Partnering on commercial lending opportunities
The events of 2020 cemented digital channel usage and put a definitive stamp on the future for financial institutions. By some estimates banks and credit unions will face an increasingly competitive lending landscape going forward as technology-enabled non-banks begin to monopolize the industry.
These digital movers have several advantages over traditional financial institutions. Free of legacy system constraints, the majority have built technology stacks from scratch. With freedom to innovate, Fintechs are reimagining the lending journey and improving access to financial products and services.
But hold on a minute. Non-bank competitors might not seize market share that fast. For example, while 33% of businesses applied with an online lender last year, the majority still prefer to work with a bank or credit union for lending products.i
One reason is security. Banks and credit unions have a long and storied history in the market. They are backed by government oversight and have decades worth of data to shape customer journeys.
Unfortunately, the data isn’t all that is required to meet expectations in today’s market, and businesses have been known to express a few common gripes about the lending process. Lengthy waits on application decisions top the list,ii but businesses also want the flexibility of a fully-online application, something that only 17% of financial institutions say they can provide.iii
To remain competitive in the commercial lending space, banks and credit unions will need to become first movers in their own rights, by re-imagining the lending journey and using technology to provide a modern commercial lending experience. Fortunately, Fintechs come in all shapes and sizes, and many are the perfect match for banks and credit unions, powering the way toward a wholly digital lending process.
Digital is the way of the future for lending
For financial institutions, the risks of ignoring the commercial migration to digital are grave.
According to Bain, banks and credit unions that excel at offering reliable digital channels and tools receive leading loyalty scores.iv
However, taking a piecemeal approach to a customer journey as lengthy and filled with potential road bumps as the lending process won’t always return the best outcomes. Working digital across the end-to-end journey, on the other hand, provides financial institutions the opportunity to excel in the areas that most impact customer loyalty and bank profitability:
- Shorter time to approval: Digitization of the end-to-end process reduces time to loan approval by 25-50%, removing one of the impediments to building strong relationships with commercial businesses.v
- Reduction in error rates: Straight through processing enabled by digitization provides one data depository for all data, meaning information is keyed in once, reducing errors by over 87%.vi
- Support for growth: A digitized lending cycle enables the loan officer in the field to seamlessly connect with back office systems. Anywhere, anytime availability to the application process, when combined with reductions in data entry, can deliver twelve percent growth.vii
- Reduced costs: Digitization replaces manual tasks with automation, reducing bank headcount and delivering twenty percent in cost reductions, all while supporting growth.viii
While digitized banks realize bottom line advantages, reaching the end-to-end state is complicated. 86% of financial institution executives say that legacy IT systems are an impediment to digitization,ix while others face lack of internal resources. This is where partnerships with Fintechs can help financial institutions realize successful digital transformations.
Taking the partnership approach
Financial institutions can move more swiftly on digital initiatives by partnering with Fintechs. This approach allows each side of the partnership to focus on core strengths, bringing to the relationship critical attributes that are necessary for success. Partnerships are already delivering a path to the future for two-thirds of banks and one-third of credit unions.x
For the best outcomes, banks and credit unions are partnering with platform providers that digitize the end-to-end lending journey. For example, Finastra’s Fusion CreditQuest provides lenders with the benefits of automation, as well as digital access across the complete lending cycle.
By utilizing APIs, banks and credit unions can quickly evolve to modern standards without worrying about changes to existing architecture. This approach enables the financial institution to move fast, drastically reducing the time to implementation.
Speed will become one of the greatest attributes of leading financial institutions as the future closes in. Origination speeds and time to funding will determine the strength of customer relationships, but considering how quickly business sentiments and habits can change, speed to market will also become a critical component of banking success.
As new technologies emerge and improve lending processes, financial institutions need unprecedented agility to respond. Cloud-based platforms enabled by APIs, can support endless innovation for Fintechs who aren’t afraid to partner with other developers on innovative solutions to emerging trends. Financial institutions follow suit by easily adopting new products and services designed to enhance end-to-end lending workflows.
In the end, it is the strength of this integrated environment that will put banks and credit unions on the lending map, earning customer satisfaction and loyalty for a profitable future.
i “2020 Report on Employer Firms: Small Business Credit Survey.” Federal Reserve Banks, 2020. Web.
ii “2020 Report on Employer Firms: Small Business Credit Survey.” Federal Reserve Banks, 2020. Web.
iii Coulter King, et al. “Great Expectations: Improving the Loan Application Process for Small Business Borrowers.” Oliver Wyman. Retrieved from: https://www.oliverwyman.com/content/dam/oliver-wyman/v2/publications/2017/sep/Great%20Expectations%20-%20Improving%20The%20Loan%20Application%20Process%20For%20Small%20Business%20Borrowers.pdf.
iv Gerard du Toit and Katrina Cuthell. “As Retail Banks Leak Value, Here’s How They Can Stop It.” Bain & Company, Nov. 18, 2019. Web.
v “Optimized End-to-End Commercial Loan Originations with Fusion CreditQuest.” Finastra. Retrieved from https://www.finastra.com/sites/default/files/documents/2019/06/infographic_optimize-end-to-end-commercial-loan-originations-with-fusion-creditquest.pdf.
vi “Meet the Challenges of Compliant Loan Document Preparation Head-On with Fusion Laserpro.” Finastra. Retrieved from https://www.finastra.com/sites/default/files/documents/2019/07/product-insights_compliant-loan-document-preparation-fusion-laserpro.pdf
vii “Optimized End-to-End Commercial Loan Originations with Fusion CreditQuest.” Finastra. Retrieved from https://www.finastra.com/sites/default/files/documents/2019/06/infographic_optimize-end-to-end-commercial-loan-originations-with-fusion-creditquest.pdf.
viii “Optimized End-to-End Commercial Loan Originations with Fusion CreditQuest.” Finastra. Retrieved from https://www.finastra.com/sites/default/files/documents/2019/06/infographic_optimize-end-to-end-commercial-loan-originations-with-fusion-creditquest.pdf.
ix “The State of Commercial Digital Lending.” Cornerstone, 2019. Web.
x “What’s Going on in Banking 2020.” Cornerstone Advisors, 2020. Web.