Compete with Big Banks and MPLs through Banking Innovation
Between smartphones, tablets and computers, it’s easier than ever for potential borrowers to source their loans online. Large financial institutions and online marketplace lenders (MPL) have already taken advantage by maximizing their cyber-accessibility, making it easy for customers to apply for a loan from any device with an internet connection.
As digital natives, MPLs have seen the most promising progress in the loan industry when compared to other lending institutions. In only five years, loans sourced by MPLs have increased nearly eightfold (from 5% to 38%), according to a report by DBRS Morningstar. Why the drastic increase? These new lenders have created a seamless borrowing experience that modern borrowers crave while leaving many small- and mid-size banks scrambling to catch up.
With less capital and expertise it can be difficult for other banks and credit unions to compete with MPLs, but that’s no longer the case. Learning from what these digital lenders do best, a new solution exists to help others in the marketplace level the playing field and reach new consumers.
Best practices for competing in the digital age
Small- and medium-sized banks can learn a lot about digital loan origination from well-established MPLs and financial institutions. As they have had the time and resources to become experts in online lending, they have established some of the best practices for this industry.
Here are some things every bank can learn from MPLs to improve their own digital loan strategy:
Create a seamless borrowing experience
MPLs have crafted a seamless, end-to-end online borrowing experience because that is their only focus. They rarely offer additional financial products or services, so while other banks are troubleshooting an online banking portal and bill pay, MPLs continuously focus on loans.
The borrower experience begins when they locate an MPL, usually with a simple online search. As they review and compare the various loan offers, they find the one that’s right for them and are able to apply and receive an acceptance or rejection in mere minutes or hours. Since the entire process is online, applicants can also digitally sign documents so there’s no need to visit a brick-and-mortar bank.
Banks should incorporate these steps into their digital loan programs and can also differentiate themselves with additional functionality that improves the user experience. For instance, loan applicants desire an efficient application process that allows them to easily compare interest rates and products, check their application status and make payments, according to a report by PricewaterhouseCoopers (PwC).
Personalizing loan offers
MPLs excel at being easy to find. They optimize their websites so a quick internet search for an online loan brings curious borrowers to them. Smaller banks who are just beginning to create a better digital loan program may not have as much of an established web presence, but it’s still possible for them to provide personalized offers to new and existing customers.
Modellica Engage, a one-of-a-kind digital solution, leverages high-performance models and third-party data integrations so even small banks can place a meaningful loan offer in front of a customer through direct marketing. For instance, if a borrower is looking up information on digital loans on websites such as CreditKarma, your bank’s advertisement can be displayed.
On the other hand, savvy data collection means banks can present existing customers with personal offerings and special discounts tailored to their needs and past borrowing trends.
Offering other online and mobile services
As stated before, MPLs put all of their effort and expertise into online loan origination. While this is beneficial for attracting borrowers over time, it’s not an effective approach to building long-term customer relationships. Today’s consumers desire a wide array of digital experience features. A recent study by the American Bankers Association found that 14% of customers would switch banks if they offered online or mobile bill pay and 7% would do so if they had online loan applications.
As you can see, mobile functionality is still top-of-mind for borrowers. When small and mid-size banks can improve their digital lending along with mobile banking options, they differentiate themselves from MPLs. They can provide comprehensive online banking solutions that customers can use for their everyday banking needs and loan origination, helping them build loyalty and trust with clients.
Being timely and transparent
The same PwC report highlighted that MPLs are grabbing up market share amongst millennials because they offer a quick and easy application process. The typical loan processes many banks and credit unions undertake can be drawn out over several days. As applicants fill out forms, sign paperwork and wait to receive their loan package there are multiple bottlenecks along the way, meaning the process can take weeks to complete. While a paper trail of this kind has its benefits, if a document is lost in the shuffle it means everything has to start over again.
Moving the lending process online helps borrowers feel like they are in control of their loan as they can easily access details, payment schedules and more online. At the same time, banks benefit from a digital trail of documentation and streamlined processes. As low-touch banking becomes more popular due to the convenience of mobile applications and other environmental factors, it’s easier for even small banks to give borrowers a fast loan origination process.
Modellica Engage brings these capabilities to your bank
While the recent pandemic has forced many financial institutions and lenders to quickly adopt digital technology into their everyday practices, the need for online banking will only increase in the future. In an interview on the future of digital banking with MiBiz, Greg Carhmicheal, CEO of Fifth Third Bancorp, said “[digital banking] also requires banks to enhance their digital capabilities and their sales capabilities, and to know their next product for their customers through digital capabilities.”
Modellica Engage is the custom branded solution small- and mid-size banks and credit unions need to compete in the digital lending market. As an end-to-end loan origination and customer engagement tool, the Engage solution helps lenders reach new, eager customers looking for online loans while simultaneously keeping existing customers engaged with personalized offers.
Begin improving your digital lending capabilities today: