While Wikipedia may not the most authoritative source, it’s hard to argue with its simple definition of digital transformation. “Digital transformation is the use of new, fast and frequently changing digital technology to solve problems.”
But it’s that simplicity that strikes perpetual fear into the hearts of even stalwart IT veterans. That’s because, in truth, there’s no end in sight to digital transformation. For one thing, technology continues to change on a daily basis. And the same is true of consumer expectations when dealing with product and service providers.
But every organization—including more traditional financial institutions—have to start this transformation somewhere. Indeed, banks and credit unions have made a start. Unfortunately, for all but the largest national and global banks, those efforts have focused on one main goal: replicating traditional banking services online to retain existing customers.
The truth is that while banks and credit unions have embraced digital transformation in several critical areas, they have fallen short in others. One of these is providing personal and business loans. True, they may have provided deposit customers with online banking, electronic statements, and a handful of other features. But they’ve done little or nothing to make it easier to get a new loan.
How’s that banking digital transformation working out for you?
If their digital transformations were effective, then banks and credit unions would be retaining the very customers they sought to keep happy. But are they really? When customers can compare and select a competing offer for almost anything online, loyalty to one provider is a thing of the past. And that includes banking services.
Just as shoppers flock to online giants like Amazon for better deals (and free shipping), they’re looking at alternatives to traditional banking, too. Online checking and bill payment services aside, many Millennials and Gen Z have never set foot in a bank.
That means even deposit-based account holders are considering moving their business to an online banker, if they haven’t already. For example, 65 percent of Amazon Prime customers said they would leave their current bank if Amazon offered them a free online bank account. And 73 percent of 18- to 34-year-olds would try a financial product—perhaps a loan—from a tech firm they’ve done business with before.
If banks and credit unions focused their digital transformations on keeping their existing depositors happy, it isn’t working. And in the process, they aren’t attracting new customers like the online fintechs are.
Why banks and credit unions find digital transformation for lending so challenging
These customers are willing to try alternative online banking services, especially if they provide a better customer experience. Lending is one such area in which most banks and credit unions have not focused their digital transformation. The result of that oversight is their loss of 38 percent market share of new consumer loans to marketplace lenders (MPLs).
Why do banks and credit unions have a harder time with digital transformation than their younger online cousins—especially when it comes to lending?
For one thing, unlike MPLs that focus only on lending, banks and credit unions have a broad portfolio of financial services to support. They have to choose what to tackle first. If banks do not take care of their depositors first, they cannot stay in business. That’s a big reason most smaller banks and credit unions have not extended themselves to the online lending arena.
To make things worse, local, state, and regional lenders simply don’t have the presence in the online marketplace that digital-native fintechs do. It’s true that building new online lending systems integrated with their existing systems is costly and complex. But it isn’t the financial and technological aspects alone that hold them back. Often, they simply lack the expertise and know-how to put themselves out there—to plug into the digital marketplace—not to mention providing the seamless, end-to-end experience borrowers expect.
Online lending solutions can smooth the way for a lending digital transformation
Regardless of these challenges, the adoption of online transactions will continue to soar. Customers will expect the ability to compare various loan offers and pick the one that best suits them. They want to then complete the entire lending process in one seamless experience. Banks and credit unions must oblige them or continue to lose their market share of new consumer loans. If not, they could risk losing their other banking customers, too.
That’s where a provider of online lending solutions can help. Revamping an age-old lending process shouldn’t require an army of programmers and consultants. Nor should it force you to pick one set of banking customers over another. Instead, partner with a SaaS lending software provider that specializes in risk management, online loan lead generation and end-to-end borrower engagement.
An online lending solution like Modellica Engage 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 lenders can leverage risk management and online lending solutions to bring themselves into the digital age, download our latest whitepaper: