As our industry heads steadfastly into 2021—with optimistic aspirations and a fulfilling outlook on improvement across the board—there’s one lingering thought that we all must take into consideration: outdated manual processes will no longer support modern digital lending in 2021. MeridianLink asked our in-house industry experts— across several industries—what we can expect 2021 to bring. Here are their answers.
Banking and Credit Unions Outlook
Jim Marous recently sat down with MeridianLink’s Christopher Maloof, Chief Product Officer, as part of the Banking Transformed podcast. Marous’ perspective on the results of this year’s research is a great overview of what banks and credit unions must do to succeed in the future.
“We stand at a unique inflection point in the digital transformation of the banking industry,” Marous explained. “We expect that the move to digital that we discussed during the summer [of 2020] will accelerate and remain a driving force for the next five to ten years. This will provide a host of opportunities for innovation and to present consumers with new and improved experiences.” Maloof agreed, adding that the economy “has performed well above anyone’s expectations at the beginning of COVID, shining a favorable light on the consumer’s ability and appetite for consumer and mortgage loans.”
When it comes to implementing digital lending technology, the biggest hurdle to expect is “usually a combination of cultural and internal policies,” Maloof noted. This is due to a major shift between trusting an automated underwriting decision, “versus having a loan officer talk to a potential client face-to-face and applying tested legacy underwriting procedures.” At the end of the day, this is really about embracing a huge change in organizational culture. The leadership within financial institutions “needs to get better visibility into how they’re performing against underwriting standards in real-time because it is a big leap. I think it’s a long step for most organizations to take a jump to digital without clear visibility as to the final result.” So, how do we solve this challenge? According to Maloof, the best way is with visual data. “This way, organizations can see in real-time, whenever they want, a dashboard of how they’re performing from a funnel perspective.”
Marous also asked Maloof how microlending looked for 2021. Calling it a “hot business,” Maloof commented that the best parts of microlending are easier eligibility and fewer complications. A great example is Goldman Sachs and Marcus partnering with a software vendor to provide services to Amazon. Maloof pointed out that this partnership is a “big win from Goldman Sachs and also couples with their recent investment to compete in savings accounts with Marcus.” He believes that in 2021, other big banks will follow in these footsteps with offering microloans. “This is what consumers want,” Maloof explained. “Organizations can provide a really great service to a customer while also gaining that relationship. So I see it as an opportunity that big banks are going to go after. But, there’s no reason why midsize institutions can’t also be successful [with microloans].”
Digital transformation is accelerating and changing how credit unions and banks need to think and operate. Using digital strategy, companies can target clients and show how they can expand their market to new members or customers and new loans origination. Companies will be competing for consumer attention with fintechs in 2021, which means their online presence will be critical to driving new business to gain additional customers. Devesh Khare, Vice President of Product at MeridianLink, believes that companies need a consistent omnichannel experience in order to engage customers differently than they would in-branch.
Another way to promote digital transformation is through cross-selling. Companies also struggle with a proactive approach to driving new loans to existing customers, the cross-sell for driving growth in 2021. It not only drives member growth, but it also leads customers into multiple loan products. Leading to a consistent way of profiling, predict, managing, and presenting offers to customers across multiple out-of-branch touchpoints.
Khare also recommended clients leverage best-inbreed technology at every step of the origination process for 2021. Larger banks and fintechs have the ability to piece together their own bespoke solutions, thanks to larger IT budgets and dedicated teams. Not every business has this ability. He suggests aligning with a technology vendor who offers a vast partner marketplace with top performing partners who can help throughout the origination process. Khare also recommends working with a technology solution who will do integration work to make it easier to leverage top partnerships at every step of the origination process.
Final suggestion for 2021? Automate, automate, automate! 2020 pushed a remote workforce to the forefront of everyone’s priority list, and many of us are still dealing with the changing workforce dynamics. By making automation a priority for 2021, it will remove manual work and free up time for employees to focus on higher-value tasks.
Optimization will be the prevailing topic for financial institutions wishing to remain competitive in 2021. While the amount of debt held by consumers and businesses continues to grow, financial institutions will face pressure from consumers and governments to be lenient on repayment terms, citing unprecedented times. A portion of the industry will utilize austerity measures to support leniency, while other industry winners will optimize collection operations to work smarter, not harder.
A new set of consumers and businesses will be introduced into the collections cycle in 2021. This means that financial institutions will need to learn to segment the collection population and develop unique strategies, policies, and solutions for distinct collection segments.
Stephen Huang, Director of Business Development at MeridianLink, believes 2021 will be a continuation of 2020 when it comes to mortgages. Rates should remain steady, thanks to economic stimulus tactics by the federal government. There was an increase in people purchasing homes in 2020 due to remote work becoming the new normal, and people no longer being tied to working in major cities. As 2021 begins, it is clear that remote work is still going strong, which means purchase volume will remain steady.
Lenders will continue to look to technology for automation and streamlining efficiencies. Online notaries and e-close abilities have led to more remote accessibility, which remains a key long-term trend that will demand lenders and their vendor partners to be lock step.
With a new presidency on the horizon, it would be wise to keep an eye on whether the Consumer Financial Protection Bureau is strengthened, or if more regulatory requirements will be forced on the mortgage industry. Another important piece to note is that URLA 2021 will be required beginning in March.
Looking toward the future, Jim Marous gave insight into the front and center issue for financial institutions: forbearance. Approximately 4 million, or 8%, of mortgages in the U.S. are currently under forbearance. However, the good news according to Marous is that “many of the properties are equity rich.” As the Cares Act ends, there will inevitably be a drop in credit scores as debt to income increases, leading to an surge in collections. “Without future stimulus packages,” Marous warned, “there is going to be a significant increase in defaults, which can be showcased in the reserves that the big banks are presenting on Wall Street.” While the federal government is giving the economy plenty of runway, “we must counterbalance that with the fact that unemployment is still fairly high.”
At the end of the day, 2021 seems to be dawning in a positive light. Despite COVID-19, the U.S. economy is still performing well. People are still focused on purchasing homes, made easier thanks to the freedom remote work supplies. While forbearance is still a rising issue in 2021, we’re hoping as the pandemic slows the unemployment rate lowers, helping this problem. As long as you focus on automating processes and utilizing best-in-breed technology, you should have a successful year ahead!
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