Lending process automation: Risk vs. reward

As far as your loan customers are concerned, speed is often the name of the game. Large, commercial borrowers may be looking for in-depth relationships but consumers and small businesses want quick responses. “Instant loan approvals! Loan funding in 24 hours!” That’s the competition. It would be nice if community banks could explain the hazards of private lenders that flood the internet with ads … but you don’t usually have that opportunity. 

The best way to beat online lenders is to match what they can do. And for that to happen, you need to automate your lending process — especially at the point of application. Which means you need to reduce the number of manual touchpoints, and potentially introduce some risk into your loan portfolio. Fortunately, you can mitigate many of the risks with the right technology.

Loan decisions

Risk: Approving loans that don’t meet your bank’s underwriting standards.

Not only are borrowers doing their own research before they even reach out to a bank, but they’re also applying for loans at all times of the day — at times that are convenient for them. If they decide to buy a car on a Saturday, then they’ll go ahead and submit an application, expecting an immediate response.

Along with an easy-to-use online loan application, an automated decisioning platform can approve or deny loans based on the criteria you establish. The product you use needs to be flexible enough that you can configure a broad range of loan scenarios — yet also have some “trigger points” that will flag the loan for additional review. 

For example, you may require that all small business loans over X dollar amount be reviewed by a human underwriter. These trigger points will ensure that you’re not introducing unnecessary risk into your portfolio with loans that would otherwise not be approved.

Customer communication

Risk: Missing opportunities for personalized interactions.

Automating the decision process can lead to another risk: Automating too much and losing the touchpoints that separate community banks from big banks and online private lenders. While borrowers want “You’re approved!” to immediately appear on the screen after the loan application is submitted, they don’t expect every step in the process to be hands-off. Home loan and small business borrowers, in particular, may expect a prompt phone call or follow-up from a loan officer.

Keeping speed in mind, approved loan applications should be routed to the appropriate loan officer internally. You will also want to examine the entire loan process and find the communication bottlenecks. Can you provide loan status updates via automated emails? Which steps can be automated and which deserve human interaction?

To cover the “gap” that may occur between a loan’s on-screen approval and an officer’s subsequent phone call, think about automating the next steps of communication, such as immediately emailing borrowers to let them know what they can expect for the next steps. If the loan can’t be approved or denied automatically, automate the communication that lets the borrower know what to expect for a response time.

Document collection

Risk: Incomplete loan documentation.

The natural next step in reducing manual loan processing tasks is to collect documentation from the borrower via a document upload. The borrower should be given a secure portal or link, along with a checklist of documentation needed.

But borrowers can easily make mistakes or misunderstand what is needed. The checklist item may say “Provide Articles of Incorporation” yet the borrower uploads a W-9 instead. 

While secure file transfer saves some time in the back-and-forth document collection, it can introduce huge risks if an underwriter isn’t verifying that the correct documents have been uploaded — which can easily occur in busy departments. The underwriter sees that the borrower has added a document, and doesn’t open the PDF to ensure that it’s the correct document.

Some borrower portals have the ability to not only upload documents but also read the documents. Using AI, machine learning and OCR technology can alert the borrower if the wrong document is uploaded or flag your bank to review the document more carefully (or both). By using a product that reads the documents, your bank mitigates the risk of incorrect documents and saves time in the underwriting process.