Today’s business borrowers demand a lot more than just good rates. They expect to communicate with their lender via a variety of channels at a time that suits them. They are too busy running their own businesses to prepare thick files of financial information. And they want to deal with partners whom they regard as having a modern, world-class business model and technology stack.
Luckily, a new generation of automated loan origination technology can help community banks meet this challenge with greater efficiency and better customer service. Here are five steps to improve your loan origination process to meet the expectations of the new breed of borrowers.
1. Leverage new tech to boost efficiency. Today’s credit origination software can integrate a bank’s customer relationship management (CRM) database with limit and exposure reporting in addition to spreading, risk rating, facility structuring, collateral management, and covenant monitoring. This streamlining can cut the time to fund a loan by as much as 30 percent to 40 percent, enhancing client service.
2. Raise the bar on transparency and consistency. Many banks still employ manual processes and spreadsheets that result in inconsistent underwriting and lack of transparency. Modern loan origination systems standardize underwriting by putting consistent data on a common platform, where it’s available to staff who need it. The system also records each step in the lending process and generates an audit trail to facilitate compliance and internal audits.
3. Get the most out of your risk data. Financial institutions generate vast amounts of client data, but most are not very good at managing it. How banks create, store, and make use of data, in particular risk data, will become more important with the advent of new regulation such as the Basel Committee on Banking Supervision’s risk data and reporting rule 239. Traditional issues such as duplicated, erroneous, and dirty data will all need to be addressed systematically to meet these new standards.
4. Make better decisions with a single source of truth. The inability to identify risk concentrations for related borrowers was responsible for heavy losses during the financial crisis. Even today many banks still track positions with manually updated spreadsheets or adding up numbers from multiple systems. Having a 360-degree view of the credit relationship creates a golden record of client data under more accountable ownership.
5. Improve service and compete more effectively. The success of so-called marketplace lenders is largely due to customer service models built on new technology and faster response times. Banks can improve service and competitiveness by harnessing the efficiency gains of a modern origination system. Faster response times yield not just greater efficiency but higher win rates too.
The era of big data has arrived, and few industries are better positioned to benefit from it than banking and financial services.
Thanks to the proliferation of smartphones and the growing use of online social networks, IBM estimates that we create 2.5 quintillion bytes of data every day. In an average minute, Yelp users post 26,380 reviews, Twitter users send 277,000 tweets, Facebook users share 2.5 million pieces of content and Google receives over four million search queries.
Just as importantly, data centers have slashed the cost of storing information, computers have become more powerful than ever and recently developed statistical models now allow decision makers to simultaneously analyze hundreds of variables as opposed to dozens.
But while fintech upstarts like Simple, Square and Betterment are at the forefront of harnessing data to tailor the customer experience in their respective niches, no companies know their customers better than traditional financial service providers. The latter know where their customers shop, when they have babies and their favorite places to go on vacation, to mention only a few of the insights that can be gleaned from proprietary transactional data.
When it comes to big data, in turn, banks have a potent competitive advantage given their ability to couple vast internal data repositories with external information from social networks, Internet usage and the geolocation of smartphone users. In the opinion of Simon Yoo, the founder and managing partner of Green Visor Capital, a venture capital firm focused on the fintech industry, the first company to successfully merge the two could realize “billions of dollars in untapped revenue.”
Few financial companies have been as proactive as U.S. Bancorp at embracing this opportunity. Using Adobe Systems Inc.’s cloud computing services, the nation’s fifth-largest commercial bank “integrates data from offline as well as online channels, resulting in a truly global understanding of its customers and how they interact with the bank at multiple touch points,” says an Adobe case study.
By feeding cross-channel data into its customer relationship management platform, U.S. Bancorp is able to supply its call centers with more targeted leads than ever before. The net result, according to Adobe, is that the Minneapolis-based regional lender has doubled the conversion rate from its inbound and outbound call centers thanks to more personalized, targeted experiences compared to traditional lead management programs.
Along similar lines, a leading European bank studied by Capgemini Consulting employed an analogous strategy to increase its conversion rates by “as much as seven times.” It did so by shifting from a lead generation model that relied solely on internal customer data, to one that merged internal and external data and then applied advanced analytics techniques, notes Capgemini’s report “Big Data Alchemy: How Can Big Banks Maximize the Value of Their Customer Data?”
Another European bank discussed in the report generated even more impressive results with a statistical model that gauges whether specific customers will invest in savings products. The pilot branches where the model was tested saw a tenfold increase in sales and a 200 percent boost to their conversion rate relative to a control group. It’s this type of progress that led Zhiwei Jiang, Global Head of Insights and Data at Capgemini, to predict that a “killer app” will emerge within the next 18 months that will change the game for cross-selling financial products.
The promise of big data resides not just in the ability of financial companies to sell additional products, but also in the ability to encourage customers to use existing products and services more. This is particularly true in the context of credit cards.
“In a mature market, such as the U.S., Europe or Canada, where credit is a mature industry, it is naïve for a bank to believe that the way it is going to grow revenue is simply by issuing more credit cards,” notes a 2014 white paper by NGDATA, a self-described big data analytics firm. “The issue for a bank is not to increase the amount of credit cards, but to ask: How do we get the user to use our card?”
The answer to this question is card-linked marketing, an emerging genre of data analytics that empowers banks to provide personalized offers, savings and coupons based on cardholders’ current locations and transactional histories.
The venture capital-backed startup edo Interactive does so by partnering with banks and retailers to provide card users with weekly deals and incentives informed by past spending patterns. Its technology “uses geographical data to identify offers and deals from nearby merchants that become active as soon as the customer swipes their debit or credit card at said merchant,” explains software firm SAP’s head of banking, Falk Rieker.
Founded in 2007, edo has already enrolled over 200 banks in its network, including three of the nation’s top six financial institutions, and boasts a total reach of 200 million cards.
Poland’s mBank offers a similar service through its mDeals mobile app, which couples the main functions of its online banking platform with the company’s rewards program. “What makes this program so innovative is its ability to present customers with only the most relevant offers based on their location and then to automatically redeem discounts at the time of payment,” notes Piercarlo Gera, the global managing director of banking strategy at Accenture.
A third, though still unproven, opportunity that big data seems to offer involves the use of alternative data sources to assess credit risk.
The Consumer Financial Protection Bureau estimates that as many as 45 million Americans, or roughly 20 percent of the country’s adult population, don’t have a credit score and thereby can’t access mainstream sources of credit. The theory, in turn, is that the use of additional data sources could expand the accessibility of reasonably priced credit to a broader population.
One answer is so-called mainstream alternative data, such as utility payments and monthly rent. This is the approach taken by the VantageScore, which purports to combine “better-performing analytics with more granular data from the three national credit reporting companies to generate more predictive and consistent credit scores for more people than ever.”
Another is to incorporate so-called fringe alternative data derived from people’s shopping habits, social media activity and government records, among other things. Multiple fintech companies including ZestFinance, LendUp and Lenddo already apply variations of this approach. ZestFinance Vice President for Communications and Public Affairs Jenny Galitz McTighe says the company has found a close correlation between default rates and the amount of time prospective borrowers spend on a lender’s website prior to and during the loan application process.
“By using hundreds of data points, our approach to underwriting expands the availability of credit to people who otherwise wouldn’t be able to borrow because they don’t have credit histories,” says McTighe, pointing specifically to millennials and recent immigrants to the United States.
While this remains a speculative application of external data by, in certain cases, inexperienced and overconfident risk managers, there is still a growing chorus of support that such uses, once refined, could someday make their way into the traditional underwriting process.
This list of big data’s potential to improve the customer experience and boost sales at financial service providers is by no means exhaustive. “It’s ultimately about demonstrating the art of the possible,” said Wells Fargo’s chief data officer, A. Charles Thomas, noting that big data could one day help the San Francisco-based bank reduce employee turnover, measure the effectiveness of internal working groups and identify more efficient uses of office space.
It’s for these reasons that big data seems here to stay. Whether it will usher in a change akin to the extinction of dinosaurs, as Green Visor’s Yoo suggests, remains to be seen. But even if it doesn’t, there is little doubt that the possibilities offered by the burgeoning field are vast.
E-commerce pioneers like Amazon and Zappos have trained customers to expect all of their providers, including their banks, to wow them at every point of contact. Channel usage, whether you are talking about branch, mobile or online banking, is one of the hottest and most debated topics in the banking community.
Is it possible to provide all the latest digital platforms yet still fall short in customer care? Yes. In fact, many banking experts argue that call center usage will increase as customers lean on contact centers as a digital help desk. Are there times when a customer needs a real person to listen to and resolve his problem? Absolutely—even if it means personally visiting a branch.
Findings from Gallup’s latest U.S. Retail Banking study underscore this point. Querying customers on their channel usage, one of the key themes that emerged was that the BRATMO trifecta—branches, ATMs and online banking—still defines the core of day-to-day banking.
Consider the credit-card customer who, concerned about recent massive security breaches at retail outlets, decided to get her card reissued with a new number. She tried ordering a new card online but couldn’t find the tools to complete the task. A live chat window opened, and the customer learned that getting a new card would take about a week. Anxious about being without her primary card for that long, however, she stopped by her local branch and talked to a live person, who sent her a card by express mail — it arrived in two days. The happy customer, in turn, raved about her positive experience on Facebook.
What did it cost that card issuer to provide the empathetic agent who had the authority to immediately spring for the express-mail cost? And what did the issuer gain in the loyalty not only of that customer but also the positive social media buzz she generated? Research continues to find that people trust peer recommendation far more than they trust advertising.
Listening to Customers Anticipating and responding empathetically to customer needs can take many forms. Consider the following approaches:
Instill a culture of customer service. At Zappos, customer service isn’t a silo; it’s the mission of every employee. The company backs that pledge by providing every employee with at least a month of customer-service training. Empower your contact center agents with the ability to provide inquiry resolution that’s quick, accurate and easy to access.
Tune in to social media. More banks are monitoring social media posts to respond directly to customers and to gain valuable insight into their own and competitors’ strengths, weaknesses and opportunities for innovation. The best social media outlet is the one the bank commits to supporting 24/7, says Joseph J. Buggy, senior vice president and chief strategist at Sutherland Global Services. “If the bank has a Facebook page, you’d better staff it. If you have a Twitter account, it better be active and quick. If you’re not as responsive as your competitor, the customer who asked the question will move on,” Buggy explains.
Conduct surveys and other market research. To ensure alignment, customer-centric banks engage in ongoing market research at all levels. And while surveys have their place, don’t stop there; qualitative research and user forums provide insight into how you can do a better job.
Offer incentives for customers to suggest new products and services or to help beta-test them. Everybody loves free samples, and customers who feel part of your innovation team will be quick to tweet about their experiences. Initiatives like MyStarbucksIdea, where Starbucks takes suggestions and comments from customers online and through social media, shows that your organization can gain unvarnished feedback and access to your best customers’ social networks for little cost.
Complaints? Bring ‘em on! A customer who takes the time to express her dissatisfaction possesses a wealth of market intelligence. Promote multiple channels that make it easy for disgruntled customers to talk to you versus publicly griping about the issue on Facebook. Whether it’s a live agent or a live chat online, explore all the options for swiftly escalating problem calls to the next level. Follow up with customers to ensure a satisfactory resolution.
How your bank listens to customers may be the single most important factor in your capacity to gain ambassadors and champions for life.
As banks begin to look outside their industry for innovation, the gaming industry has interesting ideas that could apply to banking. For both industries, it’s important to create a personalized experience where customers can help themselves. The gaming industry, specifically Activision Publishing Inc.’s Black Ops/Call of Duty, continues to expand on its use of digital and social media communication. Call of Duty/Black Ops uses social media in a holistic way through teasers, communications, monitoring, responding, and even mobile advertising with viral sharing. It has paid off for Activision. In November 2012, Activision’s Black Ops II set an all-time gaming record of $500 million in sales in one day. The success has been partially attributed to an ad with partners MEC and Millennial Media, which enabled the use of a mobile device’s built-in camera along with social media access. The “Call of Duty: Enlist” ad asked gamers to become a black ops agent with Millennial Media’s photo shoot media feature embedded in the ad. Viewers of the ad could simply take a photograph of themselves using their phone, click a button to insert their face inside a Black Ops character, and share the photo on Facebook with all of their friends.
This approach is fun, encourages interaction, makes it personal and inspires viral sharing on social media. Follow this link to see how easy it is.
51 percent of households own a dedicated game console
The average game player is 30 years old with 36 percent of gamers being older than 36
Women 18 years and older represent 31 percent of the gaming market
50 percent have full-time jobs
12 percent work or study part-time
7 percent are homemakers
Not only does the gaming industry use social media for effective communication, gaming is a social environment with many gamers interacting in online communities. The gaming industry is growing rapidly on mobile devices and through social media sites such as Facebook. The banking industry can learn from Activision and accelerate its usage of social media.
Social Media is a Channel that Demands More Focus in Banking
There is an enormous perception gap between what consumers rank as their reasons for following companies on social media and why businesses believe consumers follow them, according to an IBM Study, From Social Media to Social CRM. Create messages that resonate with the hierarchy of why consumers are following you.
Consumers number one reason to follow a company is obtaining discounts closely followed by making purchases —tailor your messages with this in mind.
Businesses think consumers “want to learn about new products” but they are wrong—reduce the focus in social media on product knowledge.
Seventeen percent of consumers researching financial services in social media convert to making a purchase, more than any other source of information gathering, according to a Gallup Financial Industry report. Developing a strong social media strategy will accelerate growth.
What Makes a Truly Effective Social Media Model?
According to a Sutherland Global Services white paper, Thinking Social Insights, companies need social outreach specialists that will respond beyond the organization’s owned and controlled forums. They need social media analytics for brand tracking and sentiment analysis, to hear the voice of the customer, for feedback management, for comparison with competitors and for reputation management. Companies should have social media support fully integrated into a customer relationship management program. They should have automated distribution of all social media and drive customer service to social media outlets.
Tim Rondeau, the senior director of customer care at Activision, was quoted on the web site for Salesforce, the data marketing company, explaining that Activision can interact with customers in ways that work for them. “… In addition to taking phone calls, it’s important to expand our communication with our gamers on Facebook and Twitter.” It sounds like a quote for any and every bank; simply swap the word customers with gamers.