It still amazes me, as I talk to customers across the country, how wide the gap is between the vision of digitizing paper lending processes and the day-to-day operational reality. There are definitely individual departments that are leveraging new digital technologies for point-solutions, but from an end-to-end perspective very few lenders have closed the gap. But there is hope. Through the strategic use of the right technologies and the expert application of these technologies, an end-to-end digital lending solution is much closer than you think.
Digital lending is urgent
The urgency to move to digital lending has never been greater. Regulatory and compliance requirements have grown dramatically in recent years. There are competitive threats from all sides, both from the non-bank competition and from within the banking industry. These competitors are being more aggressive and more proactive when it comes to digitizing their lending processes. There is the pressure of expectations of your customers. Customers have become more technically savvy and have some very well-defined notions about how they want to interact from a technology standpoint with their key service providers. Many lenders have been slow in accommodating customer’s higher expectations from a digital experience.
In the midst of these challenges profits are declining. According to the Mortgage Bankers Association loan production profits from the fourth quarter of 2015 vs third quarter dropped by over 60%. There are more players going after a fixed pool of customers, creating a compounding effect of declining volumes on top of growing costs. This really begins to create a crisis from a profitability standpoint. If you looked at the figures back in 2012 and 2013 the expenses for a mortgage loan have essentially doubled in the last 2 to 3 years, and the latest numbers are up to $7,700 dollars per loan.
Digital lending is easier than you think
And now the good news. It’s never been easier to move into the world of digital lending. The rate of progress relative to the tools and best practices that are becoming more and more available is something that makes this more accessible to lenders than it has ever been, but you need a solution that leverages the best technologies and can be easily dropped into your current lending environment, regardless of Loan Origination Systems, lending and servicing systems or other systems-of-record.
The content dilemma in digital lending
There has been a lot of progress in recent years around Loan Origination Systems (LOS) when it comes to information access, process management, decision analytics and all of the predictive tools now that deal with credit quality, stress testing, etc. Most of the major LOS providers offer these capabilities. This certainly represents major steps forward in risk mitigation and loan portfolio quality. However, there is more to the story.
Lending solutions can be logically divided into data processing and content processing. Content processing is the necessity to manage all the unstructured information surrounding a loan, specifically, all of the massive amounts of documentation. The industry has made great progress on the data side, but not so much on the content side. That is the dilemma. I would maintain that this content dimension of lending operations is the more central driver of cost and even of a positive customer experience. Most of the major steps in the lending process, from origination to post-closing, are incredibly document and content intensive and, as an industry, we have not done a good job applying automation and digitization to that arena.
The operational processes required to manage all of that content are often disjointed, manual and redundant. As you go through the application process, into underwriting and approval, closing and post close operations, those tend to be functions that are siloes in many organizations. There is a lot of redundant review, there is a lack of visibility from one function to the next, there is a lot of reorganization of data around the content, there is a lot of incompleteness of data that exists from one function to the next. How do you create a more holistic solution that spans all the departmental elements of a loan processing function?
A Bain report from 2015 articulates this point well.
“Improving the customer experience and lowering costs require winnowing down the lending product suite and replacing the complexity of 20 or 30 systems with just a couple of platforms that can handle variety. This is similar to how automakers have moved to platform sharing (chassis and powertrains) for a variety of car models.”
The perfect platform for digital lending
This is a perfect illustration of how the right content management system implemented in the right way can be the answer to the content dilemma. Our experience going from organization to organization is that sometimes the Loan Origination Systems are handling slices of the content management system. There are often 4 or 5 different content management platforms, workflow engines, BPM engines that are touching various specific components and the cost of maintaining all of those and the inefficiency and errors of trying to coordinate across all of the departmental workflows is something that just compounds the pressures around lending operations. The right content management solution in support of digital lending can be the chassis and powertrain model that has revolutionized the auto manufacturing industry.
Just such a content management solution has been implemented across many lenders. It is a solution called LoanFlow from Imagine Solutions and is based on enterprise class tools from IBM and Imagine Solutions and can be implemented in a cloud or on premise model. The solution uses the IBM Datacap platform, which is used for state-of-the-art auto classification, form extraction, data extraction, mobile capture and cognitive analytics using the Watson platform. IBM Case Manager is the primary engine for managing business processes and rules. The Imagine Solutions’ Encapture platform is designed to support a very wide variety of ingestion channels for content, whether its multifunction devices, desktop scanners or electronic documents.
This complete lending automation solution can rapidly extend your digital lending capabilities. You would then be able to satisfy regulators, leapfrog the competition, delight your technically savvy customers and dramatically reduce your cost to process a loan. The best news is that you don’t have to build this solution from the ground-up, you can simply integrate it into your current environment. You no longer have the luxury of waiting, but digital lending can be a reality sooner and easier than you think.