Just because you start taking online loan applications for consumers and businesses does not mean that you should immediately offer automated credit decisioning, or have a fully automated process from end-to-end. There is no need to disrupt the entire loan origination process at once nor to expect the new software to automate 100% of a previously manual process. You should have a phased approach to reduce your project risk. Be cognizant of the fraud risk and the prevention tools available.
I conducted an informal survey on various LinkedIn Groups and among banking friends titled “Online LOS: Why the slow adoption amongst community banks?” and discovered 4 common themes in the responses:
1) Perceived potential impracticality: Many people think LOS automation is impractical or will never work for business loans, because they need a “personal touch” and these types of loans have more documentation needs and informational complexities. There is merit in their thinking, but doing something is better than doing nothing. At least part of it can be automated – and your customer has a convenient start online.
2) Believing online loan applications necessitate automated credit decisioning: They think that when you start taking online loan applications, it naturally equates to automated credit decisioning. It does not have to be that way. An online LOS can be with, or without, automated credit decisioning. Or it could be a hybrid, where you automate declines, and refer all the potential approvals to your underwriting team. Most banks decline a high percentage of loans, and automating the decline process can be a cost saving. You can also provide conditional approvals. An added benefit is that your underwriting team would get a nicely packaged loan application in digital format, often with third party reports and information already included.
3) Believing online LOS requires changing too many existing processes: To many bankers it also means changing the entire loan origination process all at once, and discarding all the key technology pieces and plugins, as well as the human insight and knowledge that they have accumulated and built into their unique existing process. In fact, with online LOS, you can take an incremental, phased approach. No need to disrupt the entire loan origination process at once, expecting the new software to automate 100% of a previously manual process.
4) Worry about increased fraud: A valid concern, which can be overcome through the right mix of the human element, combined with the many digital fraud prevention tools now available.
Matt Fagin (Principal at Detalus) articulates it well in a recent LinkedIn Group discussion: “… just the words “online LOS” to a lot of bankers will mean automated decisioning. I don’t know a whole lot of bankers who are down for that. However, if a system can get them quickly to a no or a yes, based on a policy that they set, that moves the needle. Further, if a new platform can get the banker 65% of the way to a decision and then apply the highly-paid executive’s experience and expertise to the other 35%, you should create efficiency. Or, if a piece of a platform can easily solve a problem, that could represent an incremental approach to realizing a fuller digital strategy. Customers will increasingly want these types of experiences. Their bankers should be the ones providing it if it makes sense. They have the relationship!”
Community bank advantage when it comes to an online LOS
Community banks have an advantage over pure digital competitors. Customers demand good technology when they want it, and a real person when they don’t. Community banks have “real” people. That makes the digital transactions feel a little bit more personal, because the customer can picture their warm and helpful community banker at the other end of the digital experience, and reach out to him/her if needed. By formulating your long term digital strategy and starting your loan origination automation, your key people will have a broader reach, freed from simple requests and tasks, and indeed be available on demand to live up to customer expectations.
Incremental phased approach and resources
Some prefer a complete re-engineering project, however, taking an incremental approach in executing on your digital strategy is an equally viable option. There is no need to disrupt the entire loan origination process at once, expecting the new software to automate 100% of a previously manual process, especially where resources are spread thinly. Automating part of a process is still beneficial compared to no automation at all! In addition, trying to automate the remaining 20% of a workflow in Project A may cost more in time and effort than the first 80%, and may well not be worth it. Or, there could be Project B waiting where you can go for the first 80% and the payback will be greater than the remaining 20% of Project A. Perhaps you could start with just a single product.