The Do’s and Don’ts of Digital Lending Transformation

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For many mid-size community banks, the shift to technology has been slower than expected. There can be a resistant mindset when it comes to implementing financial technology practices, hindering any results that the technology can provide. Bankers try to make the tech fit to their existing processes, rather than the other way around.

If you’re already considering a digital transformation, you might be tempted to run out and overhaul your entire system right away. However, this can be an overwhelming approach, destining the project for failure. One recent study finds that most financial institutions that have partnered with fintech firms have seen moderate gains, but there is still a need to distribute more dedicated resources to a true digital lending transformation. However, there are a few quick do’s and don’ts that every institution can benefit from:

Don’t try to overhaul the entire thing at once. Take an assessment of not only your bank’s current technology state, but also of your current practices and approaches. Too often, financial institutions want to focus on “the way it’s always been done,” rather than looking to see how digital solutions can make processes easier and more efficient. Keep what works in today (and tomorrow’s) environment and find ways to adapt the rest.

Do start with the most profitable areas. One of the best ways to see the most return on an investment in digital is to begin with the areas that drive revenue and profit to the institution. Your back office and credit department will benefit the most from technology that allows them to operate more efficiently and make decisions faster, making them logical starting points.

Don’t try to mix and match solutions. When it comes to implementing technology into the branches, many choose to try and piecemeal different products and systems together. While you might think this approach saves money by only buying certain products from certain vendors, your bank is most likely losing key integrations that can come from having a single solution.

Do trust your technology partners to guide you. Finding a partner that understands what it means to work in a bank, with these current processes, ensures that you’re getting support from folks that understand what you’re trying to do. The key here is trust. Too often, banks are resistant to the idea that their technology partners might be able to teach them a more efficient way.

Don’t try to change the technology. Rather than looking at how the bank can adopt the tech to its processes, consider leveraging technology partners to explore how your bank can simplify processes through technology. When you purchase a solution from a financial technology provider, you’re also paying for their expertise. Don’t throw your money away.

Do adjust your mindset when it comes to tech. Tech in the banking industry has made giant leaps in the last five years, let alone in the decades prior to that. If your bank’s mindset when it comes to implementing or adding technology into your processes is that certain things can’t be changed because it’s always been done this way, you’re setting yourself up to achieve fewer desirable results.

When the coronavirus pandemic sent everyone to their homes for months in 2020, many banks were forced to recognize that an online portal or a mobile app wasn’t going to cut it anymore. Adapting to a fully automated process has become necessary, not optional. Now is the time to learn from this and to take control of your technology. Don’t wait until the next unexpected issue forces you to adapt, when you can get ahead of the game.

About Baker Hill
Baker Hill empowers financial institutions to work smarter, reduce risk and drive more profitable relationships. The company delivers a single unified platform with modern solutions to streamline loan origination and risk management for commercial, small business and consumer lending. The Baker Hill NextGen® platform also delivers sophisticated analytics and marketing solutions that support sound business decisions to mitigate risk, generate growth and maximize profitability. For more information, visit www.bakerhill.com.

Eight Questions For Prospective Small Business Lending Partners

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For many banks, the ability to offer small-business loans efficiently, quickly and compliantly has been more of an aspiration than a reality. The technical, financial and staffing obstacles involved in launching small business loan products have created daunting barriers to entry, while the need for small business credit persists in the post-pandemic economic recovery.

This creates a fertile breeding ground for new fintechs that claim they can streamline loan processing time, increase the profitability of even the smallest loans and improve the entire experience for banks and their customers.

But how can you distinguish between achievable goals and lip service? Bank executives need to ask the right questions to break through the noise and get real, honest answers. As a provider in the space, we spend countless hours researching the competition, talking with banks about their challenges and enhancing our small business lending platform. Here are the top eight questions to ask a prospective partner when considering a small business lending platform.

1. Is there a white-labeled borrower website option that can be branded with the bank’s colors, graphics and messaging?
It takes years to establish a well-known brand identity that your customers recognize and trust. It is crucial that any prospective loan origination platforms have the capability to incorporate bank branding, corporate color palette and distinct messaging to create a seamless experience for customers.

2. How much time does it take for business borrowers to complete and submit a full loan application?
Research shows that one of the top complaints of business borrowers is the amount of time it takes to complete an application. Any digital process will certainly be quicker than a manual method, but every step of the application process should be optimized for efficiency, resulting in a fully submitted loan application within 20 minutes or less.

3. Is the application process straightforward and intuitive for the borrower and back-office team?
We mentioned the importance of an efficient application, but efficiency can only be achieved if the application is clear, intuitive and guides users along the way. Ask potential vendors how applicants and the bank’s back office can track their progress through the application, and whether the system has measures in place to identify and alert the applicant to inaccurate or incomplete entries. It is also important that FAQs are prominently displayed, and that users have easy access to support.

4. Are there methods in place to ensure that borrowers are selecting the right loan product?
Your applicants don’t know your products as well as you do, so rather than asking them to select a loan product, a top-tier platform will incorporate an automated, intelligent “rules engine.” This type of technology gathers pertinent information throughout the application process and selects the most appropriate product(s) based on the applicant’s inputs. This streamlines the application for the borrower and saves your staff valuable time and resources.

5. Does the system help identify and filter out unqualified applications?
Once the borrower starts the application, the rules engine should activate, dynamically collecting data points to ensure that the application is meeting the bank’s specific product requirements. Further, it should also evaluate the data against the bank’s credit policy to verify the applicant meets the minimum acceptance criteria. The best loan platforms will identify such issues and prevent the applicant from progressing by redirecting them to a different page, product or contact method.

6. How does the system ensure compliance and security?
Ask a potential vendor whether their system supports all federal regulations that impact small businesses and lending practices, such as Know Your Customer/Know Your Business, anti-money laundering, Americans with Disabilities Act and web content accessibility guidelines , among others. The best systems will incorporate a bank’s credit and risk policy into the platform, so there is no impact to your bank’s risk profile with the regulators. Ask whether the system utilizes 24/7 monitoring to ensure the integrity and safety of bank data, whether they are SOC 2 compliant and whether they undergo regular third-party audits of their infrastructure and systems.

7. How does the system ensure quality control and prevent fraud?
Advanced loan technology should integrate into numerous background check sources and employ digital fraud detection using AI-powered captchas and two-factor authentication, among others. Specific criteria should immediately disqualify borrowers, such as zip-code, signing rights and industry type. The best systems will ensure that exceptions are identified and shown to the bank, so your staff doesn’t waste time trying to find them.

8. Does the platform provide automated document management?
Secure, efficient document management is one of the most critical functions of digital loan technology. Ensure that all documents are securely uploaded in transit and at rest. Here are just a few of the features an advanced platform should offer:

  • A centralized document library housing all documents.
  • The ability to collect any necessary form at the right time and have it electronically signed.
  • Functionality that allows the lender to easily approve, reject or request individual documents with explanatory notes for the borrower.
  • Protection of personal information by restricting the viewing of information to only the individual who owns it.