Lending is a considerable revenue source for many institutions, so ensuring a seamless experience is critical. Outdated technology and inefficient processes hamstring your institution against a shifting economy. And a lackluster or incomplete digital lending experience may drive customers elsewhere.
Most institutions have expanded their digital banking capabilities, recognizing consumers’ shifting preferences and desire for convenience. But in digital lending, slow-moving institutions face a disadvantage.
This blog explores the advantages of a modern digital lending system, providing insight into how your institution can balance digital capabilities without losing sight of your relationship-focused approach to service.
For a deeper dive into current lending challenges and how to jump start your modern lending journey, check out our white paper.
What is Digital Lending?
While some may think digital lending is primarily associated with automating the beginning of the lending process, it involves digitizing the entire lending journey in a well-orchestrated process from start to finish. This approach allows your institution the convenience and speed of a digital experience while still enabling you to deliver personalized service, a hallmark of community banks.
It may seem like embracing digital lending requires giving up that valuable human element, but it doesn’t have to be the case. Digital lending allows your bank to increase visibility and automate tasks that were once manual—without automating entire processes.
The trick is to relinquish the right type of control for your institution and use these tools to create a more efficient process. Enhancing your lending capabilities with digital tools helps you avoid delivering an incomplete digital experience that may drive customers elsewhere.
Ideally, your system should support the ability to complete the entire lending process from application to booking without ever needing to step into a branch, streamlining the process for the digitally inclined and affording you opportunities to reach more customers.
Digital lending provides speed and convenience for customers and employees.
Traditional vs. Digital Lending
When you think of the traditional lending process and related technologies, it’s likely that a complex system with disjointed tools and an overwhelming number of input points comes to mind. Traditional lending for many banks involves paper applications and loan worksheets, resulting in a time-consuming, tangled process.
Many institutions also rely on disparate systems, making it difficult to achieve full visibility into the loan origination process. Duplicate data entry adds to the complexity, as institutions manage multiple platforms and places to input data.
As discussed earlier, digital lending streamlines the entire process from start to finish. This holds true for various types of loans, including commercial, consumer or mortgage loans. Instead of re-keying data into multiple tools, an end-to-end loan origination system (LOS) allows bankers to enter data in one time and then supports the flow of this data throughout the process. A LOS also reduces regulatory complexity by proactively identifying potential triggers and requiring specific actions to be taken, such as the delivery of a disclosure to a borrower.
Why Should Banks Modernize Loan Origination?
As competition with big banks and online banks grows increasingly fierce, community banks are under constant pressure to become more efficient. In lending, navigating a complicated process with multiple reporting sources and outdated technology doesn’t lead to many efficiencies. Since lending drives revenue for many community banks, incremental improvements in loan origination can have massive returns on the income statement.
Interest rates and evolving consumer preferences have also led to shifting lending demands over the years. These trends, along with intensified competition and high borrower expectations, make loan origination an essential component of your digital banking strategy.
Further, a modern, centralized lending platform gives employees a holistic look at the process, providing insight into the flow, progress and potential closing times for loans.
According to the ICBA, community banks provide about 60% of all small business loans and more than 80% of agricultural loans. However, it often takes a lot of time and resources to originate these loans, and national banks have more resources to expend. Fortunately, a modern lending system helps level the playing field.
Since lending is a significant revenue source, community banks should develop a digital lending strategy.
Exploring Digital Lending Trends
Recent years have seen the development of new technology, growing competition and high borrower expectations—all leading to an evolution of lending. To navigate this new lending landscape, community banks should consider several trends and factors when implementing a modern, end-to-end lending platform.
- Centralized Platform: A modern lending platform provides a streamlined view for your bank, so banks no longer need to rely on multiple spreadsheets and disjointed tools to guide lending processes.
- APIs and Integrations: API enablement for real-time integrations creates countless efficiencies, eliminating duplicate data entry. Real-time integration also streamlines processes and frees up staff to work on other tasks rather than devoting all of their time to manually originate loans.
- Loan Marketplaces: By connecting bankers across the country to enable loan participations, a loan marketplace provides an opportunity for banks to diversify their portfolio, increase income and supplement their existing balance sheet strategy.
- Process Automation: With process automation, banks use APIs to complete work that would otherwise involve manual processes or tasks. Process automation can reduce the amount of effort it takes to complete certain steps within a defined process—such as lending—and result in increased productivity, lower operating costs and reduced delivery time to customers.
The Advantages of Digital Lending
Embracing a modern platform transforms your institution’s approach to lending by streamlining the process and helping you keep pace with consumer expectations. Here are a few ways that digital lending benefits your institution:
- Improved User Experience: A variety of companies vie for your customers and brick and mortar banking isn’t for everyone. A configurable lending platform integrated into your core empowers customers to apply for needed funds at their convenience without visiting a branch or turning to another provider. Digital lending also improves the back-end experience for banks, improving lender responsivity. With a centralized platform, banks can create and distribute loans or transfer information to the core system without navigating disparate programs. If you must repeat the loan process, automation does so within seconds.
- Efficiency Gains: Digital lending streamlines the lending process and compliance while also providing quick resolutions to requests. By implementing a more efficient process, your institution will experience quicker timelines for everything from application to funding to request resolutions—all while reducing abandonment.
- Insight from Analytics: While big banks have leveraged data to gain market share, many community banks have been slower to embrace this strategy. As customer acquisition costs continue to rise, your institution must drive traffic via digital channels. A robust solution can also show what products customers are using, providing lenders with this insight.
- Strengthen Regulatory Compliance: Digital lending enhances regulatory compliance by making data more accessible, thus reducing the need for manual searches and minimizing the risk of human error. These platforms provide a comprehensive audit trail for regulatory review, and automation ensures a more consistent compliance environment. Additionally, by streamlining lending processes and reducing the number of platforms used, institutions can simplify risk management and due diligence efforts.
A modern loan origination solution streamlines the lending process while allowing banks to maintain their customer-first approach.
Reimagining the Loan Origination Process
To stay relevant, institutions must embrace digital technologies, even though this shift may alter workflows and require some level of automation and change acceptance. When implementing new technologies, banks should reassess their loan processing methods, focusing on the reasons behind their current processes rather than simply replicating existing methods.
From upfront costs to preexisting vendors, digital lending adoption presents some challenges. You can offset these concerns by embracing automated loan origination tools with the right digital lending strategy for your bank. Altogether, you’ll provide your customers with the service they need and improve your own processes.
Want to learn more about modernizing your lending system and increasing efficiencies? Download our white paper today.
Get your copy
Jennifer Foraker, Senior Manager of Customer Service, Hawthorn River
With more than 23 years in the banking industry, Jennifer leverages her expertise in lending to support clients utilizing Hawthorn River. Jennifer is a former loan operations manager with experience from small to large community banks, managing the loan origination for all lines of lending, including portfolio management.