Consumer lending has evolved dramatically since the days of hand-scribbling paper applications at the local bank or credit union. The rapid growth of fintech has caused a disruption that can no longer be ignored. Financial institutions that offer lending services must adapt to new ways of doing business or risk getting pushed out of the market. Today, anyone can purchase a vehicle, apply for a credit card or take out a personal loan from anywhere using an Internet-enabled device. The lender’s ability to eliminate friction in the application process has become essential to give borrowers an efficient approval and funding process and the modern lending experience consumers expect. Here are five ways lenders can get started if they haven’t yet updated their application experience.
- Provide a Seamless Shopping Experience
Customers expect choice and simplicity in everything, including the consumer lending experience. Today’s borrowers will shop around for the best product (rate, term, penalties, etc.). The lenders that offer a simple and highly flexible modern lending experience without requiring the consumer to fill out a full application will stand out in the market. Consumers expect the origination system to have an embedded pricing engine that can support available options based on minimal data entry (e.g., estimated credit score). “Frictionless” shopping makes the application process painless for the borrower, which in turn has the potential of producing higher close rates for the lender.
- Use Simplified, Automated Application Intake
It is true that a picture speaks a thousand words, so providing a visual modern lending experience will stand out from the traditional lending process. Borrowers find it easier to click through pictures of multiple choices versus entering data, and it takes less time and provides a more-appealing consumer experience.
Another strategy to simplify the loan process is adding automation. Lenders should avoid asking questions that can be answered through information feeds by data providers. Information fetch comes at a cost, but the revenue upside of higher application volumes should offset the cost of the feeds. The fields required to approve a consumer loan should be reduced to the lowest possible number; in many cases, only three are needed to start an auto loan application pre-approval process: first name, last name, and social security number. If the solution is configured correctly, it should automatically pull all the other information needed to make a pre-approval decision.
- Adopt Automated Decision Making
Automated decision-making entails setting pre-determined business rules – like credit score and income requirements – to automatically approve or deny an applicant. When pre-qualification business rules are in place, it frees critical bandwidth from existing manual processes. Further, automatically pulling an applicant’s credit report, assets, income and bank information with just a few required fields makes it quick and simple to get results, providing a modern lending experience for potential borrowers. While many institutions currently execute consumer loan applications in a straight-through process, providing full approval with seamless communication in real-time can unlock significant opportunities for both the borrower and the lender.
- Offer Choice and Use the Power of “e” Throughout the Loan Journey
Once a borrower is pre-approved/approved for a loan, interest rates and payment options can be generated based on the application. Offering applicants the information they’re looking for without waiting reduces the likelihood of a borrower pursuing other options and increases the likelihood that the borrower will proceed with your loan offering. Once the applicant selects a loan product, everything downstream should be “e-enabled” from e-deliver and e-consent to e-sign and e-close. Offering multiple funding choices closes the loop on a digital loan – 100% experience, 100% paperless, 100% automated.
- Leverage AI to Enable Smart Automation
Machine learning and artificial intelligence are not new terms in the financial industry. But what does layering AI on top of automation mean? It means that decisions traditionally made by a human underwriter are immediately analyzed when the data is collected. AI technology learns from data and makes real-time decisions based on previous human work. These decisions follow business rules that are set in place by the institution, and the program constantly learns and evolves based on manual approvals made by the underwriting team. But AI can be used in other areas to improve the loan process, including providing counteroffers, workflow orchestration based on the loan application, automated income calculation, upfront calculation of key milestones in the loan lifecycle, and more.
Bring it All Together with Seamless Communication
Investing in embedded and integrated systems unlock tremendous potential in the form of time, cost savings and a better consumer lending experience. All events in a loan-origination system should be reflected in real-time, with alerts sent automatically to the right stakeholders. With seamless communication, these automated workflows and real-time responses reduce friction within an institution’s consumer loan application process, leading to lower applicant attrition, a higher number of pre-approved applicants and increased funding rates.
