By Brit Barker
The future of lending looks bright, especially for community based financial institutions.
Credit union loan growth rose to 7.5% in 2021, up from 5.3% in 2020, which was slightly above the 7.2% long-run average, according to CUNA Mutual. CUNA Mutual pointed to strong performance in credit unions’ two biggest loan categories: used auto loans and fixed-rate first mortgages, as key drivers in this growth.
Community lenders were quick to respond to increased demand for digital services during the pandemic, and the growth numbers reflect that. However, credit unions can’t afford to rest on their laurels because fintech companies are coming in hot on their heels. Fintechs have invested heavily in data science tools over the past two years, and the increasing availability of 5G networks will increase bandwidths and download speeds.
Consumers Want More
Consumers already expect almost instant service when it comes to digital channels. It must be fast, easy, and on their terms. In other words, digital. Earlier this year, Digital.com asked 1,250 online shoppers how long they wait for web pages to load. Half of all respondents said they abandon their shopping efforts when pages don’t load fast enough, with 20% leaving after just 2 seconds and 8% giving up after just one second. In fact, slow technology was the top complaint among digital consumers, rating higher than security concerns.
Consumers’ need for speed should be of particular concern because despite overall loan growth, lenders lost ground in important key lending measures. The MBA reported steep year-over-year drops in net profits, due in part to production expenses rising to a whopping $9,140 per loan. Meanwhile, productivity eroded to 3.6 loans per employee and the average pull through closing rate fell to 75 percent.
To me, the reason is clear: for years, fintechs have pitched systems built with open APIs, claiming they could share and process data as quickly and efficiently as all-in-one systems. However, those new systems couldn’t scale business as promised when the mortgage market boomed.
For credit unions looking to maximize lending efficiency while providing a great member experience, a single origination platform for both loans and accounts is the golden ticket. A single system allows credit unions to ramp up their cross-selling efforts, deliver a seamless account opening process, and eliminate the service gaps that lower net promoter scores.
The pandemic also spurred an increase in the number of digital channels available to consumers and the ability to shift between them without friction. One of the most intrinsic features of a single system that originates both loans and new accounts, is the ability to open a membership account within the loan application process, greatly reducing time spent and improving the experience for an applicant. Reality is most borrowers come for a loan and then, if they are a new member, need to join the credit union. As part of the loan application process, these systems can qualify eligibility, determine membership, offer eligible accounts and fund the new account. The loan is submitted and new account is funded all in one session for the applicant.
Modern APIs have paved the way for impressive improvements in digital service and efficiencies. However, according to MBA data and the experiences of our new lending partners, it doesn’t measure up to expectations. All-in-one systems still provide the fastest and most efficient experience for consumers and employees, too.
Meeting Employee Expectations
Nobody runs a perfect shop with tech systems that work flawlessly every time. The reality is, at least on occasion, employees must overcome operational challenges and pick up the slack manually to maintain digital service levels. Bottom line, a complex network of systems might give the appearance of efficiency to your customers, but if employees must perform operational miracles on the back end to keep up the facade, it’s a shaky foundation for success.
Every lender aiming for loan growth must take the time to review all policies, procedures and processes to uncover pain points that limit staff efficiency. Think procedures still in place for legal requirements that no longer exist, or the need to duplicate compliance checks to satisfy two systems. I can’t stress enough how important it is to locate these friction points and eliminate them, instead of shifting the load to your staff. It can be a challenging job, but it’s not thankless; the effort required to streamline back office operational efficiency is a gift that keeps on giving.
When employees are able to close a loan or open a new account quickly and easily, they provide better service to members, who in turn bring your credit union more business. These positive operational experiences power each other. And imagine how much easier it will be to optimize your operations when you have an all-in-one origination system, instead of several cobbled together.
These efficiencies benefit members who want a modern experience, as well as employees who find it easier to close loans quicker. These positive operational experiences power each other.
Regulators Expect More
Most of our lives have moved online and cybercriminals have followed. According to data from Allstate Identity Protection, fraudulent new loan accounts grew by 61% from 2020 to 2021 and accounted for more than half of the firm’s identity theft claims. In Q4 2021, fraudulent loan applications represented 42% of all ID theft cases.
An origination system provides multi-factor fraud protection and offers access to a wide network of best-in-class security applications that can be configured to meet your organization’s needs. This is one area where saving money with a bolt-on solution doesn’t pay.
In addition, regulators are more closely scrutinizing the way in which financial institutions interact with consumers. On March 16, the CFPB updated its exam manual to expand discrimination enforcement actions beyond lending, to include a wide range of financial products like basic savings and transaction accounts.
All-in-one systems can be automated to treat consumers fairly across the board, without worry of inconsistencies caused by subjective human decision making, poor system integration or a tangle of outdated policies and procedures.
When it comes to operations and system efficiency, we’re learning that less is more. Lenders must provide modern origination solutions that satisfy everyone’s expectations, not just borrowers. Employees and regulators expect it too.