Unlocking the digital lending opportunity
Digital lending is broken, but with the help of an Engagement Banking Platform, you'll be able to provide your customers and members with the superior services they deserve.
by Bakhtier Pulatov
It’s a fact – digital lending is one of the most personal financial products out there.
That’s because it’s closely linked to our aspirations, our ambitions. From securing a place at a prestigious university to opening a groundbreaking new business, we all need a trusted partner for financial support at some point.
That’s why we say every loan application starts with a dream. But unfortunately, a lot of them end as a nightmare.
The road to securing a loan is filled with obstacles, and the average customer journey is tedious, manual, complex, and above all time-consuming. In many cases, banks offer so many types of loans that it’s confusing for customers to choose the one that best suits their needs. And once they choose, an often overwhelming amount of paperwork can slow things down, especially when combined with branch visits.
Things start smoothly. On average, it takes one hour to complete an application and gather the required information. But that’s where the efficiency ends. It can take up to four weeks for a financial institution to review and process an application – and up to three months for the customer to finally receive the funds.
In an era where our attention spans are getting shorter, platform players like Spotify and Amazon have taught consumers that instant gratification is not only possible, but encouraged. Many lenders don’t operate along this line of thinking, and customers have noticed. Of course they have, with their dreams on the line.
And it’s likely costing you in lost revenue. Experts estimate the global lending market size at $7 trillion with an 11% compound annual growth rate. That makes it one of the fastest-growing financial services in the world. As things stand now, poor lending experiences are costing banks and credit unions in a major way. But why? Let’s explore the key reasons.
The digitization focus dilemma
As I discussed on stage at Backbase ENGAGE 2022, most financial institutions aren’t building digital loan experiences, they’re simply digitizing their old processes. The disjointed, cumbersome manual processes are still there, they’ve just gone digital. This has led to an extremely poor user experience, both for customers and employees.
Lending teams are simply overwhelmed. The employees just don’t have the tools they need to do their jobs effectively and efficiently. For one thing, they have to juggle multiple tools to complete their tasks, meaning there’s no single source of truth for decision making. They’re dealing with sparse and insufficient data, and they have to manually approve everything.
Studies show that 30% of your lending team’s effort is spent on non-core, non-value-added tasks like explaining terms and conditions, gathering and verifying customer information, and standardizing financial data. That means more risk, but also leads to higher costs. And remember, that’s on top of the sub-par user experience.
But the issue isn't digitization in and of itself; it's digital transformation that uses the past as a reference point. As we've seen, financial institutions that can digitize their lending processes typically save 40% more than traditional banks. That's no small feat in an increasingly crowded market. Only with a forward-looking digital transformation focus can these institutions make this process cost-efficient and unlock the digital lending opportunity.
Creating a new digital lending experience
Digital lending may be broken, but that means there’s a huge opportunity for growth. If banks and credit unions can turn things around, they stand to benefit from this massive opportunity. The key is to start with the future state in mind rather than simply replicating the past..
So, where do you begin? As we’ve shown, it takes more than simple digitization. You’ll indeed have to move away from complex, paper-based manual processes and eliminate your fragmented architecture and point solutions. You’ll also need to completely re-imagine the experience, both for your customers and your employees.
The best way to do this is with an Engagement Banking Platform, which covers everything from pre-qualification all the way to repayments. All of these processes are streamlined and available out of the box. Every journey is also reusable and shared across loan products – but they can also be optimized for your specific use cases. You’ll be able to build your own journeys and products to fit your specific needs, and in doing so, you’ll deliver truly exceptional experiences that will set a new standard in the market.
By moving to a platform model, you’ll remove friction, drive conversions and revenue, lower costs, and increase efficiency. It may sound like a dream, but it’s very real. We’ve built all the capabilities and journeys you need – so now, you can focus on customization, differentiation, and delivering superior digital lending experiences for your customers and members across the world.
Backbase ENGAGE 2022 brought together hundreds of industry leaders and technical experts to learn and share progress on their respective journeys into the platform era. This is a part of a series of recaps drawn from those sessions. Click here to learn more about what happens at ENGAGE.