Small community banks are often underserved and overlooked when it comes to advanced technology. As such, many small bank leaders may think digital lending software is not designed for their institution and won’t be beneficial. They may believe they don’t have enough customers to warrant the effort involved in implementing an automated lending solution. The truth is, small community banks are passing up a huge opportunity to scale and compete with larger financial institutions — all while improving their own efficiency. According to insights from American Banker, institutions that cling to outdated lending tools run the risk of being left behind by commercial clients who are barraged with opportunities to borrow faster and more conveniently.
When small banks use digital lending, they are leveraging online technology to power their lending services, making their lending decisions faster and more efficient. By reducing the time and personnel required to make sound loan decisions, a digital lending platform generates almost immediate returns for small banks. Consumers increasingly prefer digital options in all areas of their lives, especially in the wake of the COVID-19 pandemic. Offering an online option improves customer experience while also lowering operational costs, among many other benefits.
4 Ways Digital Lending Helps Community Banks
The biggest benefits for small banks that adopt digital lending can be explained in four groups: Information collection, transparency, enhanced analytics, and improved customer experience.
1. Information Collection
By executing the loan process online, you can quickly gather and store information about your customers. Traditional loan application methods require customers to fill out seemingly endless paper forms, many of which ask for the same information repeatedly, such as name and date of birth. After the applicant is finished signing page after page, the lender has to manually enter information. A digital solution cuts down on duplicate efforts by asking for each piece of information only once and populating the forms automatically. This speeds up the process and makes for a much happier borrower.
Digital databases make it easy to see where a customer is in the loan process and if they are missing any important information. It also makes it easy to gather a complete picture of their financial history by integrating information from other parts of your bank. Not to mention, when an employee has to transfer information from paper to digital, mistakes and delays can happen. By offering an online loan process, you give customers increased visibility into their loans and empower them to correct mistakes and submit missing information.
Digital lending platforms increase transparency, which improves flow and accessibility. This makes it easier to work with third parties and even across divisions within your bank. All action is immediately documented and visible to everyone involved. Everyone can access updates in real-time, reducing the time it takes to reach a decision about a loan application and ensuring all employees are held accountable. As a bonus, the ongoing documentation makes it easy to supply any necessary compliance evidence for a third-party audit.
3. Enhanced Analytics and Decision-Making
One of the most notable ways digital lending software helps small banks is by providing enhanced analytics that improve decision-making. By removing human bias and running multiple algorithms in seconds, digital loan platforms can help lenders make more fair and sound decisions about loan eligibility. The software can pull information about a customer’s financial history from multiple sources, giving a more complete view of their financial health. While customers simply enjoy a more streamlined application experience, banks reduce their risk significantly. This is just another way digital platforms improve efficiency and customer experience.
4. Improved Customer Experience
Consumer preferences are being shaped by the rapid digital transformation we are seeing across all industries. The digital natives expect applying for a loan and reviewing status updates to be almost as easy as calling an Uber! For small banks to appeal to the next generation of business owners, they will have to offer fast, convenient solutions across all services, including lending operations. Applying for a business loan can be a stressful experience, and the right digital lending platform will give customers more visibility into the process while still making it easy for them to reach a real person if necessary.
Why Are Small Community Banks Adopting Lending Software Now?
The COVID-19 pandemic accelerated trends that have been evolving for at least a decade, namely a strong preference for all things fast and convenient. In August 2020, BAI found that half of consumers are using digital products more since the pandemic, and 87% of them are planning to continue this increased usage post-pandemic. While consumers originally shifted to digital platforms out of necessity, many are hesitant to move backwards now that they have experienced the ease of completing tasks online. Despite vaccine rollout and hope for more in-person interactions, forward-thinking financial institutions should still consider ways to improve digital accessibility.
Applying for loans is certainly not the exception, and small banks must adapt quickly in order to remain competitive. The State of Digital Lending report shows that 50% of financial institutions surveyed with assets over $1 billion are using a digital loan origination channel, compared to just 38% of those under $1 billion. Of the FIs using digital origination, 96% have fully digital loan application processes, 41% offer eSignature options, and 19% provide instant decisions. Despite the clear benefits, only .1% of small business loans are handled digitally from start to finish (Bain & Co).
Additionally, many community banks are finally able to resume forward-thinking investments this year after taking a defensive stance to survive the pandemic. We expect to see banks adopting new technology, especially those that were forced to close branch locations in 2020. It’s clear that consumers want options, and a well-rounded digital offering that also makes it easy to get human help will be an important competitive differentiator.
Offering a digital loan option to customers is the obvious choice for small community bank leaders trying to drive additional value. Making the change doesn’t have to be difficult when you work with an industry-leading platform provider like us that can support you through the process. If you are not sure where to begin in the digital transformation of your bank, we have experts ready to answer your questions. Schedule time with us today!