For years, many banks and credit unions increased their digital lending capabilities without ever enhancing the overall digital experience for their customers.
Although a consumer could complete a loan application online or through a mobile application, the experience was not very easy or intuitive.
Today, it’s no longer enough for lending institutions to let consumers apply for loans on a screen. Instead, the underlying loan origination processes need to be completely reevaluated, including the information consumers must supply, the decision process, and the disbursement of funds. That’s the conclusion of Jim Marous, owner and publisher of the Digital Banking Report, in The Future of Digital Lending report, sponsored by MeridianLink.
Pre-Filling Loan Applicant Data
Consumers want loan application processes they can complete with a few taps on their computers or swipes on their mobile phones. Traditional lenders can simplify the application processes for consumers as well as make them faster is by pre-filling dozens of data fields.
While it’s promising that more banks and credit unions are able to make loan decisions in minutes, few lenders are working on pre-filling data, the report notes.
“This is a standard in the digital marketplace and is why digital giants like Apple are so successful… people don’t need to complete long forms, they simply verify information that is provided after pre-fill,” according to the report.
Speed of Online/Mobile Loan Application Processes Increasing
“For the first time since we have done extensive research on digital lending, it appears that many traditional financial organizations have embraced the need for digital lending transformation, supporting an application process that can be completed in a few minutes, with almost instant decisioning and availability of funds in less than 24 hours,” according to the report.
For example, it now takes consumers less than five minutes to complete 44% of website/online loan applications. This is a huge improvement from 2020 when they could only complete 15% of website/online applications in that time.
In addition, only 26% of banks and credit unions reported their online application processes took over 10 minutes, compared to 38% in 2020 and 42% in 2019, the report noted.
And the speed of the mobile loan application process has also improved this year, as 50% of lending institutions provide mobile application processes that consumers can complete in five minutes or less, compared to only 20% of institutions in 2020.
Things are also getting better on the other end of the spectrum as only 15% of banks and credit unions said it took consumers more than 10 minutes to complete their mobile applications, compared to 34% in 2020.
However, banks and credit unions must continue to speed up their online and mobile loan application processing times if they want to compete with fintechs.
“As we saw in previous studies, there are still many organizations that said they ‘did not know’ how long a mobile or online application takes at their organization,” the report noted. “This illustrates that the time to complete digital applications may not be top of mind at some legacy institutions even now.”
Some Branch Visits Still Necessary
Although many traditional financial institutions don’t require consumers to visit their branches as part of the digital loan process, some still require customers to complete certain steps in person.
As in the past, the top reasons for this include signatures needed on documents (56%), ID verification (43%), and loan documentation (41%), according to “The Future of Digital Lending” report.
Although these numbers are lower than they were in recent years, they’re still too high. For many consumers, having to complete any part of a loan application in person is inconvenient and hard to justify given the many completely digital loan products offered by fintech companies.
The good news is that many third-party providers can help traditional financial institutions move to incorporate these options into their digital loan products.
Digital Demand Increases for All Loan Types
The digital lending market was valued at $311.06 billion in 2020 and is expected to reach $587.27 billion by 2026, according to a market study by Mordor Intelligence. And the lending market is expected to register a compound annual growth rate of approximately 11.9% from 2020–2025.
The major factors driving digital lending growth are changing consumer expectations and behaviors as a result of the pandemic as well as the numerous benefits of digital banking and financial services, “The Future of Digital Lending” report noted.
“The desire for digital loans ranges across all forms of credit, from personal loans to [small and medium enterprise] finance and home loans,” according to the report.
In the past, traditional financial institutions reported that consumer demand for digital account opening and loan application capabilities was low; however, the pandemic has highlighted the fact that consumers are now demanding digital options for all types of loans.
Future of Digital Lending Report
To learn more about how MeridianLink mortgage and consumer loan origination software (LOS) can drive your banking and credit union digital transformation efforts forward, contact one of our digital lending experts today.