Speed and convenience aren’t the only improvements your financial institution can make to its lending process – greater transparency should also be a priority.
Infusing speed and convenience into your financial institution’s lending process can dramatically improve the borrower experience, but there is a third consideration that can help your institution differentiate itself from the competition. We’re talking about transparency.
According to a credit survey by the Federal Reserve Bank of New York, borrowers that were unsatisfied by the lending process were often unhappy due to lack of transparency. This was true across the board, whether borrowers applied at a large or small bank or through an online lender. For large banks, 48 percent cited a lack of transparency throughout the process and for small banks, the percentage was nearly the same at 47 percent. Online lenders did not fare much better with 49 percent of borrowers desiring greater transparency.
As more institutions digitize their lending models and reduce manual, high-touchpoint processes through technologies like online loan applications, there is less need for human interaction. While this can make it easier for a customer to apply for a loan at their convenience, perhaps from their mobile device while at home on the couch, it can also make it difficult for the customer to obtain status updates on their loan application. Or maybe your financial institution needs some supporting documentation – your loan officers will likely have to make follow up calls during business hours, times when borrowers may not be able to answer the phone or stop their activities to find and submit the necessary documents.
For many borrowers, it can also be challenging to understand what the requirements of their loans are, how they qualify or why they didn’t qualify and what factors impact the cost of the loan. In an effort to find the best rate, many borrowers apply for multiple loans from different providers but many struggle to compare offers because lenders present terms differently. As a result, 40 percent of respondents in an Oliver Wyman study reported that it was “difficult” or “very difficult” to find a lender that offered the best terms.
It’s become clear that transparency in the lending process is equally as important as speed and convenience, but how can financial institutions deliver?
Increase Opportunities for Engagement with Borrowers
One way to accomplish this is through a customer or member-facing portal. Today’s consumers expect immediate answers and a 24/7 engagement touchpoint for borrowers enables this. For customers that have a question about their loan application or want an update on the status of their application, a customer portal allows applicants to see their status in the loan origination process on demand, even from a mobile device. As a financial services provider, you don’t want to place the onus on your customer to hunt down information for a status update; instead, you want your customer to feel like a partner in the process, not just another number and the increased connectivity of a portal supports this.
Leveraging a customer portal also allows underwriters and loan officers to clearly communicate with borrowers and retain that contact history. For instance, if a loan application is missing a document or a financial statement, the customer can be notified and then securely and easily attach the document to the application via the portal. Additionally, a portal with built-in messaging capabilities ensures your financial institution can resolve any customer concerns swiftly and ensures that the feedback provided is timely and relevant.
More Transparent Loan Disclosures
Beyond finding ways to increase the institution’s connectivity with borrowers during the lending process through tools like the aforementioned customer portal, financial institutions should ensure the terms of individual offers are clear. This will make it easier for institutions to differentiate their offerings from competitors. While an industry-wide standard for offer presentations would help resolve this issue, individual institutions can start by avoiding jargon and using consistent terminology in their own loan disclosures. Providing standard definitions of fees is also advised. By disclosing loan terms clearly and consistently, banks and credit unions can empower borrowers to better understand the terms of the loan offer. This is also a great way for traditional financial institutions to highlight the lower rate they can offer compared to the rates offered by an alternative lender.
Do not underestimate the importance of boosting transparency in the lending process, as it could be what distinguishes your institution’s offer from a competitor’s. Beyond that, the level of trust that comes with enhanced transparency will help your institution strengthen relationships with customers and provide the absolute highest level of customer satisfaction.