Learn How Digital Lending Has Fallen Short & It Can Be Optimized
If traditional banks and credit unions want to compete with fintechs, they need to adopt digital lending to keep up with the pace of innovation and changing consumer expectations.
The following is the first part of an overview of the report, based on an August 2021 survey of over 300 banks and credit unions from Asia, Africa, North America, South and Central America, Europe, the Middle East and Australia. Respondents included 14% from large national or regional banks, 15% from community banks, and 71% from credit unions.
The Effect of COVID-19 on Lenders
Many lending institutions rapidly implemented digital loan applications after the COVID-19 pandemic forced the closure of branches last year. Although banks and credit unions were quick to deploy this digital functionality, the user experience suffered at first. In fact, it often took consumers more than 15 minutes to complete a loan application.
This new research from the Digital Banking Report indicates that financial institutions have leveraged their internal data, modern technology, and automation to streamline the digital loan application process.
Since August 2020, the speed at which consumers complete online loan applications improved significantly, with 45% of lenders reporting that consumers finish the process in under five minutes; 50% said it took less than five minutes to complete loan applications via their mobile devices.
Today, 76% of banks and credit unions enable consumers to complete loan applications online, while 61% of financial institutions allow them to finish the process via their mobile devices.
“Changes in consumer behavior, advanced technology and new competition could make many traditional lending organizations irrelevant in the next decade,” the report says. “The question is, what can banks and credit unions do today to avoid demise in the future?”
Data & Analytics Are Key to Advancements in Lending
Many banks and credit unions say they’re unable to extract valuable insights from internal data to make better decisions. That’s not because executives don’t understand the importance of using data and analytics to drive results but rather that they don’t know the scope of what they need. Teaming up with third-party organizations, however, can help lending institutions use data and analytics more effectively to improve the customer experience, make better decisions, and become more agile.
The main obstacle to creating a “best-in-class” digital lending system is inefficient back-office processes that haven’t been improved using data, analytics, new technologies, and automation, according to the report.
“In short, data and analytics lies at the core of being able to future-proof a bank or credit union for the lending marketplace ahead,” the report notes.
Innovation in Lending Requires Digital Speed
Increasing consumer expectations combined with the capabilities of modern technology have caused banks and credit unions to bring new products, features and services to market faster.
“Making effective use of technologies such as cloud computing, data analytics, and artificial intelligence will help support lending innovation at digital speed,” according to the report. “These components are necessary to support both digital transformation and digital innovation.”
Banks and credit unions can’t succeed by merely following the trends. Success requires innovation at speed.
Back-Office Automation Is Needed
Although financial institutions have improved their digital lending systems, most haven’t done the same for their back-office processes.
“By reworking IT architecture, leveraging data and analytics, banks can have much smaller units run value-adding tasks, including complex processes, such as deal origination, and repetitive activities that require human intervention, such as financial reviews,” according to the report.
To remain relevant, banks and credit unions must “start from scratch” when reevaluating the back office. They must identify procedures and processes that can be done more easily with automation and not involve humans (consumers or internal staff) unless necessary, reducing process time and freeing up staff’s time to serve more consumers.
Download the Report
As sponsor of the publication, MeridianLink is making the report available free to a limited number of readers (a $495 value). To obtain a copy, click here.
Next up is part two of our overview of “The Future of Digital Lending” and its importance to financial institutions.