Bridging the Digital Divide: How Banks Can Meet Customer Expectations in Lending

Banks and credit unions may feel like they offer a best-in-class digital experience — and the readiness to offer new services and options — when it comes to bringing lending products online. And they may see themselves as engaging with their customers across online channels. But their customers might beg to differ.

As Eric Lee, vice president of product at Amount, told PYMNTS recently, “there seems to be a disconnect between how FIs [financial institutions] see their digital readiness and what the actual readiness looks like.”

Digital lending readiness, he told PYMNTS, refers to the FIs’ technical and operational capabilities that enable banks to evaluate prospective borrowers, offer financial products in a risk-appropriate way and process the loans.

From his vantage point at Amount — which offers a loan origination and account opening platform that serves FIs — there’s a wide variance in terms of digital lending readiness depending on the size of the financial institution. But all FIs face similar challenges in attracting new customers and deposits. They also face regulatory challenges, and the complexities inherent in collecting, maintaining and using customer level data to streamline their lending efforts.

“Many of these FIs are looking for external help,” Lee said. Joint research from PYMNTS Intelligence and Amount has found that though most FIs would rate their digital lending processes as good or even excellent, only 1 in 4 banks can actually fulfill their loan processes from applicaton all the way to disbursement of the funds to consumers and small businesses in the same day. And only about 36% of financial institutions rely on their digital platforms for more than half of their lending activity.

Though 70% of consumer lending is done digitally, only a third of their lending is extended to small business customers through online conduits. The challenges are more acute for smaller lenders, as they have smaller budgets at the ready, and implementing new platforms and back-end processes can be both time consuming and expensive.

“There are clearly a lot of opportunities,” Lee said. To seize upon those opportunities, he added, banks and credit unions must realize that consumers expect an intuitive online lending process — and as for small businesses, well, business owners are consumers too. Even though smaller banks and credit unions may be focused on their local communities, Lee said, “they still have to have a digital plan.”

The Keys to Success

No matter the size or focus of the bank or credit union, Lee said flexibility is an essential ingredient in the mix for digital lending readiness and success.

Though the PYMNTS Intelligence/Amount data shows that 80% of FI executives were concerned that automation might disrupt the personal connection between the bank and the customer, he said that “digital readiness and platforms can elevate those connections and make them even better … omnichannel is really important.”

Flexibility means that consumers and small businesses can start applications in the branch, or digitally, and can switch seamlessly between the two as they move through the processes.

To make that flexibility an easy lift, Amount offers FI clients a “program in a box” setup through its platform, where banks and credit unions can accelerate the time to launch with a single point of integration and the ability to offer applicants self-service functionality.

“We’re giving control to the lenders over how much automation they want — and to get comfortable with [lending] programs as they scale,” Lee said.

Amount also offers “lending intelligence” that integrates disparate data sources to improve underwriting and combat fraud. The rise of open banking and consumer-permissioned data, he said, will be important aspects of automation, as a greater insight into consumer and small business histories will lead to better loan performance (and lower delinquency rates).

“We have lenders who are able to reduce time to funding from two weeks down to 15 minutes,” Lee told PYMNTS. “Digital lending platforms have a positive impact on risk management without sacrificing the application funnel and customer experience.”