While digital loan origination systems have been around for years, they began gaining real traction during COVID, according to Tyler Brantley, vice president of revenue and marketing at fintech solution provider Accrue. Banks and businesses needed to function remotely, and such solutions helped them do just that.
Now, four years later, customers regard these offerings less as a “nice to have” and more as a “must have.”
“The key to future growth is having a digital platform that gives a bank the ability to serve their customers where they are,” Brantley explains.
Cheryl Anderson, director of product management at Finastra, agrees. She notes that community banks are increasingly partnering with fintechs to deliver digital lending because of growing customer demand. “Consumers now expect the convenience of completing loan applications from home at their own pace,” she says.
Faster and cleaner loan production
One obvious advantage of digital lending solutions is faster loan decisions, notes Anderson. Approvals that once took days to obtain in a manual or paper world can now be granted online in just a few hours.
What’s more, an often unsung benefit of digital lending solutions is improved accuracy. In a December 2023 survey of automotive dealers and lenders, Wolters Kluwer found that 77% of auto financers that rely on manual or paper processes see errors in a full one-third or more of deals done.
Whether it’s fewer typos or faster turnarounds, vendors are quick to explain that streamlined digital processes equal a better experience for customers and employees alike.
For instance, Accrue—a 2022 ICBA ThinkTECH Accelerator alum—was born of a desire to help banks resolve “the efficiency gaps in commercial lending that they’d solved in other places,” says Brantley. He notes that commercial lending migrated online slowly because of its historical complexity. Building a digital platform that can accommodate information and documentation from multiple beneficial owners is more challenging than building a solution for less document-intensive consumer loans.
No matter the type of loan being originated, a digital solution can save employees time. “Giving bankers tools that take them out of the busywork and into serving the customer is a key area of focus,” says Brantley.
More efficient compliance
Digital lending solutions are top of mind for many community bankers due to the Section 1071 small business lending rule from the Consumer Financial Protection Bureau (CFPB) that is scheduled to begin taking effect on July 18. While ICBA is advocating for overturning the regulation on multiple fronts, the CFPB is slated to begin requiring financial institutions with the largest loan volumes to collect and report far more small business lending information as a way of ensuring their banking practices are in compliance with fair-lending laws.
“Community banks have forever loved to be manual and shake hands and see people—which they’ll still have the ability to do—but they’ll have to digitize [loan information] to comply with 1071,” says Kristin Zell, national director and head of sales for lending at Jack Henry.
As community banks embrace digital lending solutions, additional advantages will become clear.
“There are a lot of things done in commercial lending that are really the same things happening over and over,” Zell adds. “Not having to reinvent the wheel every single time is very important for the efficiency ratios at banks. Everything is a little more consistent when you can rinse and repeat.”
New ways to compete
Today’s community bankers “are facing increased competition in the marketplace from nonbank platforms,” says Joey Arnone, director of ICBA Innovation. He maintains that digital lending solutions “can help a bank compete with [nonbank entrants] by offering faster and more efficient overall lending processes.”
What’s more, some fintechs are reimagining the lending market through platforms that create unique opportunities.
Take Quilo, for example. The 2022 ICBA ThinkTECH Accelerator cohort member enables banks that have ample loan volume but need liquidity with banks keen for a stake in loans outside their geographic footprint or existing lending base. “We give bankers the opportunity to pick and choose the types of loans they want, so they can diversify their portfolio or asset class,” says Don Shafer, the company’s cofounder and chief evangelist. “This way, everybody wins.”
Enhancing lending solutions through AI can enhance an array of nagging problems that stymied less sophisticated automated systems for decades. Until recently, if pay stubs used names inconsistently, an applicant named “Mike” might not be recognized as the same individual called “Michael” elsewhere. With AI, minor discrepancies no longer hold up approvals.
In addition, Dylan Lerner, senior digital banking analyst at Javelin Strategy & Research, points out that AI-enabled virtual assistants and chatbots open new avenues for community bankers to educate their customers about critical issues, such as paying off loans on time. To illustrate how community banks might assume a more advisory role on digital platforms, he cites the popularity of new digital players like Payitoff, which helps young people navigate the ins and outs of student loans.
In Zell’s view, AI has yet to remake digital lending, though she’s seeing new and useful applications emerging. “AI is able to take a data set for something like a fair-lending regulation and quickly summarize it,” she says. “Previously, someone would have had to sit there for days to put [that summary] together.
“I think AI will be really important in lending, but we haven’t seen it yet. People are working on it, though,” she adds. “It’s coming.”
