Loan Officers and Back Office, It Is Time for a Better Friendship

If you are a bank looking to increase lending revenues, then you need to understand today’s borrowers and probably change some of your traditional lending processes.

It is no secret that consumers have gone digital, even when it comes to banking. PwC reveals that the number of Gen Z borrowers using an online lender was 2.2 times higher in 2019, over the previous year.ⁱ  A similar finding holds true for millennials who increased their use of an online lender 1.5 times in the last year.ⁱⁱ

Consumers are not the only ones, however, flocking to digital shores. In most cases, individuals take their at-home habits and preferences to work, where they expect to receive the same frictionless interactions in their business dealings. In line with consumer preferences, fifty percent of Small to Mid-Sized Businesses (SMB) would like to apply for a loan on the web.ⁱⁱⁱ  

This should not be surprising considering the length of the business loan process. McKinsey reports that corporate lending decisions require a 3- to 5-week turnaround time.^iv  Even more staggering, the average time to cash is nearly 3 months.^v

While the gears in the traditional lending process can move slowly, sometimes they grind to a halt. When this happens, it is often due to friction between lending teams and the back office and can seriously inhibit the chances of securing new SMB lending business for community banks and credit unions.

Commercial Business Lagging in Digital Lending

Financial institutions are making strides toward delivering a digital lending experience. According to the 2019 Digital Lending Review, seventy-six percent of respondents were able to accept loan applications via online channels.^vi  Unfortunately, only fifty-two percent were able to offer an end-to-end digital lending application process and only eleven percent offered digital commercial lending experiences.^vii 

When community banks and credit unions rely on paper trails and manual processes, they are open to delays, errors and inefficiencies that negatively impact the customer or member experience. A study conducted by the New York Federal Reserve Board revealed that Fintech lenders are outpacing traditional lenders in several metrics that matter most to business clients.

According to the report, Fintech lenders processed loans in twenty percent less time with twenty-five percent lower default rates.^viii  Fintech lenders were also shown to react more dynamically to changes in demand without significantly impacting the time it took to process a loan.^ix

To catch up to new entrants in the lending space, community banks and credit unions need to rethink the relationship between loan officers and the back office, using digital to implement a smoother flow of information.

Following the Digital Trail to Better Lending

The biggest advantage for community banks and credit unions when it comes to digitization in the lending process, comes from increased transparency. A paper application may provide a single source of truth, but the application, as well as documents or changes added after initiation, are not instantly viewable across all parties or existing banking systems.

A digital lending process provides a single vantage point to the one source of truth, giving lenders and back office the exact same view at any time and from any place. This is especially helpful for relationship managers who spend much of their time out in the field, but digital solutions streamline the coordination in other ways as well. Outcomes can be realized in 3 main areas:

• Credit management: By bringing together document management, account aggregation, risk rating and relationship management functions into a single workflow, financial institutions reduce friction between front and back offices. The result is a more efficient process and a fifty-eight percent reduction in loan origination times.^x 
• Lending risk: Digital lending solutions support a wide range of rating models, including those that analyze financial statements, borrower demographics and industry segment risk, to name a few. Multiple risk assessments provide a clearer picture of the borrower, allowing community banks and credit unions to make more accurate predictions and to reduce the number of defaults. They can even be run in a fraction of the time that it takes to assess risk manually, resulting in faster turnaround times and higher borrower satisfaction.
• Pipeline management: With faster data entry and simplified document management, relationship managers spend more time interfacing with clients and members and less time keying data or responding to requests for information. With fewer demands on their time, lenders are free to pursue new opportunities. Confidence in origination times also helps them to better balance the pipeline, trusting that each loan will move from application to origination in rapid time.

Better insights from a single view of lending data and streamlined workflows are the key to encouraging a more amiable relationship between lenders and the back office. As it turns out, harmony is good for the credit union or community bank. A more streamlined and efficient relationship has been shown to reduced costs by forty percent and increase loan originations by twelve percent.^xi

_{i  “2019 Consumer Digital Banking Survey: PwC. “PwC Digital Consumer Research, June, 2019.” Web.
ii  Ibid.
iii  Andrew Martins. Business Owners Want More Convenient Banking Services.” Business News Daily, Apr. 12, 2019. Web.
iv  Gerald Chappell et al. “The Lending Revolution: How Digital Credit Is Changing Banks from the Inside.” McKinsey & Company, Aug. 2018. Web.
v  Ibid.
vi  Jim Marous. “most Bank & Credit Union Digital Lending Efforts Come up Short.” The Financial Brand, Jun. 13, 2019. Web.
vii  Ibid.
viii  Andreas Fuster, et. al. “The Role of Technology in Mortgage Lending.” Federal Reserve Bank of New York. Federal Reserve Bank of New York Staff Report No. 836, Feb. 2018. Web.
ix  Ibid.
x  “Optimize End-to-End Commercial Loan Originations with Fusion CreditQuest.” Finastra. Finastra infographic. Retrieved from: https://www.finastra.com/sites/default/files/2019-06/infographic-optimize-end-to-end-commercial-loan-originations-fusion-creditquest.pdf.
xi  Ibid.}