Lending Approval Process in 2018: Keeping Pace with Next Gen Borrowers, Part Two
In the first part of the article we discussed how the Generation Z borrowers are changing the lending industry. Next, we would like to elaborate on how these demographic differences should change the way that lenders do business.
We are certain the fundamentals of lending will stay the same. But the tactical delivery of our products and services will change. We will start to partner with hyper tech savvy borrowers, instead of just trying to sell to them. One of our biggest challenges will be staying grounded in our business and marketing strategy; while we review a myriad of new technologies in order to choose the best way to deliver the basics faster, more efficiently and more cost effectively. At a minimum we’ll see an increase in digital access and paper-free processes. Shorter applications, automated reviews, instant decisions, same day funds transfers, online payments, automated payments, and alternative credit scoring methods.
Partner with Hyper Tech Savvy Borrowers
Millennial and Gen Z borrowers aren’t somewhere off on the horizon. They’re our primary prospect audience. And they’re forcing lenders to change the way we manage many aspects of the lending business from acquisition marketing to credit scoring, and from payments processing to portfolio optimization.
It seems clear our first step should be an omni-channel delivery system, including mobile-only with the option for live customer service. Our clients should have easy access to all their accounts from any location, and at any time of day or night. Our second step should be a voice-only experience as the latest component in our omni-channel delivery system.
The cost of getting it wrong with this group is high. Online reviews are part of their DNA. It only takes a few clicks to post a scathing video that could go viral, causing substantial harm to your reputation. Smart lenders will incorporate reputation management into their marketing mix. They’ll proactively cultivate ongoing authentic reviews, instead of reacting to a negative post after the damage is done.
Harness Automation to Improve Profitability
Automation is good for prospects and customers as well as our own profitability. Customers enjoy the convenience, and lenders enjoy improved operational efficiencies. In addition automation frees loan origination and servicing managers from mundane tasks, so they can focus their best energies on evaluation, analysis and high level decisions.
The best automation systems are pre-programmed based on lending industry best practices, but then they allow each manager to customize to their own style. The system interface should be clean and clear to integrate easily with multiple outside vendors, and it should include advanced vendor integration where numerous data fields can be auto-populated. These types of features save substantial time and energy as they speed application submission, reduce human error, reduce the need for manual data re-entry, and increase first pass approvals.
Ideally, the system would allow all loan servicing tasks to be completed without toggling between screens or exiting the loan servicing environment.
Leverage Alternative Credit Scoring to Expand Prospect Base
Alternative credit scoring (ACS) is a broad category that expands on a weekly basis. A few years ago ACS was a narrowly defined term referring to the Vantage Score some banks used as an alternative to FICO. This aggregate score was calculated by averaging individual scores from the three largest credit bureaus. Today the term ACS can include: non-traditional sources for credit history, proprietary in-house score cards, social media overlays, and most recently AI and machine learning.
An easy way to supplement credit bureau scores is by accessing non-traditional credit history. The fourth bureau scores can deliver an additional 45 million potential applicants to lenders in the US. These are the prospects with thin credit files, or no record at all with the Big 3 credit bureaus. Non-traditional credit reports are built using bank account verification along with payment history from companies that don’t report to the credit bureaus. This wide range of payment activity can include: apartment rent, car insurance, land line and cell phone service, gas and electric, internet and cable, etc. Consumers can jump start their credit score by creating a profile with a non-traditional reporting agency, and linking their accounts. Lenders can subscribe to these agencies to access the payment history. Three of the top non-traditional credit reports are FICO Expansion, PRBC, and the CoreScore from CoreLogic.
More and more lenders supplement outside credit bureau scores with proprietary in-house scorecards based on internal payment patterns and customer lifetime value (LTV). These scorecards often incorporate data from outside agencies like non-traditional credit scoring services.
Technology-driven lenders monitor social media posts looking for early indicators of money issues. This social signals trend started when alternative business financing groups like factors started using personal Facebook posts to credit qualify small business accounts. Here’s a typical example in the lending industry. A personal loan applicant reports a 5-year employment history in their current corporate job. However, their Linkedin profile is set to “actively exploring a new position”, and their Facebook page complains that pending layoffs will put them out of work by the end of the month.
Artificial intelligence (AI), machine learning (ML), and natural language processing (NLP) are the most sophisticated new approaches used by lenders to supplement traditional credit scores. So far we’ve only scratched the surface. ML uses learning algorithms to analyze large volumes of historic data in order to improve repayment forecasting for both originations and accounts servicing. We’ll have to wait and see how cutting edge lenders use NLP to improve applications submissions, and to create virtual customer service reps that are equally, or even more effective, than today’s live representatives.
Build It or Buy It
One of the most pressing issues for startups, as well as an established lender moving into a growth phase, is the build vs. buy decision. When does it make sense to build an in-house platform with proprietary software? And when does it make sense to leverage a cloud-based, lending-as-a-service (LaaS) platform? There are pros and cons to each approach.
LaaS is especially beneficial for small to mid-size lenders who don’t have the time, technical expertise or deep pockets to build and maintain their own lending platform. And innovative fintech lenders often prefer to focus on product development and market expansion, rather than the tactical aspects of software development.
The top LaaS platforms deliver a package of 5 core services:
- Automation that delivers operational efficiencies and improved profits
- Advanced credit scoring with machine learning that increases account approvals without increasing credit risk
- Regulatory compliance pre-sets and upgrades that incorporate the most up-to-date published guidelines
- Cybersecurity systems that prevent hacking, and protect customer data in case of a breach
- Cloud-based platform that’s easy to deploy, easy to learn, and easy to use.
TurnKey Lender delivers this full suite of services. The platform allows subscribers to choose from a menu of standard features, and it allows for optional custom features at a reasonable incremental cost. In addition the subscriber enjoys regular software upgrades, and all new releases, administered automatically in the cloud without the need for additional subscriber programming.
When choosing a LaaS platform it’s important to pay particular attention to the advanced credit scoring features in order to optimize your portfolio’s risk profile. Our platform is integrated with the big 3 credit reporting agencies. It includes proprietary scorecards that enhance credit bureau data. And it offers non-traditional scoring methods for lenders who cater to borrowers with thin credit, or emerging markets with no established credit reporting agencies. TurnKey Lender is a recognized financial industry expert in AI, so our platform leverages machine learning and data analysis to continually refine our credit scoring capabilities.
Remember, It’s All About — Fast, Easy and Personal
Smart lenders will make sure every aspect of their program caters to the digital-only preferences of Millennials, and they’ll stay out in front of emerging groups like Gen Z. In order to avoid missteps they’ll make their mantra fast, easy and personal. In this way their tactical decisions regarding digital delivery devices will remain grounded in the needs and wants of their prospect audience. And that’s the first step towards a true partnership with your customer.