Traditional banks are playing catch-up in the game of digital lending, a process of making loans electronically from start to finish. Financial institutions are missing out on new revenue in a space dominated by online lenders that have sprung up to fill the void in a lucrative market.
“Web-based financial services companies have taken off in recent years, with billions poured into the sector by venture capitalists,” BuzzFeed stated Tuesday. “Startup lenders … have originated billions of dollars of loans over the past few years, and regulators are still working on their approach to the fast-growing market.”
Yet many banks have neglected digital lending—to their own detriment—according to research by Bain & Company and SAP Value Management Centre. The study looked at 24 banks in 10 countries, finding that high performing firms tended to have improved digital loan offerings, such as more automated processes, workflow management tools and underwriting algorithms for approving or denying applications.
How to turn the ship around
Financial technology, or FinTech, is increasing the efficiency of financial services — and disrupting less software-reliant institutions along the way. While traditional banks have made great strides in some of their high-tech offerings,especially via omnichannel banking, they’ve left a lot of other business potential untapped.
Here are six ways that banks can improve the how they execute digital lending:
- Delivering simple, easy and convenient experiences. Increasing transparency and accessibility would make it easier for customers to check their loan status — or find the right product without speaking to an agent.
- Executing consistently across channels. Bank departments have to see the big picture, sharing information with the entire organization — so customers don’t have to repeatedly enter the same data over and over.
- Gathering a full and consistent picture of the customer for marketing, sales, and service. Optimize cutting-edge computing power to reach digitally enabled customers.
- Configuring base products and processes quickly and easily. Banks with hundreds or even thousands of feature and benefit variations must simplify those options, especially when presenting products to customers.
- Digital marketing. Upgrades to workflow and automation are great, but don’t forget to properly engage with customers via digital marketing.
- Straight-through processing. Process loan applications straight through, no matter how difficult the circumstances.
So traditional banks have their work cut out for them, but these capability gaps aren’t from lack of trying.
Update business now — or pay later
Banks’ average IT spend was about 6 percent of their 2014 revenue, the Bain/SAP study noted, while other industries averaged between 1 percent and 4 percent. And tomorrow’s most successful banks will likely be the ones that invested more in IT and digital today.
Banks that win the day will spend more than their competitors to update their business models, as opposed to carrying on with their existing model.
“Customers’ rising expectations for anytime, anywhere banking currently outrun banks’ capabilities — and FinTechs have momentum in building a base of customers, especially among young adults, as well as in attracting talent,” the study stated. “But even traditional banks can compete effectively in digital lending if they’re willing to put the customer’s priorities at the center of their digital redesign.”
That will mean spending more than their competitors to update their business models, as opposed to carrying on with their existing model (see inset graph on the left). These investments will eventually pay off as automation increases customer satisfaction and revenue from digital conversions — and reduces labor costs, errors and other expenses.