Pandemic-driven improvements to bank and credit union digital lending platforms have made it faster and more convenient for consumers to borrow money.
But while these enhancements make traditional financial institutions more competitive against fintechs, they don't measure up in several key areas, according to The Future of Digital Lending: a new report by Jim Marous, owner and publisher of the Digital Banking Report.
Streamlining the Customer Journey
Pressure from nonbank competitors and evolving consumer expectations has left traditional lenders knowing they can no longer take days or weeks to accept and process consumer loan and mortgage applications.
"Today’s consumer expects simplicity in applying for a loan, immediacy in loan decisioning, and seamless delivery of funds," the report says.
However, the lending journey isn't over when the customer receives the money; digital lending is an end-to-end process as loans need to be collected, serviced, often restructured, and finally closed when they're paid in full. The key to making this digital lending customer journey successful is automating back-office operations.
"The Future of Digital Lending" report found that:
- Traditional financial institutions are offering customers online and mobile lending solutions
- Banks and credit unions are enabling consumers to complete their applications more quickly
- More financial institutions support a "save and resume" functionality
- More banks use universal digital loan applications
"A great deal of the rapid improvement of digital lending capabilities can be attributed to the leveraging of third-party partners that have helped provide modern platforms and solutions," the report notes.
Streamlining Loan Origination Lags
The reality is that many banks and credit unions haven’t changed their basic lending processes in decades. From start to finish, those loan origination platforms are often clunky and slow for both borrower and lender.
Even if traditional lenders enable consumers to apply online or via their mobile devices, they really haven’t changed the majority of steps and requirements necessary for customers to complete their applications. The result is an unsatisfactory customer experience, according to the report.
Then came the pandemic, forcing banks and credit unions to conduct business via digital channels. Many lending institutions had to enable consumers to apply for loans online and via mobile devices for the first time, in addition to the option of visiting physical branches.
These lenders had to make online and mobile application processes faster and easier. Some spent more money improving digital lending capabilities to support distribution of billions of dollars in Paycheck Protection Program loans that began in April 2020. This also helped banks and credit unions improve the digital lending processes for other types of loans.
More Banks & Credit Unions Focused on Digital Lending
"The pandemic motivated all financial institutions to increase the availability of online and mobile loan application options," according to "The Future of Digital Lending" report. "While the availability of loans through branches has remained close to 100%, online/web applications are now available at 91% of financial institutions. This is an increase from 76% in 2019 and 85% last year."
And more lenders are making mobile loan applications available as well, with 54% of banks and credit unions offering mobile loan applications in 2021, compared to only 44% in 2020 and 34% in 2019.
However, lenders with assets greater than $100 billion are more likely to enable consumers to apply for loans on their mobile devices, the report noted. These larger organizations seem to be focusing more on improving mobile functionality instead of online applications.
More banks and credit unions are also offering consumers end-to-end application processes, allowing them to finish their online or mobile applications without having to visit physical branches.
In fact, in 2021, 76% of banks and credit unions that offered online loan applications didn't require consumers to visit one of their branches, compared to 66% in 2020 and 52% in 2019, according to the report.
Likewise, 61% of financial institutions that allowed consumers to apply for loans using their mobile devices, also didn't require those customers to make branch visits, compared to 46% in 2020, 31% in 2019, and 20% in 2018. In addition, another 14% are expected to enable this functionality in the next year, compared to 25% last year.
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.