How Can Lending Automation Help Support A Better Member Experience?
It is clear that my current primary focus is on data, specifically data that helps credit unions serve members at a higher level. In the pursuit of better data, I often stumble on operational issues that contribute to poor data collection practices. Recently, I was discussing data issues with a credit union and was told that details were being skipped in favor of increasing the speed at which loans could be funded. In other words, data collection practices such as asking for and verifying reference information was set aside in order to expedite a loan closing. I realize on a sinking ship, one can argue that navigation gives way to bailing water, but these credit unions are not sinking ships, and while meeting a growth goal may be important, we want to ensure that the credit union is safe and sound far into the future. Here are some ways that automation software, like a Loan Origination System, can help the credit union achieve higher efficiencies and improved member experience, without compromising accuracy and security.
Old school lending processes (trust me, I was there) required complete documentation before a loan decision could be rendered on an application. My first loan, ever, was with a credit union that had a loan committee and it took a week for me to get approval to purchase my first car. Today, we have risk models, such as the credit score, and credit bureau report that provide us with significant support for a credit decision within seconds of an application being submitted. But this shouldn’t be confused with a funding decision, which is where the true risk occurs. A fast credit decision provides the member seeking credit what they are looking for; that is, an answer. From there, a lender can move to the more arduous funding process, which might include verification of application information.
By now, I’m sure you have heard many lending experts say, members are not shopping for loans, they are seeking a means to purchase what they are shopping for, such as a car or a house. If you accept that premise, then you should also agree that when a member contacts the credit union with a loan application, they are seeking an answer, quickly, as to whether, or not, there is an opportunity to do business. They are not seeking an opportunity to strike up a long-term personal relationship with a loan officer or underwriter. Once a credit decision is made, then the credit union can focus on process decisions that ultimately result in funding a loan, but in the meantime the member can go about choosing colors and options for their new purchase.
For example, if I go to your credit union website and complete a credit application, it should require only a handful of fields to determine whether my credit supports the loan requested. When I click the submit button, I should receive a credit decision, either “Approved” or “Declined”. The information I provided either supports a positive credit decision or it does not. This immediate feedback, if approved, keeps me engaged in the process. If declined, I may voluntarily choose to remain engaged, or the credit union may seek to engage me on a face-to-face basis. But, I shouldn’t be left in suspense for hours, waiting for someone from the credit union to contact me.
I won’t spend a lot of time on this topic but will point out that science has proven that human beings are inferior to computers when making decisions based on defined rules, over time. Before anyone accuses me of not respecting the positive role that human decision making can have on our society, let me say that I agree with you. It is not my desire to rid society of human decision making, as long as we agree that the human-decision process can be foiled with, often irrelevant, information that is not processed well by the human brain.
Let’s just take a simple checklist for example. Checklists are great for keeping the human brain focused on the task, except when they are not. Recently, I was watching an episode of Air Disasters where the significant factor contributing to a crash was the process of running through a pre-flight checklist that didn’t catch a significant error in the auto-pilot setting, ultimately sending the plane in the wrong direction. Computers don’t skip items on a checklist, nor do they get bored and dismiss checklist responses by mistake. The fact of the matter is, a properly implemented decision engine can more accurately make initial credit decisions on loan applications and may also support the process decisions that come thereafter, such as determining which applicants should provide proof of income and which should not.
When I speak to lenders across the country, the challenges they face when trying to automate the lending process generally relate to the verification or validation process. In other words, is the person who they say they are and is what they are stating true. These are valid concerns and there are many technologies available to help in this stage of the process. For example, in addition to the credit bureau report, the credit bureaus offer a number of fraud prevention tools to help verify, in real-time, whether application information is accurate. Companies such as Innovis, ID Analytics and LexisNexis Risk Solutions have products to help validate application data as well. These include out of wallet questions and IP address verification in addition to applicant information that can be validated through public sources. There are even tools available to help validate whether a work or home phone number is accurate and whether reference information has been used previously in fraudulent transactions. Finally, there is fairly recent technology that is designed to accept and validate documentation, assisting lenders in cutting down the time it takes to verify employment or income.
The point here is, we cannot use the excuse that technology insufficient to assist lenders in automating the lending process. The truth is that the technology does exist and is being used by credit union competitors around the world. The question is, do we believe that automation adds value to the process that cannot be offered by a human decision maker at the level of consistency and effectiveness offered by technology. Is technology foolproof? No, but it can be used to enhance the human decision process to increase efficiency and improve accuracy.