It’s noon. You’re halfway through your road trip, miles of highway behind you and your stomach tells you its lunchtime. Your passenger asks Siri for directions to the nearest McDonald’s. From the restaurant’s mobile app, he orders two No. 3 meals, selects a pick-up time, and pays—all in less than three minutes. You exit the highway, pull up to McDonald’s and in no time are back on the road, eating lunch.
This type of digital experience—what you want when you want it—is quickly becoming the standard for consumer expectations. As a recent digital lending study reported, McDonald’s CEO Steve Easterbrook rolled out the company’s app “to embrace change to offer a better McDonald’s experience” and has also said that “it’s pretty inevitable that our customers will increasingly engage with us as a brand and as a business through their phones.”
The McDonald’s experience is relevant because that type of experience is what consumers expect from financial institutions as well. In fact, by 2021, half of adults worldwide will use a smartphone, tablet, PC or smartwatch to access financial services—up 53 percent from 2017—according to Juniper Research.
Further, the 2016 MX Consumer Survey finds that 81 percent of consumers prefer to interact with their financial institutions by desktop, laptop and/or mobile device. The same study shows that 38 percent of consumers have reduced how often they bank somewhere due to a poor digital experience.
One of the greatest growth opportunities for community banks is end-to-end digital automation of the lending process, especially for small- and medium-size business loans. Not only do these loans lend themselves to process automation, but the competition—and market potential—is growing rapidly. By 2020, some media reports suggest the market for online business loans could exceed $200 billion.
Why it Works
Today, small business lending is a labor-intensive process for which most community banks see little financial reward. The majority of community banks use the same process to underwrite loans as small as $50,000 as they do for larger multi-million dollar loans, which include paper applications and documentation and multi-level approvals.
This mostly manual process can cost as much as $3,000 per $100,000 loan, according to industry research firms, far outweighing any income to be made. While some banks have continued to make these loans even at a loss to preserve existing customer relationships, many have stopped making them altogether.
The latter is unfortunate. Historically, community financial institutions have dominated this lending space, strengthening their customer relationships through personal attention, decision speed, and loan term flexibility.
In the aftermath of the 2008 financial crisis, many community banks pulled back on small business loan approvals, which gave rise to a plethora of online lenders like OnDeck and LendingTree, that embraced digital advancements. As a result of this convergence of technology, small business lending from community banks has fallen more than 20 percent since 2008.
Digital Changes the Business Case, Customer Experience
Fortunately, the opportunity to win back this business is encouraging. Digital lending technology automates the entire lending process, enabling banks to deliver loans more efficiently, maintain their traditional underwriting, pricing and compliance practices and provide a seamless, 24/7 digital experience.
Here are some benefits to using digital lending technology:
- Your customer’s loan journey is entirely online, from application to closing.
- Borrowers can sign all documentation within the app.
- Decisions can be made within 48 hours.
- Additional documentation (if needed) can be uploaded within the app.
- Loans are automatically booked and funded to your bank’s core.
Adding this capability does not require expensive development resources either. The technology is often readily available through white-label products. Industry advocacy organizations including the ABA have reported these white-label, cloud-based solutions represent “a very strong option,” that can be implemented quickly, use a pay-per-volume model and have the ability to customize. They also allow the bank to maintain its underwriting criteria and standards, and hold the loans on your own books.
As with other retail experiences, your small-business customers expect ease and convenience in the lending process. If you do not provide it, others will.