Exploring The Path to Digital Lending For Traditional Banks
Making a move to digital lending is increasingly critical for banks and credit unions trying to keep up with fintech disrupters. But while small, dedicated online lenders don't face the strict regulations that banks do, traditional firms must find ways to innovate that align with strict standards governing both internal policy and industry regulatory compliance. This is a difficult balancing act to complete, but it is one challenge that organizations must overcome as consumer expectations shift.
Completing the transition to online lending can be an arduous process. It requires a blend of technological and process change that is at once disruptive and potentially rewarding. As such, it is vital to ensure you know what you're getting into at all phases of the transition, making data and process visibility critical in a successful digital lending migration.
Getting going with online lending
The impetus for digital lending solutions is becoming clear. McKinsey explained that the average small business and corporate loan decision time is between three and five weeks. For most traditional banks, it often takes three months to deliver the cash. Online lenders are bringing those times down to days or even hours. This has made digital lending a priority, but many banks are prioritizing different loan products to allow for a smoother transition.
"Taking an iterative approach to online lending can simplify the transition."
Taking an iterative approach to online lending can simplify the transition. McKinsey pointed out that retail credit products are usually the starting point, with projects eventually evolving to incorporate online loans for personal funds, key parts of mortgages and then small business lending. To complete this transition and eventually evolve into more complex online lending processes, McKinsey recommends that banks:
- Align stakeholders over an extended period, often a few years, to ensure your team is equipped to handle the technical and operational hurdles that come away.
- Prepare to deal with legacy IT systems, limited digital talent pools and poor data visibility as your develop your system.
- Establish a clear roadmap that gives you end goals and pathways for consistently expanding and growing your lending solution.
Employing big data is also critical as banks explore online lending. McKinsey explained that using alternative data sources is useful, but banks can also get off the ground by focusing the data they already have at their fingertips. The key is making data usable.
These tips can help you launch an online lending program, but you may also be able to skip that process and go the partnership route.
Using partnerships to deal with pain points
Some banks may run into loan products that simply don't work for them. In these cases, going online can be an ideal option. The Bank Administration Institute explained that firms can drive a successful partnership by investing in online lenders to share in profits, use referrals to create a relationship with a digital lender or license a platform that already exists. Either option can set a foundation for online loans.
Identifying your best path to online lending and getting the data you need to drive success doesn't have to be daunting. GDS Link offers a blend of risk analytics technologies and consulting services to help banks embark on digital lending journeys in cost-efficient ways.