Last week, we discussed the rapid transformation of business lending and how national lenders are taking over the market with real-time capabilities. Assuming a desire to compete and win in this environment, banks’ technology options fall into three categories:
Traditional loan origination systemsthat reduce manual underwriting effort by automating workflow. These systems have recently added online application forms, but do not deliver the kind of experience (and associated marketing claims) that will capture customers’ attention.
Alt-lending platformsthat provide greater customer convenience and faster funding. There are two downsides to these solutions: black-box credit policies that leave a bank in the dark on lending decisions, and farming out the bulk of the loans to the alt-lender, thereby making the bank mainly a market-maker for the alt-lender and giving up control of customer relationships.
Real-time lending through digitizing the bank’s credit policywhich segments loan applications through a rules-based system to decision and price loans. This provides consistent control and application of the bank’s credit policy, thereby ensuring quality decisioning. It also delivers a fast and convenient experience for the customer, opening powerful marketing claims that drive sales and growth.
How does a bank assess these options, all of which in some way improve on current processes and deliver value? Your choice should be informed by your business banking strategy. These seven steps will get you started in your evaluation:
Stake your claim. Is growing your business banking portfolio important? Improving efficiency is easy, but driving growth will require transforming how you lend. You will have to out-compete the likes of AMEX and Kabbage to drive significant loan volumes and new customer acquisition. So, if growth is not a strategic imperative, don’t go there; you’ll just be inviting failure.
Make your case. If you are committed to growth, then the business case must reflect that. Potential solutions should measurably impact these metrics: loan deal-flow and portfolio growth, lending rates, new customer acquisition and deposit growth, back-office efficiency and cost reduction.
Whose customer is it?Outsourcing the customer is no way to grow. Be wary of solutions use you for deal flow but lend directly to businesses, or require their logo to be part of the customer experience.
A handshake deal. We have focused on the online lending experience, but most customers will still want to talk to a person. Solutions that sync up the customer experience between channels—including online, the call center, in-branch, and on-site at the customer location—will amplify your marketing efforts and maximize close rates.
Keep it clean. Automating lending decisions require clean data. This is what separates solutions that can take traditional underwriting and deliver it in real-time, versus those that cannot. Without clean data, a bank cannot gain conviction about lending decisions. So instead of five questions, banks must ask seventy-five, at which point it is no longer a fast or convenient process for the borrower.
Keep it real. Don’t lose sight of the fact that it is the marketing claims (“apply in 2 minutes”, “instant decision up to $100K”) that drive growth. Therefore, you must deliver a fast and easy experience to back up your claims. How many screens does an applicant go through to apply? How many pieces of information must they provide (include total fields, drop-down selections, checkboxes, etc.)? Scrolling through a lengthy web form will turn off customers and kill any opportunity for growth.
It’s a marathon, not a sprint. But you must start today! Once you settle on the technology, commit to starting with basic loan products and small credits and working your way up. This will allow you to develop a deeper understanding of what drives customers in your direction and how the credit policy is performing before going further.
Business lending has gone digital on a national level, and time is short to carve out a leadership position in your market among business owners. Smart bankers, intent on growth, are seizing the opportunities afforded by new tools and capabilities—right now. Are you ready for greatness?