ONTARIO, Calif.—When it comes to making loans, credit unions need to get to “yes” or “no” a lot faster, asserts one analyst.
Paul Kirkbride, SVP of CU Solutions at CU Direct, said automated loan decisioning needs to be adopted by credit unions to have any hope of fending quick-decision fintechs. And in doing so, credit unions actually gain an advantage over the upstarts because members already trust them, he said.
“Face it, the future is automated,” said Kirkbride. “Already, the lending space is flush with startups looking to stake their claim in the marketpla
ce. They provide a better lending experience for digital consumers—those who are used to the one-click online experiences offered through companies like Amazon.”
Kirkbride noted that providers such as Rocket Mortgage has now set high expectations around the mortgage lending experience, causing concern for lenders who offer what is now an “antiquated mobile option.”
“If the origination of a loan can’t happen at the speed of light, then the likelihood of retaining consumer loyalty is left in doubt—and there’s very little reason to worry about the rest of the lending process,” said Kirkbride.
More Lending Startups
Kirkbride emphasized the large uptick of lending startups in recent years certainly signals the importance and relevance of improving consumer ease of use. But credit unions, asserted Kirkbride, have a “significant” window of opportunity to differentiate themselves.
He suggested credit unions can create differentiation by matching or, better yet, improving upon the online experience at fintech lenders, and then delivering the loan in an environment of trust.
“All this starts by automating the decisioning process,” said Kirkbride. “Speed up origination—get to yes faster—and you will improve pull-through and, more importantly, increase member loyalty.”
Kirkbride insisted that CU lending should mirror what financial institutions have already done with mobile banking, promoting expediency, self-service and ease of use.
“Getting to a fast ‘yes’ or ‘no’ decision should be a top priority,” said Kirkbride. “This automated approach enables credit unions to stop ‘loan shopping’ and focus loan office
Paul Kirkbride, CU Direct
rs on loan applications that actually do require human intervention.”
Kirkbride said that, unfortunately, the lending process at most credit unions remains overly cumbersome.
“Over the years, what has persisted are rules and application questions that add time, but have very limited consumer benefit,” he said.
Kirkbride said the extensive questions are presented typically in the name of risk mitigation. He said it drives high costs for two reasons.
“First, it’s inefficient to use referral rules or to ask application questions that have no real correlation to loan losses,” said Kirkbride. “Second, loans that should be auto-decisioned, but are not, reduce the turnaround time for loans that truly need manual review. To meet the needs of today’s consumer, there must be a better marriage of risk management with ease of use. The magic happens when consumers who expect to be approved, and should be auto-approved, get an instant decision.”
Higher Approval Rate
Kirkbride said statistics also show that a loan that is automatically approved has a higher likelihood of being funded than a loan that was manually approved.
“A quick decision ends the shopping cycle, whereas slow decisioning could be reason enough for some consumers to cross a financial institution off their list, resulting in lost opportunity,” he said. “With automatic decisions, the application process is handled simply, quickly and virtually—which ultimately provides a better member experience.”
By automating their decisioning process, credit unions can ultimately improve their bottom line, while also building long-term member loyalty, asserted Kirkbride.
Making automated decisioning a focal point in the lending processes is the most immediate way a credit union can improve its loan process to compete with the growing number of online startups, said Kirkbride.
“By taking this step, credit unions can set the new standard,” he said.