Embracing Frictionless Loans by Eliminating Touch Points


lending-9-13-19.pngTo create a meaningful customer relationship, banks should drive to simplify and streamline the operational process to book a loan.

Automated touchpoints are a natural component of the 21st century customer experience. When properly implemented, technology can create a touch-free, self-service model that simplifies the effort required by both customer and bank to complete transactions. One area ripe for technological innovation is the lending process. Banks should consider how they can remove touch points from these operations as a way to better both customer service and resource allocation.

Frictionless loans can move from origination to fulfillment without requiring human intervention, which can help build or enhance relationships with clients. Your institution may already be working on decreasing touches and increasing automation. But as you long as your bank has an area of tactile, not strategic, contact between your staff and your customer, your bank — and customers — will still have friction.

Bankers looking to decrease this friction and make lending a smooth and seamless process for borrowers and originators alike should ask themselves these four questions:

How many human touchpoints does your bank still have in play to originate and fulfill a loan? Many banks allow customers to start a loan application online and manage their payments in the cloud, but what kind of tactile processes persist between that initial application and the payment? Executives should identify how many steps in their lending process require trained staff to help your customers complete that gap. Knowing where those touchpoints are means your digital strategy can address them.

What value can your bank achieve by reducing and ultimately eliminating the number of touches needed to originate a loan? Every touch has the potential to slow a loan through the application process and potentially introduce human error into the flow. But not all touchpoints are created equal.

Bankers should consider the value of digital data collection, or automating credit score and loan criteria review. They may be able to eliminate the manual review of applications, titles and appraisals, among other things. They could also automate compliant document creation and selection. Banks should assess if their technology enablement efforts produce a faster, simpler customer experience, and what areas they can identify for improvement.

Do you have the right technology in place to reduce those touchpoints? Executives should determine if their bank’s origination systems have the capabilities to support the digital strategy and provide the ideal customer experience. Does the bank’s current solution deliver an integrated data workflow, or is it a collection of separate tools that depend on the manual re-entry of data to push loans through the pipeline?

Does your bank have an organizational culture that supports change management? Does your bank typically plan for change, or does it wait to react after change becomes inevitable? Executives should identify what needs to happen today so they can capitalize quickly on opportunity and minimize disruptions to operations.

Siloed functional areas are prone to operational entrenchment, and well-intentioned staff can inadvertently slow or disrupt change adoption. These factors can be difficult to change, but bankers can moderate their influences by cultivating horizontal communication channels that thread organizational disciplines together, support transparency and allow two-way knowledge exchanges.

For banks, a human touch can be one of the most valuable assets. It can help build long lasting and meaningful relationships with clients and enable mutual success over time. This is precisely why banks should reserve it for business activities that have the greatest potential to add value to a client’s experience. Technology can free your bank’s staff from high-risk, low-return tasks that are done more efficiently through automation while increasing their opportunities to interact with customers, understand their challenges and cross-sell products.

Frictionless loan planning should intersect cleanly with your bank’s overall digital strategy. It could also be an opportunity for your bank to scale up planning efforts, to encompass a wider set of business objectives. In either case, the work you do today to identify and eliminate touch points will establish the foundation necessary to extend your bank’s digital reach and offer a competitive customer experience.

Leveraging Fintechs to Do More with Less

Fintech is often viewed as a disrupter to the banking industry, but it greatest influence may be as a collaborator.

Financial technology companies, often called fintechs, can provide benefits both banks and themselves, especially when it comes to lending. But banks need to be prepared for the potential challenges that can arise when forming and executing these partnerships.

Partnerships between community banks and fintechs makes sense. For community banks, the cost of building or buying their own online loan origination platform can be prohibitive. A partnership with a fintech can help banks achieve more with less risk.

Banks can partner with fintechs to improve services at a significantly lower capital expenditure, reducing the cost of doing business and reaching market segments that would otherwise not meet their credit criteria. Collectively, these relationships advance not only the business of community banks, but also their mission.

Partnering with banks offers fintech firms brand exposure, allows them to more quickly scale their business and increases their access to capital and liquidity, which can translate to better company returns.

Community banks and fintech firms should be natural allies, given the market dynamics and growth in online lending, the underfunding of small businesses and the increased competition facing smaller institutions.

Community banks are also ideal first movers in the bank-fintech partnership space, given the personal nature of the business, low cost of capital and ability to move quicker than regional banks. Community banks are the preferred source of funding for small- and medium-sized enterprises, and consistently receive high marks from clients for customer service and overall experience.

However, there can be challenges. Bank respondents cited their firms’ overall preparedness as a point of concern when considering a fintech collaboration, according to a recent paper on bank-fintech partnerships from law and professional services firm Manatt. The Office of the Comptroller of the Currency and Consumer Financial Protection Bureau mandate that banks must implement appropriate oversight and risk management processes for third-party relationships and service providers.

Other issues that could arise for community banks when pursuing a fintech partnership include data security, staff training and technology integration with legacy systems. It’s imperative that community banks are clear about the responsibilities, requirements and protections that will contribute toward a successful partnership in conversations with a fintech firm.

borrowe-chart.png

Despite their desire to fund local businesses, community banks sometimes encounter significant pressures that prevent them from doing so. These issues are amplified by various market forces and longstanding structural inefficiencies such as consolidation, slower economic expansion, increased regulation and more-stringent credit requirements. Consumer expectations around new channels and banking services compound the situation. Community banks need to adapt to this new dynamic and complex ecosystem. Without a strategy that includes technological vision, banks risk becoming irrelevant to the communities they serve.

Fintech firms — reputed as industry disruptors — can be powerful collaborators and allies in this land grab. They can help banks expand their borrower market by reaching customers with alternative credit profiles and providing technology-driven improvements that enhance the customer experience. The inherent advantages held by community banks make them well positioned to not only capitalize on these opportunities, but to lead the next wave of fintech innovation.

How Pinnacle Improved the Efficiency of Construction Loan Management


partnership-6-27-18.pngWhen banks make a construction loan on a new office building or housing development, the funds usually are not provided to the borrower in a lump sum, but instead are dispersed as various project milestones are achieved. The administration of these credits are often handled on a simple spreadsheet—one for every loan. That might work for a small community bank that only makes a handful of construction loans a year, but not for Pinnacle Financial Partners, a $23 billion asset regional bank headquartered in Nashville, Tennessee that considers construction lending to be an important business it wants to scale in the future.

Pinnacle wanted a more efficient way of administering its construction loan portfolio, particularly after a series of acquisitions of other banks that also did construction lending. “We’re always looking for ways to improve efficiency,” says Pinnacle Senior Vice President Dale Floyd. “Coming out of the recession, we were growing fairly fast, had merged a couple of banks into us and everyone was doing construction lending differently. We needed some consistency throughout the organization, and to try to be more efficient at the same time.”

And that led Pinnacle to another Nashville-based company, Built Technologies, which has developed an automated construction lending platform that not only centralizes the administrative process, but promises to be an effective risk management tool as well. “Construction loans require coordination between the bank, the borrower, the contractor, the title company and third-party inspectors to review the progress of the project,” says Built CEO Chase Gilbert. Now all of these parties are connected in real time and everyone is looking at the same information instead of information silos, and the draw process can be managed more proactively. “We bring that process online to the benefit of everyone involved.”

Pinnacle and Built were co-finalists in Bank Director’s 2018 Best of FinXTech Startup Innovation award.

The benefits to Pinnacle begin with greater speed and efficiency. “It cuts down on phone calls and emails and paper,” says Floyd. “It reduces the chances for errors … because the [loan] doesn’t have to go through so many hands.” When banks are using simple spreadsheets to administer their construction loans and a builder wants to make a draw against their loan, an inspector will have to drive to the project site and assess whether the required work has been completed, drive back and write up a report authorizing a dispersal. With the Built platform, all this happens much faster. “[All the information] is there and it’s immediate,” says Floyd.

The platform also provides the bank with an enhanced risk management capability. “We do a lot of large loans,” Floyd explains. “I can pull a report at any time of every loan I have over $1 million, by location and by builder. I can track loans that have been fully funded, or I can track loans that we’ve closed but no disbursements have been made for three months. If we see that we want to know why. What has caused this project to stall?”

And when state and federal examiners come into the bank, Floyd can “pull up any loan that they want to see and look at the inspection reports, look at the pictures and see all the numbers,” he says. “That information is there for as long as we want to store it.”

Gilbert says Built spent nine months getting to know Pinnacle and understanding the bank’s goals for construction lending before work commenced on the project. “Pinnacle is a high growth bank and it was looking for something that would allow it to scale [that business],” he says. “The bank is also fanatical about customer experience and it wanted to find a way of giving its borrowers and builders a best-in-class experience.”

Floyd says Built also made some changes to the platform at the bank’s request—for example, building in a feature allowing a borrower to overdraw their loan with the bank’s approval if the situation warrants it. “They’re constantly looking for input,” he says. “They want to make the system better all the time.” And the new platform was easy to implement, according to Floyd. “That’s one of the things I was surprised about,” he says. “The training time is very short, and it’s very user friendly.”