Digital banking trends have accelerated due to the pandemic, and many institutions have pivoted toward digital transformation. But in the digital lending space, slow-moving institutions still face a disadvantage. 

The economic slowdown and obstacles to in-person channels have changed lending demands. These trends, along with intensified competition and high borrower expectations, make loan origination an essential component of your digital banking strategy.

Before the COVID-19 pandemic, CSI conducted a digital lending trends survey of 107 banks. Of the respondents, around 58% prioritized digital lending to increase market share. Further, CSI’s 2021 Banking Priorities Executive Report revealed 43% of bankers surveyed planned to prioritize digital lending when asked which technologies they would use to expand their geographic footprint and customer relationships. Though many banks have expedited their digital strategy over the past year, the adoption of digital lending has yet to meet the increased rate of demand. 

The pandemic has driven customers to rely on digital channels instead of visiting branches, leveling the playing field between banks and non-bank lenders. As customers weigh their lending options, a seamless experience is a determining factor in their decision. Many banks have traditionally cultivated customer relationships in a branch, but with the prevalence of digital, your bank must now ensure a superior digital lending experience to acquire and retain customers. 

Recent events aside, it is wise to broaden lending capabilities. Outdated technology and inefficient processes hamstring your institution against a shifting economy. And a lackluster or incomplete digital experience may drive customers elsewhere.

Exploring the Benefits of Digital Lending

Lending digitalization does more than aid loan processing. According to a recent AITE Matrix Report, digital loan management software supports your bank’s growth by providing the following benefits:

• Improved User Experience: A variety of companies – including non-bank lenders – vie for your customers, and brick and mortar banking isn’t for everyone. A configurable lending platform integrated into your existing digital solution empowers customers to apply for needed funds without visiting a branch or turning to another provider.

In addition, omnichannel delivery synchronizes online and offline channels, allowing customers to receive lending services from whichever device they choose. Digital lending also enhances the back-end experience, improving lender responsivity. Creating and distributing a loan or transferring information to the core system no longer requires navigating disparate programs. 

• Efficiency Gains: Digital lending streamlines the lending process and lending compliance while also providing quick resolutions to requests. And like many aspects of digital banking, automating the process saves time and money.
  
  
• Business Intelligence and Analytics: While big banks have leveraged data to gain market share, many community banks have fallen behind. As customer acquisition costs continue to rise, your institution must drive traffic via digital channels. A robust solution with exceptional intelligence and analytics opens opportunities to increase market share and cross-sell to current customers.

Besides marketing and strategic planning, you can use dynamic intelligence dashboards to reverse engineer the digital lending process. In doing so, you can quickly determine whether you can refinance a loan to save a customer money.

• Credit Risk Management: With digital lending, you can immediately feed data from a credit report into the loan origination system and assess the five Cs of credit for your customers. This feature facilitates quicker turnaround and more confident decision-making.

While matrix-based lending scores may cause concern about overlooking loans or denying important customers, most digital lending solutions allow institutions to set the decision parameters. Immediately, obvious approvals or denials are processed, while others route to you for review.

• Regulatory Compliance: Digital lending makes data accessible, rendering manual searches for documentation unnecessary and decreasing the risk of human error. Digital lending platforms provide a complete audit trail for regulatory review, and automation creates a more consistent, strengthened compliance environment.

Automation Does Not Have to Mean Automated Decision Making

Your bank sets itself apart through personal connections with customers. And because you value those relationships, digital lending may seem like you’re sacrificing that human connection. But you can strike a balance by embracing the right level of automation for your institution and using these tools to inform decision making. 

Digital lending automates once manual tasks but should not be mistaken for automating the decision-making process. However, in some circumstances, automating decisions can yield favorable results. For instance, if your institution has a conservative lending policy, an adequately configured digital lending system maintains tight controls and ensures nothing slips through the cracks. Similarly, if your institution is an early adopter or highly specialized in a particular type of credit, automation will drastically streamline the process.

Reinventing the Loan Origination Process

Institutions that wish to stay relevant must embrace digital technologies. Digital lending adoption does present some challenges, including upfront costs and vendor management. But you can offset these concerns by embracing automated loan origination tools along with the right digital lending strategy for your bank, allowing you to provide your customers with the service they need while improving your processes.