In 2015, just 7% of banking services were completed on digital platforms from start to finish. While the credit union industry has made great strides in the last few years, there is still a lack of digital options for members. This can be a huge deterrent for members especially when digital lending isn't offered. Some small credit unions might be under the impression that they won’t benefit from digital lending platforms due to the demographics of their membership or for budget constraint reasons. However, it has been proven to help many small CUs in crucial ways. Here are some questions small credit unions should keep in mind when considering digital lending platforms.
Who’s Using it?
The State of Digital Lending report shows that 50% of the 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.
- Fully digital loan application process (96% of FIs offer this): Digital lending is the use of online technology to originate and refinance loans in order to deliver faster and more convenient options than traditional in-branch lending. While digital lending applies to any use of digital features during the lending process, full digital loan processes use digital features throughout the entire lending journey for a complete end-to-end digital application.
- eSignature (41% of FIs offer this): An electronic signature, or eSignature, is an intent to agree to or approve the contents of a document. This solution saves time and money, provides faster results, increases efficiency, and allows for more flexibility for those working on the go.
- Automated decisioning (19% of FIs offer this): Automated decisioning employs real-time analytics-based decision making so financial institutions can function more efficiently and provide members with instant approvals. Likewise, the solution helps FIs more easily achieve compliance as a result of documented, traceable decisions.
Is now the best time to implement digital lending?
For credit unions who are planning to implement digital lending over the next 3 to 5 years, that might be too little too late. There are non-banking entities who are already offering digital lending and members are happy to put their money in the hands of an organization who can provide the features and experience they want. By 2020, non-bank digital lending is projected to exceed $122 billion, which is a 10x increase over a six-year period.
Non-bank financial institutions are lending providers (often tech giants) that compete with banks, credit unions, and other FIs. Amazon is one of the big players in non-bank digital lending, and has proven to be a threat as members leave CUs for better user experience, more transparency, and quicker processing time at such non-bank entities. As competition grows quickly, it’s important that credit unions seriously consider digital lending, because without it, they will likely see member growth and even retention decline.
Is it worth the investment?
According to a study by the American Bankers Association (ABA), operational expenses for traditional lending are 6 cents for every dollar in outstanding loans, whereas alternative lending operational expenses are only 2 cents on the dollar. While this might not be the most important factor pushing CUs toward digital solutions, saving on operational expenses allows credit union staff to spend more time with members, rather than sorting through loan applications. Furthermore, members prefer digital loan origination because they can fill out the application at home, and with intuitive software, it’s easy for them to complete the application with little to no help. Digital lending eliminates paper waste too. Your credit union can proudly claim you're making efforts to "go green" and protect the environment, which will sit well with environmentally-conscious members, it also saves you the other green - money.
Does digital lending really improve the member experience?
When thinking about digital, the word “Millennial” might also come to mind. Millennials are generally defined as anyone born between 1981 and 1996 (ages 23 to 38 in 2019), depending on the source. There are 71 million Millennials in the U.S. today, which makes them the largest working generation, and this year they are projected to outnumber Baby Boomers. Due to the diversity in age and experience within this cohort, it can be difficult to target them through one channel or service. However, Millennials of all shapes and sizes have grown to expect digital self-service. They live digitally and they want to apply for a loan, transfer money to friends, and open a new savings account all online. 71% even claimed they prefer a trip to the dentist over a trip to the bank, which is extremely telling of their desire for digital banking. When it comes to lending, they want to fill out their application online and do their own research along the way. CUs who don’t offer digital lending will get a big “thank u, next” from Millennials, as well as existing members who value the platform.
Is it difficult to integrate?
It doesn’t have to be! Digital lending platforms can be implemented in a multitude of ways and credit unions have the ability to choose the option that will work best for their members and staff. SaaS (Software as a Service) is a strong solution because CUs are able to customize an existing platform to the needs of their operations. SaaS solutions are typically offered through fintech vendors in the credit union industry and they are the ones that are hosting the web pages. Some credit unions with large budgets choose to build their own platform in-house. While this is the most customized solution, it is often costly and a slow development process.
Contrary to popular belief, out-of-the-box solutions don’t take away the credit unions control in terms of lending criteria and standards. The CU ultimately creates those guidelines, but they get to relinquish the responsibility of managing the back-end of a rather complicated digital platform.
Digital lending is not something to be ignored. It’s a solution members want and expect. Even loyal members will likely move on to another credit union, bank, or non-banking entity that can provide them with this solution. It’s not too late to implement digital lending as there are many FIs that have yet to do it. Of the 400 credit union and community bank CEOs surveyed by ABA, 71% claimed they plan to offer digital lending for small business loans this year, and 57% plan to offer digital consumer lending as well. Digital lending is not just a solution for big banks anymore and credit unions who leverage this solution will see benefits in areas of member growth, member retention, member satisfaction, operational expenses, and more.