Chief Transformation Officer at Altimetrik responsible for Business and Technology transformation with clients in Fin Svcs, Healthcare, CPG
The impact of the Covid-19 pandemic has accelerated the adoption of digitalization in all aspects of life, both personal and business. What was once considered disruptive has become the new normal. As late as 2019, digital lending, while recognized by mid-market banks, was often delayed due to the needed investments in technology or resources, whereas fintechs gained significant ground by delivering cutting-edge digital and mobile banking solutions, resulting in their meteoric rise.
Mid-size banks are squeezed between large global banks with the capability to make sizeable investments and the nimble fintechs that can easily deliver superior experiences through data and technology. Yet, they can’t ignore the reality that they will continue to lose market share if they don’t move already. Doing nothing is not an option for banks if they want to stem market share loss.
As the 2019 Fed Small Business Credit Survey indicates, of the 43% of businesses that applied for funding, less than half (20%) got all the funding they were looking for (page 11).
Building digital products can not only increase lending volume, it can allow banks to reach a larger audience with greater efficiency. It is an opportunity for the mid-sized banks and credit unions to explore various classical and new lending models that benefit from speed, agility and enhanced customer experience, leading to business growth and profitability. Digitalization in lending can no longer be looked at myopically as a cost-savings play or a method to overcome time-consuming and complicated manual efforts. It must be viewed as a way to accelerate revenue, income and new account growth.
Digital Lending Creates New Avenues And Profitability Through Improved CX
Below are several examples of the lending products that digitalization unlocks:
1. CRE business lending
2. C&I business lending
3. Consumer unsecured lending
4. Mortgage lending
5. Business working capital lending
6. Invoice lending (both factoring and A/R financing)
7. Instore POS lending
8. E-commerce checkout lending
9. Installment lending (online and offline)
10. Federal small business and student lending (SBA, PPP, Direct Plus, etc.)
Each one of these loan categories can benefit from a digital makeover across the borrower experience, credit underwriting and risk assessment, streamlined workflows, efficient use of internal and external data for better decision making.
The priority for mid-tier banks should be to close these gaps and streamline the end-to-end process of loan application, risk assessment, verification decision-making, approval and disbursal, while providing an intuitive and seamless customer experience. However, their position is a bit difficult while trying to maintain investments in their legacy systems and simultaneously digitalize their products.
There are various loan management software and platforms on the market that can help digitize this process. There are AI-based tools that are enabling advanced features in digital loan origination systems. However, banks need to be mindful of a few points when deciding the right path to digitization:
1. The platform should be end-to-end and not deliver a fragmented approach to the different pieces of the overall process.
2. Make use of the existing technology in the organization.
3. Implementation should have minimal disruption to the existing operations of the business.
4. Must be inclusive of the complex risk and compliance measures to avoid any adverse events.
Banks can also work with digital technology providers who can custom-build solutions that could be either end-to-end or incremental in digitizing segments of the process. This can give the bank more freedom to choose and build features most effective to the said business; however, this might prove to be more time-taking and cost-intensive.
Deploying Cloud-Based Digital Lending Tools And Processes Can Unlock Business Growth
With constrained budgets and a race against time, one of the simplest and easiest go-to-market solutions for mid-market banks is the deployment of a secure cloud-based platform that can be integrated into their existing infrastructure.
Strategically lenders need to consider how their digital lending platform addresses business issues, such as:
• Simple and engaging customer experience
• Identification of customer segment and their needs
• Automated and scalable processes
• Risk assessment and decisioning
From a technology perspective, factors that should be evaluated are:
• Automation in information gathering and usage
• Configurable workflows and business rules for underwriting decisioning
• Technology, AI and ML to support the development of critical capabilities
• Straight-through processing encompassing application, decisioning and funds disbursement
Mid-market banks are at the crossroads between traditional and new ways to service their customers. Although the traditional methods, including in-person interactions, have their place, there is an urgent need to adapt to what customers increasingly want: simple end-to-end digital products. Delivering to this need will ensure mid-market banks remain competitive and profitable.