How technology is revolutionizing retail lending compliance

Written by Timothy Somers Product Marketing Lead
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Technology is ever-changing, with new innovations transforming how lending products in retail banking operate. This, paired with evolving consumer demands for speed and simplicity, is driving continuous assessment and adoption of digital tools that are transforming community banking in North America. Before exploring this further let’s first clarify, what is retail lending in today’s market? Retail lending, commonly referred to as consumer lending, is a type of financial service where lenders loan money to a consumer for personal use.

Whether state- or Federal-chartered, community banks and credit unions must be vigilant to ensure their lending practices adhere to rapidly evolving regulations. Credit card, personal, auto, and mortgage lending must all be underwritten with an eye towards governing compliance mandates originating from the Federal Reserve, OCC, NCUA, FDIC, and CFPB, among others.

For consumer lenders, keeping up-to-date with the latest shifts in consumer demand, and subsequent innovations, is also vital – as those that don’t could risk losing their competitive advantage and become obsolete.

How does compliance play a role in retail lending?

Compliance is an essential - and unavoidable - component to all lending. In a 2016 study, Thomson Reuters estimated that over 200 new banking regulations were enacted worldwide every business day. In the updated 2023 survey, Thomson learned that the top compliance themes keeping boards worried included balancing cost pressures, increased regulatory scrutiny, cyber risk, and retaining skilled resources to keep up with the tsunami of mandates.

Financial institutions who don’t comply face a myriad of potential penalties - from suspending operations to fines, public announcements on failures to comply and, in the most extreme cases, even criminal prosecution. Compliance is crucial not only to protect both lenders and consumers, but also to maintain consumer trust in the overall banking system.

Moving at the pace it does, keeping up with evolving compliance requirements can be a demanding task for providers. However, technological innovation is evolving even faster and could ease its management. Financial institutions can keep up with, and even get ahead of, regulatory changes by exploring digital solutions that leverage the effectiveness of their compliance teams as well as drive underwriting efficiencies that result in faster loan closings and more satisfied customers.

There are a number of different ways technology can support consumer lending, from compliance management to enhancing process and identity security, to reducing errors and re-work, and to streamlining workflows so institutions can grow lending activity while reducing onboarding costs.

Digital identity in retail lending

Consumers are managing their finances in an increasingly digitized fashion, with online documentation and eSignature capabilities enabling them to both access and sign documents from anywhere. While this can enhance customer experience by streamlining origination processes, it is important to bear in mind the importance of secure and trustworthy online identity verification. Digital solutions utilize out-of-wallet questions and remote identity verification measures via IDs such as driver’s licenses and passport documents. This ensures that documents are being signed by the right person, protecting against fraud and helping providers adhere to money laundering regulations.

Other digital identity retail lending solutions include the use of optical character recognition (OCR), a technology that converts images of text into a format that can be read and understood by computers. This technology is also used in other areas of the lending sector. AI-based OCR technology can be used to scan IDs and detect fraudulent documents quickly and efficiently. This can help those in retail lending to only take on legitimate, lending-worthy customers, and ensure KYC/AML compliance in the process.

Enhancing workflow through automation

With the extensive range of regulations governing retail lending, remaining vigilant for human error is necessary - particularly when managing high volumes of applications and accounts. Enhancing the account opening and lending workflow can cut down admin time, create uniformity, increase accuracy, and ultimately minimize the risk of human error.

Finastra’s LaserPro technology is an example of a retail lending solution that can help automate processes and enhance workflows. LaserPro is a document management system where lenders can create specific workflows tailored to the types of loans they offer, making the loan documentation process quick and easy from start to finish.

With this solution, users are guided through mandatory fields to enter data specific to the loan, its terms, the borrower, and any collateral. Compliance testing is then completed, after which the tool generates a set of closing documents unique to the loan transaction. It will also create internal worksheets and checklists specific to the loan type. The checklists provide users with insights on outstanding documentation and compliance issues before document delivery, ensuring compliance for every account filed in LaserPro.

Securing data handling

Traditional community banks and credit unions now have competition from a new breed of all-digital competitors who may offer more efficient processes at lower costs. To help traditional lenders stay ahead, Finastra is now offering a cloud-native version of LaserPro that integrates seamlessly into eSignature engines with a single click. This allows lenders to deliver funding faster and potentially position themselves at a more competitive cost – all while benefiting from Finastra’s industry-leading $2m nationwide compliance warranty.

Transitioning from on-prem computing facilities to the cloud is about far more than mere convenience. In actuality, the cloud delivers a level of security far beyond that. LaserPro’s move to the cloud provides an extra layer of security for users’ sensitive information as well as compliance for lenders. Find out more about LaserPro’s move to the cloud here.

The dynamic landscape of retail lending means embracing technology is becoming less of a luxury, and more of a necessity for lenders to remain competitive and compliant. As the industry continues to evolve, keeping up with the latest technological transformations and offerings may become key to not just surviving, but robustly thriving in today’s hyper-competitive marketplace.

Written by
Timothy W. Somers

Timothy Somers

Product Marketing Lead

Tim Somers is Head of Retail Lending Marketing in North America, where he is responsible for end-to-end marketing and sales enablement strategy and execution for Finastra’s Mortgegbot, Originate, and LaserPro product families. Prior to joining Finastra, Tim was an Executive Vice President at US...

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