Widespread banks branch closure gives limited capability for loan origination with very little self-service capabilities for individuals and businesses to originate digitally or on-call efficiently at a scale.
The reality is that it is not at all easy to be a bank in these times, as a bank has to balance between limiting your exposure and risk to the very rapidly changing market conditions, offering the mandated flexibility on loan repayments without significantly increasing operational complexity - which for many banks is just a reality now. At the same time, in a new world after covid, we have a new reality to everything, and even more digital customer expectations - Banks still need to invest in Technology & Innovate in face of these challenges to be ready as the economies recover and start growing again.
In addition to all of that, Digital Banking Players are not sitting still. Big tech – Google Essential a simple basic loan origination Web Page in the US for Stimulus Packages for Small Business and can be integrated with Banks Systems. UK Released stimulus packages and guaranteed loans through digital banks because they disburse quickly - For example Monzo, Starling, were able to disburse quicker.
FinTechs with advanced scoring technologies and flexible technology platforms are able to reposition themselves fast with beta releases that are selected for a small customer base to consider changes and feedback in the actual release for the whole customer base.
To address many of the problems Banks need to be prepared for a recovering economy - and this means:
- End to End Digital Loan Origination & Servicing Capabilities with Straight Through Processing, Automation, and a lot of operational flexibility at scale.
- Enabling Digital Partnerships at Scales in their different scopes:
a. Banks would require to leverage innovations of Fintechs - for example with Scoring Fintechs
b. Banks need to increase their capabilities to broker off-balance-sheet products and services through All-Digital Partnerships at scale - for example, brokering other off-balance-sheet loans to address a market segment you are not willing to pursue customers' risk profile
End to End Digital Lending perspective-Origination
The application is where you have your instant loan calculator, tailored products, additional services, KYC reviews and completion of KYC which may use AI for natural language processing OCR/ICR for scanning physical documents. These functionalities should be available to the customers through platforms like mobile or web portal, e-commerce platforms or marketplaces for loans to allow an enhanced customer experience
Evaluation, Pricing & Approval:
At this stage, customer information is automatically processed and his/her eligibility for a certain type of loan is checked. This is a typical underwriting process where internal checks under core banking solutions & loan management solutions and external checks like credit scoring, risk scoring and blacklisting etc. are performed. With this automated decisions, banks must have the flexibility to change the configuration of underwriting process per type of loans and must be able to integrate with 3rd Party partners for different functionalities that would truly allow the solution to be scalable as a digital process when compared to manual underwriting.
Pre-offer, Offer & Next Best Offer:
Based on the loan underwriting process, the next best offer or product can be suggested and these suggestions are to be automated,policy-driven and defined by rules so there can be a back and forth feedback process from evaluation to the next best offer and vice versa. In that manner, observation, review and adjustments to rules can be implemented. This will maximise your revenue, as depending on the risk you can always position some product to your client or suggest an external 3rd party product if the risk is high.
Loan Acceptance is a stage where the customer is verified through KYC process after which he/she will accept the loan and sign the contract if this is a new customer, an end to end digital process to onboard the customer must be set in place. If we talk about an existing customer then banks must decide whether multiple legitimations for different loan products is necessary depending on the regulations of the region. In addition, the solution must be able to generate a digital contract automatically with supporting digital signature functionality.
With loan disbursement, you can automatically disburse from the loan origination system to a loan management system (LMS) or to a payments system and this process depends on the configuration of the loan origination system.
The activities involved in the process of loan disbursement may vary according to policies, rules and regulations whether a confirmation letter is sent before loan disbursement or loan is disbursed after manual checks or the loan is disbursed immediately. With this kind of end to end automation, Digital Lending at scale can be achieved.
This functionality lets a bank monitor and analyses at which process a customer has become disinterested in acquiring a loan and they can add or change configurations to achieve less churn at different stages of loan origination.
End to End Digital Lending perspective-Servicing
After the loan is disbursed to the customer, constant monitoring is required to keep a check on the repayments and to notify if there are any potential repayment behaviours detected or early warning signs of Non Performing loans.
When the customer has a problem with a loan or repayment, they reach out to call centres which may or may not resolve their loan issues and this solution is not scalable. Customer support platforms like Chatbot, Whatsapp customer support and owned social media & engagement platforms can be of significant help to provide customer support services.
Banks must focus on ensuring a regular payment hence easy to pay back infrastructure must be set in place through multiple channels like Debit Cards, Mobile Apps, Web Portals or Partners. These channels must be able to automatically notify and create follow-ups for payments defined by clear rules & policies.
Loans can be classified as requiring normal care or intensive care depending on the rule and policies across escalation and classification of loans and the restructuring of these loans must be easily configurable and flexible.
Loan Securities & Others:
Processes like Collaterals Management, Guarantors Management, Loan Products Funding Management and Loan Risk Management must be automated in order to allow good visibility over the risk that your bank is taking across the loan book.
Enabling Digital Partnerships at Scale
You can look at 3 methodologies for Digital Partnership at Scale
1. Digital Procurement at scale:
Banks would require to leverage innovations of Fintechs - for example with Scoring Fintechs:
The Traditional Procurement Process at the bank is where you buy a technology solution and implement it which is a really basic model but what if there is a really easy way to implement these technologies technically that you can simply try and experiment the new technology with a subset of your customers? and then revert back if you haven’t received a good response on it? We see a lot of this in today's solutions and we can also implement it in banking.
2. Digital Brokerage at Scale
The traditional brokerage model is what banks do with insurance products today. This brokerage of off-balance-sheet products and services can be implemented with All-Digital Partnerships at scale through web portals or your bank’s mobile apps.
3. Digital Agents at Scale
With the agency model, many banks today already have agents in some shape or form that distribute packages of your products and services along with Products and Services such as E-Commerce Platforms offering Product Specific Loans etc.
A foundation to all of these 3 methodologies is to have a digitally sound, self-service, and effective Technological Communications platform with the outside world. In order to implement these methodologies of digital partnerships, you need to connect with partners seamlessly in a technological landscape and have the necessary technology platforms to do so.