It’s tempting to talk about innovations in lending technology — like using artificial intelligence to make faster and more nuanced credit decisions or applying credit strategies to take the sting out of seasonality for your organization or enterprise.
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These two benefits of using an in-house, white-label, banking-as-a-service, or BaaS, approach to providing a robust credit option to your customers are impressive. But the offering has to include old as well as new types of functionality to perform as intended in real-world settings.
Loan servicing is a great example of an old but important link in the financing chain. It’s enhanced by cloud-based BaaS technology and digitalized loan processing and management, but it’s not replaced by it. More, it’s where point-of-sale lenders can make a lasting positive impression on borrowers, paving the way for:
- Repeat business
- Favorable word-of-mouth
- More robust loan portfolios
And of course, the fact that every touchpoint is a marketing opportunity, a chance to tell your story and highlight your capabilities on a recurring basis to an audience of one.
Loan servicing gets lost in the shuffle, as we tend to focus on better underwriting and more efficient processing
The term “loan servicing” refers to processes around keeping track of individual loans, such as:
- Issuing payment statements
- Collecting payments
- Maintaining records (particularly of payments and balances)
- Monitoring and following up on delinquencies
- Respond to lendee queries
So why does loan servicing sometimes take a back seat to other tasks around in-house automated lending?
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Simply, without earlier steps — such as customer acquisition, application processing, credit decisioning, account creation, and funds dispersal — there wouldn’t be any loans to “service” in the first place.
In other words, loan servicing is what happens after a loan is approved and funded — right up until it’s paid back in full.
Meanwhile, head-turning advances in machine learning, no-paper processing, and behavioral finance make it easier to scrutinize alternative as well as traditional inputs to get a more accurate picture of loan applicants.
“These front-office innovations get a lot of the attention, as they should,” says Marc Pickren, head of financing-tech giant TurnKey Lender’s fast-growing operations in the Americas. “But there’s an equally compelling story to tell about functional improvements in loan servicing as a result of digitalization.”
Elena Ionenko, TurnKey Lender’s global operations chief and co-founder, agrees with Pickren.
“The advantages of working in a digitalized lending environment are evident at every stage of lending, whether we’re talking about onboarding, compliance issues such as know-your-customer and anti-money-laundering, cyber security, or loan-portfolio management,” Ionenko says. “None of that diminishes the fact that BaaS-style in-house lending also makes loan servicing much easier than ever before.”
At this juncture, if you’re still tempted to outsource your organization’s customer financing to a bank (rather than bringing it in-house in a customizable BaaS configuration), you might want to hit pause.
That move to digitalized financing you’re contemplating? Banks are in the same boat, only they’re weighed down by old tech
Banks, credit unions, and other finance companies are decidedly behind fintechs on the digital technology curve, according to Deloitte. What’s keeping banks from competing effectively with outsourced point-of-sale lending platforms? For Deloitte, these are the six principal stumbling blocks.
1.Manual processes
Lending-department staffers at banks spend as much as 40% of their time fiddling with non-core tasks that could easily be automated
2.Legacy technology
Well, sort of easily. Old technology is the big thing keeping traditional banks from making the leap to effective lending-platform outsourcing and claiming the lion’s share of lending in settings as diverse as retail locations, capital-equipment showrooms, healthcare practices, and e-commerce environments. “Many banks operate complex and outdated legacy IT systems, putting pressure on costs” and often slowing their efforts to scale up for growth, says Deloitte. This puts banks at a competitive disadvantage that gets harder to fix as time goes on
3.Legacy underwriting
Banks practically invented lending, but as underwriting has grown more automated, what Deloitte calls “paper-intensive underwriting,” keeps them in the slow lane. In addition, old-fashioned credit-risk models make it harder to understand the creditworthiness of loan applicants. An in-house BaaS provider like TurnKey Lender brings machine learning and AI to bear on credit decisions, making for a much fuller and more accurate picture of applicants — and it makes decisions in seconds
4.Weak analytics
The data a BaaS lending-platform provider churns through a lot of data to make decisions — and they create a lot of data relating to outcomes, patterns, and trends that can be extremely valuable to companies. Banks stuck in paper processes get none of this intelligence — which can direct and inform strategic priorities — and neither do their clients in outsourced settings
5.The rise of fintechs
Fintechs are transforming banking through digitalization, delivering on the promise of better client experiences, faster decisions, and lower costs. Banks aren’t keeping up
6.Consumer expectations
Everybody knows about online banking and e-commerce, and everybody’s starting to understand how true digital financing differs from Lending Tree-style referral platforms. Simply, borrowers have started to expect fast and accurate lending processes, and they have little incentive to stay where the technology is clunky
These competitive drivers are changing outcomes for organizations that use BaaS platforms. TurnKey Lender says its end-to-end automation makes for better results, including, in best-case scenarios:
- 67% customer lifetime value increase
- 40% profits increase
- 35% decrease in bad debt
- Ability to process 3 million-plus loans a day (sifting through 839 million alternative data points)
- 10% – 25% more approvals
- 25% better credit-decision accuracy
- 44% sales conversion growth
- 280% boost in operational efficiency
A loan servicing system is critical to most of these outcomes, according to TurnKey Lender’s Ionenko. “People tend to focus on loan-origination-system, or LOS, processes, which are vital,” says the lending-tech pioneer. “But loan servicing and management is just as important — after all, it’s a relatively protracted engagement, and it’s where most of the customer’s experience with your financing program takes place.”
