The growth of online marketplace lenders (MPLs) over more traditional lenders like banks and credit unions is undeniable. In the last five years, the share of loans sourced by online marketplace lenders (MPLs) has surged from 5 percent to 38 percent. And in late 2019, Lending Club alone reported having issued nearly 4.3 million loans totaling $63.7 billion since it started in 2012. That’s no small chunk of change.
So, how is taking market share from banks and credit unions doing them a favor in any sense of the word?
How marketplace lenders provide a better online borrowing experience…
Let’s face it. As we live more and more of our lives online, consumer expectations of how to interact with businesses have changed forever. Like every other industry, banking has undergone its own digital transformation over the last couple of decades. Most banks and credit unions now provide online banking portals and mobile banking apps for customers who wish to use them—which is most people, by the way. Seventy-six percent wouldn’t consider opening a bank account if the bank didn’t provide a mobile app.
What’s more, today’s consumers expect all of their online interactions to be integrated and seamless. They want self-service tools available so they can transact business whenever and from wherever they like. Frictionless, intuitive experiences from technology and e-commerce giants like Amazon, Google and Apple are now the measure by which consumers judge other providers.
Enter the MPLs with a new business model and a new focus. Unencumbered by multiple lines of financial products and decades of manual processes, MPLs can focus on offering online lending solutions that provide seamless, end-to-end online borrowing experiences. The borrower can locate an MPL with a simple online search, compare various loan offers, then select the one that’s right for them. And, the entire loan application process is online—accessible in one place, easy to understand and simple to complete. Within minutes, the applicant knows when to expect a response. Then they need return only to digitally sign the e-paperwork and receive the loan amount into their bank account.
… And why banks and credit unions aren’t delivering it.
Sadly, most banks and credit unions simply don’t provide the same type of online borrowing experience that MPLs do. Yes, it’s true these lenders allow their customers to access their loan balances and make payments online. But when it comes to attracting new borrowers and allowing them to shop and apply for a new loan, not much has changed.
In stark contrast to MPLs, a typical loan process at banks and credit unions can still take several days. Even if the lender provides an online application form, gathering and sending the accompanying paperwork and signatures is manual. The bank employee has to build, print and mail (email?) the loan package. The borrower must then print, sign, scan, and return all the documents. And if any errors creep in due to the manual nature of the paperwork, they have to start the process over.
Sadly, every day that passes increases the frustration of the borrower—and the risk that they will give up and turn to another lender. And given that 38 percent of annual consumer loans now originate with MPLs, that’s exactly what they are doing.
A digital wakeup call and tips for turning things around
Once again, how can banks and credit unions look at this takeover of market share by MPLs as a favor?
These traditional lenders should view the success of MPLs as a digital kick in the pants to take action before it is too late. MPLs have pushed the lending industry to evolve. Banks and credit unions need to offer a modern online borrowing experience, too, if they are to stay competitive. Instead of scratching their heads, they can take stock of not just what they are doing wrong, but what MPLs are doing right.
Of course, that means banks and credit unions must expand their digital transformations to include the lending process. It means partnering with providers of loan lead generation solutions to make them more visible in the online lending marketplace. And it means leveraging SaaS lending software to provide smart, easy-to-use self-service tools that let the customer feel in charge from end to end.
Here are a few tips that banks and credit unions should keep in mind when selecting online lending solutions to further their digital transformation.
Take a mobile-first approach. Mobile banking continues to increase in popularity, with 81 percent of consumers using mobile banking nine days a month. Whether you provide an app or a mobile-friendly website, make sure your end-to-end lending solution caters to smartphone and tablet users.
Automate processes to reduce errors and speed turnaround times. Manual processes which rely on repeated (and error-prone) data entry and loan processors during “business hours” only ensure long and frustrating wait times for borrowers. MPL loan processing is automated, yours should be, too.
Integrate existing customer knowledge into every interaction. Data should flow between the front-end and back-end systems, so the borrower should never have to re-enter the same data. And for existing banking customers, the bank should already have most of the information it requires to process a new loan. This should allow to make the experience more personal and even faster for the customer.
Make it simple to understand. The lending process is complicated on the back end, but customers shouldn’t have to see or feel everything that goes on behind the scenes. Make the process easy for the borrower—and, again, that also means making the process mobile-friendly.
Don’t try to build it all yourself. Digital transformation of any kind is hard. But revamping an age-old lending process shouldn’t require an army of programmers and consultants. Instead, partner with a SaaS lending software provider that specializes in risk management, online loan lead generation and end-to-end borrower engagement. In other words, a partner that can:
- Quickly make your loans more visible to the online marketplace, and then
- Provide your new lending customers an unforgettable user experience from application all the way to funding.
For more on how banks and credit unions can leverage risk management and online lending solutions to bring their lending process into the digital age, download our latest whitepaper: