if you can get that system’s data out and into the next step in the process, you’ve created a pretty significant lift.

So the question is, how do you go about doing that? How do you make sure it works on the front end? And how do you ensure it works on the front end for you?

Bryan Peckinpaugh: Mm-hmm.

David Catalano: And whatever legacy solution you know you need to keep because it’s like your Access database example. It’s something you shouldn’t give away, get rid of, or try to replicate.

The other thing that I see is the due diligence side of it. I don’t know if it’s just because they don’t buy it frequently enough, but many banks just don’t get into enough depth when it comes to making a decision on an automation solution. 

They need to dig in a bit deeper around some of the processes they have to ensure the solution is going to check all the boxes for them.

Bryan Peckinpaugh: Agreed.

David Catalano: So, getting senior leadership to buy into lending automation, that’s, that’s one thing. But then empowering the leaders who run the different areas to do the appropriate due diligence and bring those recommendations forward, I think, is the next step in that process because then that’s ownership transfer.

If I’m the CEO of a financial institution, I want my chief lending officer to own the solution. I want them to make that decision and live with that outcome. And, as a lending officer,  you want that in ownership. 

If I’m the chief lending officer, I want that team to buy in. Not necessarily make that decision, but buy into the idea that, hey, we’re going to decide once we decide that’s it, this is what we’re going to use, and we’re not going to make everyone happy. But we must get that ownership transfer through the ranks for this to work.

Bryan Peckinpaugh: Mm-hmm.

David Catalano: Which gets back to change management in aligning technology with the bank's goals.

Bryan Peckinpaugh: Yeah. And something that should be table stakes, but it tends to get overlooked, is you factor all of those things you were talking about together, David, and going into it with a clear understanding of how you’re going to measure the success of all of those that I see get overlooked at all the time. Right?

I know you. I have talked quite a bit about the return on investment concept for lending automation, where, you know, as we are selling loan origination tools, we get asked. Sometimes it happens at the end of the sales cycle because the C-Suite has gotten involved and say, well, what’s the return on investment that I’m getting here?

We have tools that we can certainly walk organizations through to help build a generic return on investment based on capacity figures, right? How can I grow with what I have? How do I do more without adding cost? 

But the reality is, what you need to know is what I’m trying to change. What are the metrics that I’m looking at that reflect the current state? What do I want to get them to?

So if, for example, you put in a system and the only thing it does is get you a decision 15 days faster, some people look at that and say, well, that’s fantastic. That’s exactly what I want. Let’s buy it. Some organizations don’t care about the 15 days for who knows any number of factors. 

What they—the organization and the senior leadership—need to sit down and figure out is why they are making this change. What is it in precise detail that we are looking to see change? What am I doing today against those metrics? And now, I’ve got a good starting point to evaluate automated lending technology.

Now I can be very targeted in the due diligence that you were talking about.

Here at Baker Hill, we deliver our solutions and can tell you exactly what will go into that delivery.

But others may be using a partner. You need to factor not just the partner but am I getting the “A-Team” from the partner or am I getting the “B-Team” as part of that implementation. All of those things factor into the due diligence, which leads directly to wondering how you will move the needle on these ROI factors.

Am I focusing on speed to decision? Am I focusing on overall credit? Am I focusing on cost reduction by moving away from a specific document provider or pulling some of my documentation away from high-priced attorney-prepared documents? What are those things that I’m trying to move the needle on? What is my current state? And where am I going?

All that can go back into the “why.” Why do you want your bank to adopt automated lending software? Those reasons can help drive  change management across the organization. Because if there’s one thing that kills all software projects, it’s adoption. 

It doesn’t matter what kind of software you’re talking about. If people don’t use it, it wastes time, money, and effort.

Mitch Woods: That’s some excellent insight there, Bryan. And, David, you mentioned earlier that banks have the policy, process, and technology. You also alluded that you can’t fix those with the technology, but I’d argue you need to add a fourth one, a fourth category there, right? They have a policy, they have a process, they’ve got the technology, and they’ve got people.

And we talk a lot about that, right? Those people are that foundation.

When we start talking about the ROI of automated lending implementation and these technology solutions, balanced with that change management approach to managing expectations and the people, how would you all strike that balance in those conversations as you take those to an executive leadership team at a financial institution?

Bryan Peckinpaugh: It’s going to be different for each institution. It’s going to come down to what’s important to them.

• What are they?
• What are their goals and objectives? 
• What are the strategies of the bank (and how do they align)?

Because again, it’s a different reason for each institution as they think about lending automation and any technology.

I'd argue that it doesn’t align with your overall goals and objectives. Why are you doing it? Knowing everybody’s kind of got different ones, how you might focus on it, how you might pitch it is going to be different?

You’ve got to understand the financial institution, where they’re looking to go, and what matters to the individuals, right? What matters to the senior leadership? What are their personal goals and objectives? 

You can implement automated lending for lots of different reasons. And those reasons would be all good ones that can drive an organization forward, but lending automation won’t be successful without alignment.

David Catalano: I do see many organizations with a vendor in place that a renewal is coming up.

It handles a portion of the process, and they go to market and start looking around. Pretty soon, they land on the idea of a digital lending platform, which covers much more than just what one particular vendor offers. They really haven’t contemplated, from a top-down perspective, what they’re trying to fix and solve.

But, when they get through or when they’re in the midst of that process with the loan origination solution that’s automated, they have an “a-ha” moment. They realize that—holy cow!—this automated lending technology could really change my life.

At the end of the process, we do that return on investment calculation for them—or even breaking even, for that matter.

That’s not for them. That’s for their internal colleagues who need to be compelled to allocate resources towards the solution because the people who are operating in the business look at what they’re doing today.

They look at how they would work within the confines of a lending automation solution. It’s a no-brainer. It’s just so obvious to them. That, to me, is coming at it a bit backward. You’re not coming at it from a strategic perspective. That’s very tactical.

I would prefer they think about it the way Bryan’s considering it.

• What am I trying to solve with automated lending? 
• What’s the cost of solving that? What’s the benefit of solving that?

But many times, when you’re solving that one problem, you can solve many others, especially if you step back and look at how you’re operating. What’s that process look like, and what if we were to optimize the process? The other thing you don’t want to do is take an antiquated, disparate approach and just apply lending automation technology to that.

You’ve got to be ready to change the way you’re doing things, to improve upon the way you’re doing things, and let the technology give you the lift. So, that process design applied with automated lending gives you that lift.

Mitch Woods: Yeah, that’s great. Brian and David, thank you so much for this discussion. This was a great conversation today.

This is a complex topic to broach because every financial institution’s a little bit different in how you can approach the executive leadership team with new ideas about automated lending that might feel a little scary.

This is a great topic to discuss, and your insights on how we go about the change management process are significant. Automated lending will make everyone’s life a little bit easier and let them focus on those things at work that bring them joy and help them move the needle.

Thank you, guys, both for your insights today. I appreciate it, and thanks to everybody listening to today’s episode of Lending Made Easy.