Strategies, Best Practices and Thought Leadership

How Seamless, Superior Digital Lending Boosts a Bank’s Portfolio

A smooth, user-friendly digital lending experience is just as much a priority for banks and credit unions as consumersparticularly the digital natives who make up the millennial segment and Gen Z. In fact, a broad swath of companies—from Amazon and Alibaba, to fintechs and alternative lenders, all the way to major institutions like U.S. Bank—are well on their way to digitized lending.  

But this by no means represents the rule across the financial sector. Many institutions have lagged in creating a top-to-bottom digitized lending experience. And given how fast technology moves today, the rest of the world will hardly hold the bus as banking leaders try to decide whether and when to get on. 

Is much at stake? Absolutely. Today’s “digital life, lived out 24/7 on mobile devices and laptops, has conditioned consumers to expect speed and convenience at every turn. What’s more, those looking for a stronger borrowing experience really don’t know or care when it comes to compliance and regulatory concerns. Their thinking is more like, “Amazon knows what I want and sends it to me after just a few taps on the phone. No paper. No waiting. No hassles. Why can’t getting a loan work like that?”  

No matter how bankers feel about the fairness of the question, finding an answer that makes the most of digital technology has become table stakes. Many in the industry remember when JPMorgan Chase CEO Jamie Dimon warned his bank’s shareholders a few years back, “Silicon Valley is coming.” He was right—more so than he perhaps suspected. In the first half of 2017, fintechs originated $15 billion in personal loans, according to TransUnion. For all of 2018, that number skyrocketed to $138 billion. Fintech loans now represent 38 percent of all unsecured personal loan balances. 

Where Digital Lending & Portfolio Growth Meet 

But there is good news, as working towards the goal of a digital lending experience brings financial institutions closer to driving portfolio growth with compelling force. 

Let’s look at the small business market. By all accounts, it’s underserved by lenders, even though it holds tremendous profit potential. But clearly, banks want to change that. A recent survey by the American Bankers Association found that 61 percent of banks surveyed plan to moderately or aggressively grow small business lending over the next two years. 

The challenge is that financial institutions process small business loan of $100,000 the same way as a $1,000,000 commercial loan. That drives them to prioritize high-dollar commercial loans with greater profit margins.  

But what if the loan process proved seamless for small business owners and bankers alike 

By modernizing the lending process and leveraging technology, financial institutions can shrink transaction costs, boost profit margins and provide more funding to small businesses. A superior digital lending experience also gives banks a decided edge, since many financial institutions will vie for the same small and medium-sized lending business in the months ahead. 

The Future of Lending: Change is Here to Stay  

Stop for a moment to consider what life for consumers—and let’s face it, everyone in banking is a consumer, too—will be like in just a few years. The iPhone, just 12 years old, changed our habitsexpectations and even vocabulary for good. (Apps and Apple Pay, anyone?) Imagine telling someone in 2005 that everyone would soon carry a device the size of a playing-card deck that plays music, makes phone calls, fetches email, maps a car trip in real time, pays for dinner and takes photos. Oh, and by the way, that camera will snap a photo of your check, front and back, in about 30 secondsand move the funds into your bank account. 

Digital banking breakthroughs like remote deposit capture set the consumer expectation bar ever higher. And why not? Jim Marous, Co-Publisher of The Financial Brand, puts it this way in a recent article: “As consumer adoption of the digital lifestyle has gained momentum, it has disrupted businesses in every industry, introduced new competition and redefined ecosystems. People no longer view banking as a place to go… they expect their financial institutions to know them, look out for them and reward them—in real time—using the channel they prefer.” 

Now imagine a digital loan vimobile phone, using existing customer data to expedite the process, whereby reducing the speed of approval from weeks to minutes. Imagine all the new business you can land, and what it will do to grow your portfolio. Now at this point, it’s fine to stop imagining—and start envisioning technology and customer expectations joining forces to move your bottom line at top speed.   

Topics: Commercial Lending, Online Lending, Small Business Lending

Baker Hill

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