Success at automated lending isn’t automatic
The keys to successful online lending
With financial institutions increasingly turning to virtual channels, it's no surprise that online lending has become a necessity and a standard in the industry. Without the proper strategy and implementation, however, financial institutions can fail to realize the benefits of online lending and can make their competitive position worse instead of better.
While financial institutions are hoping that increased efficiency and convenience will attract more borrowers, they are also hoping to process loan applications at a lower cost. Many are surprised by the actual results.
What online applicants want
Start by understanding the mindset of online applicants. They expect a fast response, day or night. They expect the entire process to be automated—they don't want to have to come into the financial institution for any reason, not even to sign papers or for the loan to be disbursed. They want to be able to upload documents if you need them and to execute documents with e-signatures. If there's an issue, they want an option for real-time help on their schedule, not yours. That's the type of experience you must be ready to deliver.
Too often, however, that's not the type of experience online applicants receive.
Let's start with response time. One of the key benefits to an automated lending system should be the ability to deliver a very rapid approval decision. Many financial institutions new to online lending aren't ready to trust the system to make the decisions or they fail to adequately fine-tune their acceptance parameters. This can lead to a variety of problems. The lender may be overly conservative because of discomfort with the new technology and, as a result, set their parameters too high, losing loans that it should have funded. Alternatively, a lender may be worried about losing too many loans due to automatic denials and instead route many of the applications for manual review. But that makes the response time too long, increasing the likelihood of losing the consumer's interest.
Why? Not only do online applicants expect a fast response, they'll quit the process if they don't get it. In fact, online applicants often apply to multiple lenders with competitive offerings and take the first loan that is approved, leaving the others to waste their time processing a loan they've already lost and sometimes leaving them with approved but unfunded loans requiring tracking, communication and closing out. Following up quickly with stalled applications can often make the difference between funding and losing a loan.
When making your system available, confirm it can be used via a number of devices, no different than your website. Smartphone growth is expected to be at 3.3 billion worldwide by 2018; this medium will continue to impact the way in which consumers interact with us. It's now commonplace for consumers to complete their mortgage and purchase process via their smartphone utilizing e-signatures.
Seven steps to a better online experience
Here are some steps you can take to improve the automated lending experience.
- Ensure effective integration between systems. If your online application is not effectively integrated with your loan subsystem, the application will stall, requiring manual intervention or system workarounds. Remember, delays in the process make you less competitive.
- Use the system to provide instant feedback and to set expectations even when you can't provide an immediate decision. A response thanking the applicant for choosing you and telling them exactly when they should expect an answer is better than uncertainty.
- Streamline the application process as much as possible. Review your loan application process to ensure that you are asking only for the information you need and asking for it only once. Online applicants will not hesitate to quit in the middle of an application if they find the process cumbersome. Also, pay special attention to the order of the questions; if there are specific qualifiers that may immediately "opt out" a consumer, move them to the beginning of the process. Provide an explanation and option to continue to complete the process or withdraw the application.
- Provide an immediate help option—either a chat window or a call center—where applicants can get immediate help if necessary. This option should be available 24/7.
- "Tuning" or adjusting your auto-approval or denial parameters isn't a one-time event. Over time, as you collect additional data, market or economic changes, risk profiles or even product changes and updates can immediately be reflected in the system. Ongoing monitoring of the number of applications that are manually reviewed or automatically denied, and tracking trends are key to better automated decisioning.
- Don't forget security. You need strong identity authentication on your end. And be sure to communicate your commitment to security to applicants. They're providing you with sensitive personal information. Knowing the process is secure will make them more comfortable working with you.
- Educate your employees about your online options. Not every online loan starts at a computer. A loan might start with a recommendation from a CSR or over the phone. Even though most consumers who start online will complete the process online, providing multichannel options allows an applicant to go to a branch to complete the application or start the process in person and complete it online.
Automated lending can provide your financial institution with a competitive edge, but only if you build a system that delivers the online experience customers expect. This can also create a venue to customers outside a financial institution's primary footprint. Once the loan is approved and funded, a relationship has started and must be nurtured to strengthen and expand into other depository relationships.