Though it is growing quickly, digital lending is still an emerging field. That fact gives banks who get into digital lending today an opportunity to harness all the advantages that digital lending can offer. The edge that digital lending offers is tremendous, as banks with a first mover advantage on digital lending stand to gain customers and increase profit.
Of course, any risk comes with challenges, and that’s true for digital lending as well. To successfully launch a digital lending suite of products, banks must address unique questions. For instance, the selection of a vendor to provide the necessary analytics and technology is key, (obviously we’re biased towards one particular vendor!) but there are other considerations.
Below, we discuss five key points to keep in mind. For digital lending to succeed it must offer:
1) A “wow” factor for customers,
2) Service that is immediate and accessible,
3) Reduced loan origination and servicing costs for banks.
In addition, digital lending must be an integrated part of a bank’s growth strategy, with all stakeholders on board.
“WOW” YOUR CUSTOMERS
Digital lending is new. For some customers, the concept of taking a loan using only a cell phone or computer can be scary or overwhelming.
One way to overcome that fear is by offering an outstanding experience—ensuring that once customers give digital lending a try, they will want to keep using it.
That means menus must be simple and easy to use, the process should be seamless, and it should be quick for customers to successfully apply for and receive a loan.
Of course, a process which is easy for a user is usually anything but easy from a technology perspective. Making a product like this requires a system that knows which loans a customer is eligible for and display only those loans, to regularly process data from the bank’s core system and ensure results are up to date, and to work instantly—which brings us to the next key element of a successful digital lending launch.
LET CUSTOMERS TAKE LOANS ANYWHERE AND ANYTIME
One of the great advantages of digital lending is that it allows your bank to provide better, more dynamic customer service without needing to grow a branch network. Unlike traditional bank offerings, digital lending enables you to offer customers service without regard to location or time of day.
For successful digital lending, customers must be able to apply for and receive digital loans from their home, office or vacation, at any time of the day or night—taking out the hassle of going to a bank branch, waiting in line, filling in forms, etc. Customers are now expecting instant answers, and your bank must be able to provide them to hang onto those customers.
This means that if your server is down at a certain time every day, or doesn’t work on weekends, your customers will become frustrated and have less incentive to take advantage of a digital offering. You should work with your technological partner to ensure constant access to the system, allowing it to maximize the great benefit of the availability of loans regardless of location or time of day.
In addition, digital lending must be operating system-agnostic; digital loans have to be available to customers on any device, in order to reach the largest possible audience. Ideally, you should also make loans available using other self service channels—at your bank’s ATMs, for instance. The more ways your customers can connect to you, the more likely they are to do so.
REDUCED COSTS FOR BANKS
No bank offering would be practical or sustainable if it raised costs for banks. Digital lending done well, however, goes beyond not raising costs, however, and in fact reduces costs such as loan origination and servicing.
Since digital loans are originated and processed automatically, human interaction on those loans is reduced and the bank is able to make more loans with less staff time; smaller loans are no longer too small to be worthwhile, since they can be handled with nominal costs. In parallel, loan servicing becomes easier, as it, too can be automated—through use of the bank’s digital banking app, or through automated payment reminders and payments.
Any digital lending platform will have costs, including setup and maintenance, but a good platform, should allow your bank to recover its investment promptly, in staff time, customer satisfaction and more.
With time and as your bank has more data, the lending models used for automated decision making should also adjust, increasing interest rates as needed to compensate for defaults, and reducing rates where statistically there are fewer defaults. A bank would be well-served to ensure that its technological provider can adjust and improve the lending models with time, as more data are received.
PART OF A LARGER GROWTH STRATEGY
Finally, digital lending cannot exist in a vacuum. It would be a challenge for a bank focused on lending to corporates to move into retail digital lending. Digital lending can complement and improve a strategy—for instance, a bank looking to strengthen its offerings for small businesses might find that in addition to offering specialized tellers or loan products for small businesses, a digital offering allows them to meet these customers’ needs in an appropriate and effective manner.
Similarly, a bank can use its existing customer knowledge to determine its digital lending strategy. A bank known for its work in unsecured, short-term loans could easily transfer that knowledge to digital lending, helping to build a stronger model from the start.
Finally, digital lending cannot succeed unless all relevant parties within the bank are on board and committed to making it work. That means that departments including credit, risk, digital channels or other similar groups must all work together to ensure a successful project. Without the cooperation of any one of those departments, and a technological partner with both knowledge and experience, a project could easily fail to take off and the potential of digital lending could remain untapped.
CONCLUSION
Digital lending has tremendous promise for banks, but like any major business transition, it must be done properly in order to be successful. Key elements must be in place in order for digital lending to succeed as part of a bank’s offering to customers, including providing an excellent customer experience, availability regardless of time of day or location, the meeting of an immediate customer need, reduced costs including loan origination and servicing, and being a part of an integrated bank strategy, with all influential players on board.
When those elements are all in place, banks can succeed with digital lending. Now is the time to ensure that all of these building blocks are in place and create a digital lending offering to help your bank lead the way into the future.
