The automated lending advantage

Technology for community banks to fund loans within minutes is a reality. Should you invest?

By Phil Britt

As marketplace lenders’ nearly real-time loan decisioning continues to attract a growing number of customers, community banks are looking for ways to retain their competitive advantage. Automated lending technology is one way that community banks can accelerate their own processes to fund loans within hours, or even minutes. Here’s a closer look at the how and why.

Automated lending, just like it sounds, enables community banks to automatically accept loan applications and supporting documents online—in some instances via mobile devices—so that the initial processing can start immediately, whether or not the bank’s office is open.

Some automated lending programs allow application and decisioning to be handled online, while others go further, completing everything electronically up to the final closing signature. The more of the process that can be done online and electronically on the bank’s systems or in the cloud, the quicker it is for both the community bank and applicant. As a result, automated lending enables the bank to redeploy personnel from filling out applications and paperwork to more value-added tasks. And the applicant can apply whenever it’s convenient, not just when a loan officer is available.

Quick stat

3 billion

Estimated number of people who will access their banks digitally by 2021

“We’ve seen some banks reduce staff, while others have reallocated staff so that they are no longer performing redundant tasks and are now more oriented to customer support functions,” says Vic Sunshine, managing director, Mid-Atlantic region, of fintech provider Finastra. “Automated lending offers a rich, comprehensive user experience. The customer can access the bank digitally at his or her own convenience. This is the way that people want to interact with their bank.” Sunshine says more than 2 billion people access their banks digitally, a figure that is projected to be 3 billion by 2021.

In addition, millennials, who are becoming an increasingly important element of community banks’ customer base, and later generations prefer digital interaction with their financial institution to visiting a branch in person.

Even if a bank hasn’t instituted a full digital process—from automated decisioning to processing and compliance—automating at least parts of the lending process helps community banks compete with fintechs and the large lenders, says Neill LeCorgne, vice president of banking for bank software provider Sageworks. “Online lenders brought technology and speed to the lending process. Large banks have taken many of the smaller loans. Community banks’ lending processes are too labor-intensive.”

Large financial institutions were quick to add automated lending technology once it became available. They had the necessary IT staff to handle any technical issues and the budgets to purchase the technology. In the past few years, the technology has become simpler to use, no longer requiring internal IT staff to operate it. Prices have also dropped substantially. “Offering lending on a 24/7 basis changes the dynamics of the bank,” LeCorgne says.

Better efficiency for Kaw Valley

In Wamego, Kan., $175 million-asset Kaw Valley State Bank found the labor savings of automated lending to be a big benefit. Before adding automated lending (Fusion MortgagebotPOS), chief operating officer Jody Price says a bank loan officer would need to key all of the loan details into the bank’s own systems and then into Freddie Mac’s system, meaning approval or denial of the loan took several days.

Now, applicants can fill out all form details online and upload required documents, such as pay stubs, tax transmittals and W-2s, allowing Kaw Valley State Bank to make the initial decision the next business day, according to Price. In all but a very small number of cases, the bank will abide by Freddie Mac’s decision on loan approval. The bank only approves about 2 percent of applications that don’t meet Freddie Mac guidelines.

Without automated lending capabilities, manually retyping information not only consumes a banker’s time but is also more likely to result in errors. Sunshine estimates that automated lending cuts data entry errors in half.

Today’s cloud technology makes it possible for community banks to quickly add automated lending capability, says Ben Wu, executive director at Loan Scorecard, a wholly owned subsidiary of Calyx Software. Though banks will source and store their borrower data the same, Wu explains traditional lending processes are less efficient and secure because multiple people have access to the paper details. By hosting the technology securely, only authorized personnel have access to the data.

“It’s inherently more secure, and from a decisioning standpoint, it’s inherently more consistent and objective.”
—Ben Wu, Loan Scorecard

“It’s inherently more secure, and from a decisioning standpoint, it’s inherently more consistent and objective,” Wu says. “We put the bank’s credit policy into the automated lending engine, so it uses the same credit policy for every borrower.” Such decisioning therefore eliminates any potential discrimination.

LeCorgne cautions that competing with larger financial institutions and fintech companies for loans means more than simply adding automated lending, however. Community banks must use the new technology to complement the expertise of their loan officers.


Phil Britt is a writer in Illinois.

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