Loan acquisition is not a new topic in boardrooms by any stretch, but priorities will likely shift (or have already) in the upcoming months given the effects of COVID-19. Still, efficient access to credit remains a critical component of any economic recovery. Assuming some short-term retrenchment, automated credit decisioning will continue to play a critical role in financial institutions’ toolkits.
Digital acquisition is not for online only. It requires three areas of commitment to compete with megabanks and other fast growing fintech disruptors who want to grow their digital customer market share:
1. Online application: is the application a responsive design for smart phones and tablets?
2. Integration: behind the online workflow, are the integrations up to date to move the application rapidly to the back office to decision and approval without rekeying information or forcing the customer to come to the branch?
3. Cultural: executive leadership at financial institutions must evaluate the new normal of auto approval processes frequently and partner with vendors which can provide fintech thought leadership.
Community banks and credit unions have realized the need to incorporate auto-decisioning into their lending processes to remain competitive in today’s marketplace. This is critical in the online environment, given the pandemic’s likely impact on branch repurposing and closure. However, regardless of the entry point, consumers still expect speedy, hassle-free responses.
Too often, financial institutions treat the implementation of credit auto-decisioning as a one-time initiative. This is not a recipe for success. The megabanks and fast-growing online disruptors constantly update their decision rules, testing tweaks with the goal of optimizing both workflow and the user experience.
Banks and credit unions must continually revisit and refine the parameters governing their auto-decision rules; in other words, set it but don’t forget it. In an era in which smartphones and tablets are overtaking the desktop as the most common remote access device, it’s clear that consumers’ demand for rapid response is hardly abating.
Let’s consider some of the ways in which refreshing an institution’s credit decisioning criteria can help defend and grow market share.
A Culture of Continuous Improvement
First, institutions should assess whether their existing processes – automated or manual – enable credit decisions in two hours or two days. If it’s the latter, you're at a serious disadvantage to the megabanks and high-profile players, like USAA, that are setting the bar for today’s market. Take a close look at the online loan application process from a borrower’s perspective. If it ultimately requires most to visit the physical branch, it’s probably outdated. Worse yet, watch for cases in which a mobile or desktop workflow concludes with a non-specific, “Thanks, we’ll get back to you.” These are more common than most realize.
Similarly, ensure your auto-decisioning workflow is documented by loan type. Credit card, home equity, HELOC and vehicle lending products each likely perform differently and deserve unique thresholds. Banks and credit unions should play the short game, with an eye toward continuous improvement. For instance, if your institution is comfortable auto-approving a given loan type for FICO scores of 780 and up, analyze the cost/benefit tradeoff of extending that range to 750. Also, explore incorporating external data sources that might streamline the assessment of “thin file” applicants.
Consider further segregating the workflow for new versus existing customers. It’s bizarre how much effort can be required to add a product to an existing relationship, given the amount of information already known about clients.
Finally, challenge your partner vendors to bring in case studies and come prepared to discuss best practices at least once a year. (Each institution should actually require the vendor to provide updates every six months given the rapid rate of technology disruption.) Because of their exposure to a wide array of institutions and industry insight, these service providers are a valuable source of information on market trends and should be eager to demonstrate their knowledge.
Progress is Not Linear
Although ongoing trends clearly point to greater automation, this is not a one-way street. The ongoing COVID-19 fallout will likely prove to be a case in point. The U.S. economy has gone so long since the last downturn, we can’t be certain how these new models will perform in a different environment.
The Bottom Line: What we can be certain of is that technology and culture at the community bank or credit union will always play active roles in process improvement. "This is the way we've always done things" won't cut it in today’s instant gratification marketplace, lockdowns notwithstanding. With social distancing likely an ongoing part of our vocabulary and routines, there’s more incentive than ever to “get with the times” and adapt to offering convenient low- or no-touch application processes such as automated loan origination.