How many systems, both digital and manual, do your members and employees have to navigate before booking a loan? The answer may surprise you – and provide some critical insights if your credit union isn’t meeting its loan growth goals.
What is technology sprawl?
Tech sprawl isn’t just a lending problem or even a financial services problem. Everyone who works in an office, regardless of industry, often has several web browser tabs and software programs open at once, and must toggle back and forth between them to do their jobs. And what about your smartphone? During the course of a day you might use as many as 20 different apps to perform a large variety of tasks, from sending an email, texting colleagues, checking the weather, shopping on Amazon and paying for your latte, to finding directions to your lunch meeting, checking the news, verifying your account balance, posting something witty on social media and maybe even making a phone call.
Yes, technology has expanded our ability to do more things with greater ease, but has it really made us more efficient? According to the U.S. Department of Commerce, our nation’s gains in gross domestic product are increasing at the same rate as average hours worked; in other words, we aren’t gaining any efficiencies. And this isn’t just a recent development; since 2011, the U.S. has only averaged 0.4 percent annual growth in output per hour of work, the lowest measure since the late 1970s and early 1980s, and far below the 2.3 percent average we’ve enjoyed since the 1950s.
When looking specifically at lenders, not all are inefficient. Some have implemented a robust loan origination system (LOS) that serves as a central hub and provides smooth integration with the lender’s core system, as well as with all the various third-party providers required to quickly and effortlessly move borrowers from application to funding. Today’s consumer expects the lending process to be fast and easy, and numerous studies have shown consumers value convenience over price or loan provider.
4 ways to fight lending technology sprawl
Although many credit unions with $75 million in assets or more utilize efficient loan origination systems; surprisingly, many do not. If your credit union is considering the move to an LOS (or needs to replace or upgrade its existing system), here are some important questions to address as you begin your search.
1. How efficiently does the LOS connect with your core system and other systems?
All software providers claim they integrate well with other tech vendors, but it’s important to do your due diligence and confirm those claims. Your LOS must not only connect with other systems, it must do so completely and efficiently.
For example, your credit union might have separate software to collect loan applications on different channels, with one for your call center and branches, another for your indirect lender, and yet another for online and mobile applications.
You probably use one system for pre-approvals, and several more for loan decisions, disclosures and funding. There are also systems that quantify CECL requirements, while others handle internal reporting. And that’s just direct lending. If you manage an indirect lending program, you also have to integrate with dealer systems.
2. Does the LOS support an enriched member experience?
Integration speed is important, but an LOS must also provide seamless connection to all the steps involved in the loan approval process, from pre-approvals to funding. The only time you should ever ask your members to submit additional information or use a different channel — such as calling a member service representative or visiting a branch — is if there is a problem. This includes the new member process for indirect or direct borrowers that are in your field of membership, but aren’t yet members.
The LOS must provide your credit union the ability to quickly and easily complete the new member application process, which may include separate systems to match social security numbers, run ChexSystems, comply with Bank Secrecy Act/Anti-Money Laundering regulations and provide Truth in Savings disclosures.
3. Does the LOS enrich operations?
What is often overlooked in the search for an LOS is the value it should bring to your staff. Your credit union’s origination system might, in fact, integrate with your other systems, but if that integration requires employees to toggle among several screens and input data manually, they will likely find it very difficult to embrace. And if your LOS results in additional calls for your call center or branches, the senior managers in charge of those divisions may not be on board with it, either. The system isn’t just about the member experience it provides – your internal team must also benefit from it.
4. Does the LOS help your credit union grow membership and loans?
Member experience and integration with your dealer network are essential. However, you should also make sure your LOS has the ability to leverage your existing data into growth. Which members are ready for additional loans? Which members are likely to be entering a new life stage and may soon have different lending needs? And does your LOS pull performance data and use it to improve your underwriting and pricing?
It’s important to remember that a strong loan portfolio isn’t built upon a shotgun approach; access to data, and leveraging that data, allows you to tailor your new loans to fit your specific growth and income goals.
What you should expect from your LOS
Comparing systems can be an overwhelming process. Before beginning your search, setting a performance baseline will help you narrow potential vendors to just those that meet your needs. The following performance capabilities should be top of mind when deciding on a new LOS.
Successful implementations take time, but every month you operate on your old system, you’re leaving money on the table and not producing income.
Vendors that promise significantly shorter implementation times might not be fully integrated with other systems. Longer implementation times may hamper your credit union’s ability to meet its growth goals. Conduct your due diligence and seek feedback from credit union colleagues who have converted to the systems you’re considering. A discrepancy between what the vendor promises and what your colleagues report, should be viewed as a red flag.
Increased automatic decisions
A modern LOS must have the ability to collect an application, move to a system decision of approved or denied, and book the loan in a matter of minutes or less.
Successful pre-approval campaigns
Your LOS should have the ability to grow loans by uploading member files with approved information, allowing staff to search by social security number to easily process the loan request. Gone are the days when members need to wait for approval and lending managers speculate if pre-approvals are being priced correctly.
Your LOS needs to provide an opportunity to cross sell other lending products as part of the loan process.
Implementing the right LOS solution
To provide a truly positive member experience and win staff support, a credit union’s LOS must reduce technology sprawl. Make sure the solutions you’re considering meet these three minimum requirements:
· It must fully implement with all systems, not just your core
· It must provide an enriched member experience, and
· It must increase operational efficiency.
And, to ensure your capital investment contributes to all of your organization goals, an LOS must also build a strong foundation for the future, growing members and loans with a robust account origination feature.