How To Close The Digital Lending Gap
Your cash cow is hungry!
Fintech start-ups and digital innovators are eating away at your lending business with their digital agility, lower costs, and ease of customer interaction. Despite lending’s historical reputation as the golden goose for driving revenue and profits, the vast majority of banks still have very low digital adoption rates when it comes to lending. A new study by SAP with Bain & Company, found that on average, only seven per cent of lending products are handed digitally end-to-end due to low maturity in vital digital lending capabilities.
The lag is understandable, but not sustainable. Some banks are still licking their wounds from the global financial crisis, which left a painful dent in lending profits, soaring defaults on current loan books, and the added squeeze of low interest rates. As increased regulation pushed up loan costs, and banks reduced or withdrew from lending, Fintechs and new entrants had a wide and open door to target customers using lower cost, end-to-end digital business models.
Most banks I speak with recognise the urgency for taking action to protect their most lucrative profit pools from newer, nimbler, rapidly growing competitors. But it’s hard to move quickly within the restrictions of silos, old technology and brittle IT landscapes. Gaps in digital capabilities are now so wide they are financially impacting your ability to make money.
So I’d like to spell out some of the key steps required for making the transition. First, simplify and modularise your product offering by creating simple, compelling products that are easy to buy and sell. Lending can be a dense and difficult process. It can be hard for customers to check the progress of an application or for the bank to provide updates through online or mobile channels. Customers also struggle to select the right product for their needs without speaking to a bank advisor. So simplify it and reap the benefits of easier re-platforming, simpler processes, faster launches, easier digitalisation and better sales.
Next, design for a radically different digital experience. (Think triple play: better experience, lower cost and higher employee engagement). Customers expect each channel to dovetail seamlessly with others so that they don’t repeatedly have to fill in the same data numerous times. And when you do design, design and develop for mobile first.
Make sure you have the right customer data and make it available across marketing, sales and service. This includes making better feeds of external data. You can’t make fast, high-quality decisions when lending money, identifying financial distress or collecting payments without the right data feeds in place. This is a huge and critical area of weakness for many bank lenders that can be easily remedied.
We also recommend that banks increase their digital engagement tenfold by using data, social and other digital marketing strategies to engage customers earlier and more naturally in their borrowing decision process.
And finally, drive out cost with straight through processing. Most banks have no straight-through processing of loan applications for other than the simplest cases. Again, this is a no brainer for cost reduction.
Retail banks must either transition to a digital business model or risk being beaten up by your competitor’s experience of being there. You simply can’t compete (or win) if you don’t level the playing field.