What’s blocking your bank from mobile lending?

Researching, applying for and even receiving loans via mobile device is increasingly popular. But moving from the paper-intensive systems and processes of old can be difficult, and community banks are still working on perfecting their mobile lending approach.

By Karen Epper Hoffman

Lending, the core of banking, hasn’t been immune to the mobile revolution, which has made access to credit cards, auto loans, equity lines of credit and even mortgages more streamlined and easier to access than ever.

Today, many prospective borrowers expect immediacy and ease in the automated loan process. That means that the back-end system and the customer application need to be up to snuff, and stodgy paper-based loan procedures need to become more streamlined. But, given the need for regulatory compliance—especially in lending—updating the origination process can be tricky.

“I believe it’s an important element as an investment for the future,” says Jeff Niesen, senior vice president of $721 million-asset Bankers’ Bank in Madison, Wis., which offers 70-plus products to more than 600 community banks in the Midwest. “As the technology has evolved, it’s almost an expectation to have a mobile banking offering.”

Michael Scharenbach, product lead for credit cards at Bankers’ Bank, says while the industry is “evolving” to online for products like credit cards and mortgage applications, “the more sophisticated the loan is, the more issues [there are] in moving it entirely to mobile.”

“I am quite focused on offering customers the ability to apply for loans through any online device,” says Brian Otteman, director of customer experience for $185 million-asset High Plains Bank in Flagler, Colo. “Banks now compete more on convenience than any other means of differentiation, and certainly the highest level of convenience a customer can obtain is service through their mobile device. Moving forward, banks that are also able to accelerate lending decisions and deliver funding without the customer ever stepping foot into the branch will have a great advantage.” 

High Plains Bank has been in discussions with San Diego-based MK Decision, an ICBA ThinkTECH Accelerator finalist. Before CEO Har Rai Khalsa started working at MK Decision in 2015, he says its cofounders worked for a retail finance company that was “very paper-intensive,” which inspired them to move to a more digital-focused loan origination platform. From there, the company partnered with a community bank in Orlando, Fla., for which MK Decision was able to process 6,000 loan applications in 90 days with a three-person staff. The company is about to pilot its mobile loan platform with Bankers’ Bank.

Leslie Parrish, senior analyst for consumer lending at Aite Group, says, “Banks cannot go all in on mobile without paying attention to the bigger picture. Even the youngest consumers still value personal contact, especially when they are dealing with more sophisticated loan products for the first time.”

Nonbank lenders have taken the lead in offering mobile access to loan products, Parrish says. “It’s easier to start from scratch with a greenfield experience than layering onto existing history. It’s not the same acquisitions over the years and making those disparate systems work,” she adds.

Austin Kilgore, director of digital lending for the research firm Javelin Strategy & Research in Pleasanton, Calif., says, “Community banks have to understand that mobile and digital tools are not something you can ignore or cast off because your institution is small. If they’re not providing mobile tools to borrowers, they’re leaving money on the table.”

Tim Bedard, director of security product marketing for IT security tech company OneSpan in Chicago, says, “A loan is a high-value product that has traditionally required a very lengthy and costly application process and a required branch visit, along with a great deal of repetitive paperwork. Today’s customers want to research their own loan options, and then apply online from where they are, not in a brick-and-mortar branch.

“Today’s millennials do just about everything on their mobile devices, and they are not applying for loans via this digital channel because the loan process is not optimized for a smooth customer experience,” Bedard adds. “Hence, the reason why banks need to make this process more attractive, more convenient and more seamless to their customers.”

A Wells Fargo consumer survey released in 2017 on the use of electronic signatures and mobile devices confirms this is the future of loans and mortgages. The survey found that beyond simply initiating an application online, 31% of respondents had e-signed a final loan or credit document on a mobile device. In the same study the research found that if applying today, 36% of consumers would be inclined to e-sign a final loan contract on a mobile device.

Banks and nonbank lenders alike continue to digitally automate a wide range of loan use cases including personal, mortgage and auto.

Challenges to mobile lending

It’s not that community banks don’t want to offer mobile loan services. Community bankers see the writing on the wall and recognize that more and more of their products and services will need to be delivered via mobile to appeal not only to a younger generation, but a variety of customers who are banking on their devices.

For his part, Otteman is perplexed and challenged by the opportunities of artificial intelligence and automation in a world where relationships matter more than ever. “Relationship-based banking is alive and well, and those community banks that were able to hang on through all of these mergers are doubling down on their ability to know the customer’s needs,” he says. “If you think about the evolution of technology from the drive-up window to the mobile application, it’s all been designed to take the personal touch away from the institution and replace it with the digital convenience of doing it yourself.” 

Another challenge is simply size relative to the big banks. “If I’m thinking about loan products, one of the big challenges is the battle for ranking on search engines,” says Kilgore of Javelin, meaning that when a prospective borrower searches for a particular loan product with a search engine, big banks and nonbank lenders may be the highest search results presented to the borrower. “Little banks are going to have difficulty showing up high in Google search … that’s a challenge from a loan marketing standpoint,” he adds.

Nonetheless, community banks are increasingly under pressure to offer more information, application abilities and origination of loans through the mobile channel to retain and capture more retail and small-business customers. “The thing about loans is that we apply for them when we need them the most, here and now,” Khalsa says. “Customers are no longer tied to a single location, not tied to their desktop any more. The behavior is trending heavily to mobile.”

Regulatory roadblocks

Perhaps the biggest impediment to mobile lending implementation is regulatory.

“Creating that start-to-finish 100% mobile application for all customer types can be complex, but creating a mobile lending initial step can be easier and still satisfy the customer’s desire for immediate and convenient action,” says Michael Scharenbach, product lead for credit cards at Bankers’ Bank in Madison, Wis. He believes current regulations are not clear about required disclosure statements delivered electronically and physical copies for loan documents.

Tim Bedard, director of security product marketing for IT security tech company OneSpan in Chicago, says banks face a “highly regulated environment with demanding business-to-consumer processes that require the ability to transact quickly and compliantly.” In the U.S., he says regulations are catching up with technology and may accelerate the move to full mobile loan origination. These include the Electronic Signatures in Global and National Commerce (ESIGN) Act; Uniform Electronic Transactions Act (UETA); and S.2155, which includes the Making Online Banking Initiation Legal and Easy (MOBILE) Act.

At the state level, Bedard says that remote online notarization is undergoing change. It previously required documents to be signed in front of a notary, but now that can be performed via video conference and a combination of driver’s license scans and electronic signature.

“Compliance and enforceability are major concerns for FIs [financial institutions],” Bedard says. “Failure to carry out each step in the identity verification and agreement process according to the regulations of a particular jurisdiction could lead to fines for non-compliance from regulating bodies. Technology can help FIs be more compliant with different regulations via secure audit trails to prove that fair and compliant practices were followed, and that applicants were fully aware of what they were signing up for at the time of opening an account or applying for a loan.”

Karen Epper Hoffman is a writer in Washington state.

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