Improved efficiency drives revenue gains as financial institutions digitize end-to-end

Research by McKinsey reveals a startling opportunity for banks and credit unions to grow revenues. According to the consulting firm, a bank with a balance sheet of $250 billion could capture as much as $230 million in annual profit by digitizing lending processes.ⁱ Just over half of those gains come from efficiency improvements.ⁱⁱ That translates to a $460,000 potential annual profit for a $500 million community bank.

However, while digitization plays a pivotal role when it comes to improving efficiency, technology alone won’t necessarily move the needle toward revenue-generating performance. That’s because piecemeal digitization, combined with inefficient workflows, fails to deliver the expected results. For example, a financial institution may digitize the application process, but the increased efficiency could lead to bottlenecks in underwriting if downstream manual steps are unable to keep pace with the speed of digitization.

On the other hand, McKinsey’s estimates indicate that digitizing the end-to-end lending journey delivers a 30% efficiency gain,ⁱⁱⁱ but traditional financial institutions face a legacy-sized problem when it comes to digitizing the complete lending lifecycle. Existing systems and software represent the biggest hurdle to overcome according to 85% of risk managers.^iv

Fortunately, technology has a solution for that too, allowing community banks and credit unions to digitize the end-to-end lending process and realize efficiency gains that pad the bottom line.

Consumers drive adoption of end-to-end digital lending

Consumer lending makes it possible for individuals and families to take advantage of immediate opportunities while spreading the cost of a purchase over time. As a result, Americans secured over $14 trillion dollars in financing in 2019, according to Experian.^v The record high level of funding includes $9.6 trillion in auto loans and $305 billion in personal loans, products consumers often secure through traditional financial institutions.

When it comes to the lending experience, speed and efficiency are top of mind for consumers. Borrower demand for online applications has risen 18% since 2017, and interest in a mobile application is also on the rise.^vi This expectation has filtered up from consumers into the commercial lending space and will be a key facilitator for change.

Overall, a fast and efficient end-to-end application process is the largest differentiating factor in commercial financing.  According to the Federal Reserve Bank Small Business Credit Survey for 2020, the time it took to receive a credit decision was the number one source of dissatisfaction with the lending process.^vii Meanwhile, the average time to decision is 26 days.^viii

As a result, 33% of commercial lending requests were submitted to online lenders last year.^ix These technology-savvy companies are built to provide digital-first efficiency and performance. To realize similar outcomes, banks and credit unions need to follow the path of the online-only bank and digitize the end-to-end lending process.

Delivering end-to-end digital performance to community banks and credit unions

By adopting digital workflows across an end-to-end lending platform, financial institutions can streamline efficiency from loan origination through underwriting. The resulting workflow enhancements drastically improve time to decision and funding for consumers.

Currently, the lengthy wait to receive funding is a major drag on customer satisfaction, leading community banks and credit unions to miss out on opportunities to expand share of wallet or gain repeat business. Meanwhile, some emerging online lenders are pushing the envelope on performance and supplying funds in as little as 1 to 7 business days.^x

That’s because online lenders take advantage of straight-through processing (STP). With STP, information is entered once into a central database, allowing all technology applications and processes to access a single source of data. The result is greater efficiency across the financial institution’s lending process, resulting in faster time to funding for consumers.

Another major benefit to STP is the ability to automate end-to-end workflows. With automation in place, financial institutions can support higher volumes, encouraging profitability without increased labor costs.

It is a lesson that savvy financial institutions have already learned by partnering with fintechs on digital solutions designed to digitize the end-to-end lending process. Finastra’s Fusion CreditQuest, for example, has reduced loan approval times for new customers up to 30%, while accelerating time to decision for existing customers by 50%.^xi

As financial institutions work with fintech providers on digitizing the lending journey, many are taking a piecemeal approach, utilizing multiple vendors. However, there are several benefits to adopting an end-to-end system from a single vendor.

For one thing, each application was designed to work together, creating a seamless operating environment from application through executive reporting. If problems do arise, it is easier for one vendor to isolate issues across the end-to-end value chain than it is for the financial institution to work with multiple vendors who lack visibility into adjacent processes.

Overall, the benefits of working with a single provider to digitize the end-to-end lending process have been impressive. Technology enhancements that support an end-to-end model of loan origination have helped financial institutions to realize 12% in growth with the same staff,^xii ensuring financial institutions market share in an increasingly crowded space.

_{ⁱ Gerald Chappell, et al. “The Lending Revolution: How Digital Credit Is Changing Banks for the Inside.” McKinsey & Company, Aug. 31, 2018. Web.
ⁱⁱ Gerald Chappell, et al. “The Lending Revolution: How Digital Credit Is Changing Banks for the Inside.” McKinsey & Company, Aug. 31, 2018. Web.
ⁱⁱⁱ Gerald Chappell, et al. “The Lending Revolution: How Digital Credit Is Changing Banks for the Inside.” McKinsey & Company, Aug. 31, 2018. Web.
^iv Gerald Chappell, et al. “The Lending Revolution: How Digital Credit Is Changing Banks for the Inside.” McKinsey & Company, Aug. 31, 2018. Web.
^v Stefan Lembo Stolba. “Debt Reaches New Highs in 2019, but Credit Scores Stay Strong.” Experian, Mar. 9, 2020. Web.
^vi “New Data Compares Lender and Borrower Expectations.” Ellie Mae, Nov. 15, 2019. Web.
^vii “2020 Report on Employer Firms: Small Business Credit Survey.” Federal Reserve Banks, 2020. Web.
^ix “2020 Report on Employer Firms: Small Business Credit Survey.” Federal Reserve Banks, 2020. Web.
^x Kat Tretina. “How Long It Takes to Get a Personal Loan.” Credible, Oct. 7, 2020. Web.
^xi “Optimize End-to-End Commercial Loan Originations with Fusion CreditQuest.” Finastra. Retrieved from https://www.finastra.com/sites/default/files/2019-06/infographic-optimize-end-to-end-commercial-loan-originations-fusion-creditquest.pdf.
^xii “Optimize End-to-End Commercial Loan Originations with Fusion CreditQuest.” Finastra. Retrieved from https://www.finastra.com/sites/default/files/2019-06/infographic-optimize-end-to-end-commercial-loan-originations-fusion-creditquest.pdf.}