In-Depth Guide to Digital Transformation of a Bank

Even before the COVID-crisis and the overwhelming social distancing trend, traditional banks were forced to play catchup with nimble alternative and in-house lenders who offer a fully digital crediting process. Now, relying on clumsy legacy solutions and paper-based workflows is simply not sustainable. Large-scale lenders need to either embrace the digitalization of credit or they won’t be able to retain their customer base and grow it.

Digital transformation for banks means making a brave and a long-overdue step toward intelligent automation and processes streamlining. An in-house or an outdated solution can turn this process into a nightmare with endless downtime, errors, and countless hours of development. But with the right tools, digitalization not only pleases the clients but also leads to a reduction in operational spending, an increase in efficiency, and growth in the core business.

Customers have come to expect a certain level of immediacy with their online banking experiences, and lending has been the last major part of banking that hasn’t embraced the digital age. But now that the technology is developed and stable enough, banks, credit unions, and other traditional lenders can go through a digital transformation painlessly and give a fair fight to the alternative lenders.

Digital transformation isn’t a voluntary process for banks. It’s the harsh new reality of the market that forces the hands of traditional lenders. For decades banks had an overwhelming monopoly on the lending market. Times have changed as banks started to lag in terms of the online experience they deliver. Digital transformation of a bank is seen as an incredibly expensive and lengthy process. But it doesn’t have to be like this.

A while back, banks had every chance to lead the digital revolution by example. They had the resources to go fully digital and provide borrowers with a secure, fully online experience. But the lack of competition made them stick to old systems without transforming and reforming their enormously complex outdated processes. For far too long, they were led by the good-old “if it ain’t broke, don’t fix it” principle. The only problem is that it was “broke”.

Due to that approach, the banks lost a big chunk of the marketplace that got filled by companies that lean into technology instead of tolerating it.

Remember when ten years ago e-commerce was the buzzword everyone was using too much? Then providers like Shopify came along and lowered their industry entry barrier to the point where anyone could launch a well-designed easy-to-use online store within a day and on a limited budget.

That’s what’s happening to e-lending right now with FinTechs like TurnKey Lender providing accessible and intelligent lending automation solutions for Unified Lending Management (ULM). With them, anyone from a retailer to an auto dealer, to an alternative lender, to a large-scale telecom, a credit union or a bank can launch a fully functional, end-to-end, intelligent, and easy-to-use automated lending operation.

DIGITAL TRANSFORMATION TRENDS

It’s easy to get caught up in doing things the old way and ignore the new trends and styles of doing business. But nothing speaks to people in finances as clearly as numbers. So here’s just a couple of stats to give you an idea of what the borrowers have come to expect from their lender in the post-COVID marketplace.

• Just 40% of consumers plan to return to the in-branch financial services post-COVID. – – Novantas
• New mobile banking registrations jumped by 200% in April 2020, while mobile banking traffic rose 85% – CNBC
• The most common method for applying for a small-business credit card or line of credit is a desktop or laptop computer, yet 60% of small businesses rate their bank as average or needing improvement during the digital onboarding process. – Deloitte
• Millennials now make 54% of their purchases online as of 2019 – Pure360
• 62% of global banks expect to be digitally mature in 2020, compared with just 19% in 2018 – E&Y
• Even in 2019, almost half of millennial respondents ages 18 to 34 said they’d consider moving their accounts to a digital-only institution – Marqeta.

The unfortunate delays of modern lending and how your bank can tackle them

Now that we’ve established that digitalization is inevitable, let’s look at how to tackle the transformation.

The lending process for many modern financial organizations is surprisingly prolonged – especially given the current state of technology. Even with banking startups springing up left and right, offering a completely internet-based experience and mobile deposits, the world of retail lending hasn’t caught up quite as quickly.

Online lending is out there, but – even with rapid loan approvals – the time to cash that many modern borrowers experience can drag on for up to nine days. This is true even at banking organizations that offer sleek, secure apps and instant mobile transfers, leaving customers wondering why the lending side of banking is still so sluggish to embrace digitalization.

With so many popular banking features already digitalized, why are there still so many organizations that have neglected automation of their lending processes? Why do loans still take days to arrive in our bank accounts?

The answer is logical. Lending is a way more complex process than simple money transfers and deposits with the time-consuming stages like credit decisioning and terms finalization.But it’s not just time to cash, either. Even though most banks have ditched many of their paper-based systems, loan origination and loan servicing often still require some sort of branch or team member intervention – including some of the most modernized banking organizations in the market.

For traditional lenders, banks and credit unions the delays come from the fact that having digitized the easy things, they are far from automating complex processes like credit decisioning and generally, loan origination.

These processes have too many touchpoints, the originators manually analyze the applications, run checks, evaluate risks, and finally make the loan decision – all using traditional data sources, workflows, and algorithms. Those that haven’t made it that far from the way our parents were evaluated. In the modern environment, it takes intelligent AI-driven algorithms to process this data and get meaningful insights from it in a matter of seconds. And that’s already made possible by SaaS providers like TurnKey Lender. 

Digitalization is inevitable. However, bankers are often scared of its alleged cost and time-to-market. Yet with the modern level of FinTech, digital transformation for banks has become easier, more affordable, flexible, turn-key, and accessible than we’re used to thinking.

DIGITAL TRANSFORMATION SOLUTIONS FOR A BANK’S LENDING PROCESSES

Unified Lending Management (ULM) is an umbrella term that covers every aspect of intelligent lending processes automation. From application processing, borrower evaluation, and loan origination to underwriting, loan servicing, collection, and reporting. Providers like TurnKey Lender specialize in creating ULM solutions that would be easy to integrate with the core banking system as well as be convenient both for the banker’s staff and the borrower.

TurnKey Lender, for example, offers banks a dedicated Transformer solution that is tailored specifically to the needs of a large financial institution. Separate editions include:

• Banks
• Credit unions
• Community banks

Each is tailored to the specific business flows and regulatory requirements of different operations and with configurability capable of handling even unique challenges. The key advantages of this solution are:

• Unmatched flexibility which allows for meeting any organization’s automation needs. The solution is adjusted and deployed by the TurnKey Lender team and is supported 24/7 to make sure it’s fully operational at all times.
• Ease of use – the team made sure that the UX and UI design of the system adheres to the latest and strictest standards.
• Security – the system is built in accordance with the OWASP standards and complies with the ISO 27001 (Cyber Security) and ISO 9001:2015 (Quality Management Systems. Requirements) certifications.
• Intelligence – TurnKey Lender ULM solution uses advanced deep neural networks to meld traditional and alternative credit scoring approaches. This results in a new level of credit decisioning accuracy.
• Scalability –  according to an independent analysis by HP, this solution is capable of processing 100 loans a second and more without skipping a beat.

DIGITAL TRANSFORMATION SERVICES FOR A BANK’S LENDING PROCESSES

Fortunately for borrowers, the current industry standard of multi-day lending finalization is slowly being left behind.

Today’s borrowers want a loan decision process that’s quick, accurate and comes with as little risk as possible. If a bank’s lending process fails in one of those elements, they lose out on more potential customers.

And that’s not an infeasible task for a bank. Here’s a case study about digital transformation of lending of one of the banks that use TurnKey Lender:

Commercial Bank in Asia-Pacific Region – TurnKey Lender Success Story

Not only does undergoing a digital transformation make it easier to generate more lending customers, but it also makes life as an online lending business much simpler. From automating debt collection operations to ditching old-school risk assessments, going digital frees up a substantial share of a bank’s financial and human capital.

Particularly in the highly-competitive online lending space, business leaders can use all the cost-cutting and streamlining they can get.

Some of the things you can outsource to your lending automation solution provider are:

• Credit Scoring Audit/Adjustment – digital solutions have plenty of ways to evaluate the creditworthiness of a borrower other than their credit history and credit bureau score. Your lending automation provider should be able to analyze your business and work with your staff to come up with and implement the optimal scorecard.
• Full system integration, testing, and deployment – it’s understandable if you don’t trust any third-party tech staff to even look at your backend. In this case, the solution should be intuitive and professional enough for your in-house experts to customize and implement it themselves. But there should be an option for the provider to do that for you and free you of unnecessary trouble.
• Program Digitization – having put a lot of effort into lending processes streamlining, you can request digitalization of the existing business processes. In that case, it’s important that the software provider and their solution were flexible enough to tailor it to your needs.
• Operations Automation – digitalization isn’t just about the borrower’s experience. Your staff and you should also have your lives improved. So the right ULM solution provider will also automate the operations of your lending program, allowing you to cut costs and improve efficiency.
• Employee Training – new systems, no matter how good and intuitive, should come with staff training to make sure your bank uses the digital lending solution to its fullest.

Digital Transformation Benefits

Thanks to recent innovations in FinTech, it’s now possible to:

•   Automate the loan application process, including leveraging proven and alternative credit scoring models at the same time and get the data-backed results in seconds
•   Seamlessly adopt paperless statements
•   Get credit bureau and bank statement data instantly
•   Digitally track all interactions between lenders and borrowers automatically throughout the life of the loan
•   Automatically update borrower credit bureau information
•   Enable push notifications and other types of high-demand mobile features

These make winning new customers for a bank wildly more attainable since you get the user experience of a digital lender and the reliability brought by a trusted name of a bank. But it doesn’t end there. Some of the other benefits include the abilities to:

•   Cut operational costs
•   Greatly reduce human error
•   Provide instant loan processing
•   Streamline compliance
•   Improve the user experience

And, most importantly, digitalization empowers banks to focus on what they should be concentrating on: continuing to grow their core business in the changed market.

It’s a common misconception that digitalizing a bank’s lending process is far more complex than that of alternative lenders. Bankers often think that it’ll take up to several years and a ton of resources. But the current reality is that providers like TurnKey Lender have sufficient expertise and previous experience with similar companies. This lets us deliver a fully-integrated loan origination or end-to-end lending processes automation solution with reasonable expenses within several months. The solution that would be deployed and integrated with the company’s core banking software, would meet all the requirements, and help you comply with AML and KYC.

Digital Transformation And Customer Experience

Modern customers have become accustomed to, and have begun to demand, a fast and easy-to-navigate experience when they do their online and mobile banking. Funds are sent to friends and family in an instant, fully digital savings accounts can be opened with a few clicks, and paper checks can be deposited with a phone camera.

Everything is online. Everything is instantly available.

People want easy and affordable solutions that meet their digital media expectations – and banks have been racing to please them.

Unfortunately, this has led to a backlog, with lending near the back of the line. Even though cross-bank transfers can be made with a few finger taps, loans are still taking days.

How long do you think borrowers will put up with this?

Right now is a fascinating moment to be a lending business, because there are now innovative new methods of automating and streamlining lending processes.

From the application to funding and servicing over the life of the loan, the entire process can already be completely digital – without a single business day of unnecessary delay.

Final Thoughts

For massive corporate banking giants that have seemingly limitless funds set aside for innovating their customer experience, undergoing a digital transformation on their own isn’t such a risky endeavor. For small-to-medium-sized enterprises, however, the upfront capital and expertise needed to complete a digital transformation is simply out of reach.

If startups want to embrace automation, they often turn to a trusted digital lending partner like TurnKey Lender to take care of their digital transformation.

TurnKey Lender’s end-to-end lending solution enables automation of all loan origination and servicing processes: originating, underwriting, collateral, servicing, collection, reporting, and more.

Safely onboarding your customers and disbursing funds with TurnKey Lending software can be as fast as 5 minutes. Including running all the borrower checks. With a solution like this on your side, your customers will start getting instantaneous loan decisions and automated loan servicing while you reap the reward secured by intelligent credit decisioning and reduced operational costs.

The question isn’t when, but which.

Which banking organizations will embrace instant digital lending solutions and get ahead of their peers before full modernization of lending processes becomes the norm?

Feel free to download our free whitepaper dedicated to TurnKey Lender Transformer for Banks. Learn how we can make digitalization easy for you.