THE HYPE AROUND digitization in banking makes it appear as if it is a brand new concept, but of course it is not. Way back in 2014, which is an eternity in today’s fast moving business world, McKinsey reported that retail banks in Europe had digitized only 20 to 40 percent of their processes. In lending, the position is no better, because except for a few aspects related to selling products, the business largely remains ‘un-digitized’ and is full of document intensive, time consuming and manual processes. A study by Bain & Company found that banks can handle only 7% of products digitally from end to end.
The slow digitization of lending could be attributed to a lack of realization about the potential business value that could be derived out of end to end digitization. ANZ Australia CEO Mark Whelan pointed out - “Where banks have failed traditionally, right across the board, is around taking digitization or automation right through the organisation”. The need to ensure compliance with strict regulatory and security requirements also results in banks maintaining the ‘status quo’ with these processes. The myriad of legacy technologies, inflexible and incompatible systems used by banks also hampers digitization. These archaic processes have a cumulative negative effect on the efficiency of banks and in turn, increase the bank’s costs to serve.
Interestingly, the importance of digitization is coming to the fore with the rise of FinTech companies that are using digitized processes as a core part of their innovative business models. Taking advantage of widespread smartphone adoption, and nearly ubiquitous access to mobile broadband, FinTech players are offering loans at a quicker pace with less documentation. They are using digitization as a competitive edge over the traditional banks. They are not shying away from targeting segments such as people who are not considered credit worthy by banks due to their inadequate credit scores or SMEs whose requirement for a smaller loan value does not get approval by the banks. All this is possible because they have invented new business models, using customer focus and deep analytics, backed by technology as their key differentiators.
Customer expectations, today, are driven by the seamless omni-channel services that they experience in other industries such as travel, retail, education and hospitality. It is quite natural for them to demand interactive interfaces, real-time updates, tailor made offerings and access to information at their fingertips from banks. They have remained loyal to banks for their basic financial service needs until now, but some would argue that their ‘loyalty’ is in fact indifference or a sense that all the banks are the same. Against this backdrop, there is a growing curiosity to try the FinTech experience.
As per McKinsey, banks need to leverage the digital capabilities in a well thought out manner to generate significant performance gains with surprisingly small targeted investments. Implementing a multi-channel front end is just a small step and digitization in lending can go beyond that. Capabilities such as e-forms and work-flow systems can go a long way in simplifying processes. The journey starts with a simple, digitized loan application submitted by the customer. Once the application clears the pre-qualification filter criteria specified by the organization, it moves further for data inputs and then reaches the underwriters to complete the risk assessment. This entire process, including the final decision can be paperless and automated. Defined action times and service levels at each hop ensure speed, transparency and standardization. At the servicing stage, faster processing of customer requests over multiple channels can contribute tremendously to improve customer experience. By analyzing the digital footprints created by the customer, it is possible to create tailored propositions for individual customers and carry out the predictive risk assessment to devise a suitable pre-delinquency stage strategy.
When embarking on a Retail Loan transformation program, Banks have a huge opportunity to change internal processes and improve the overall customer experience. Traditionally, Home Loan origination is a very manual intensive process with high touch points throughout the loan origination process. Implementing a new target state for Retail lending opens up a multitude of opportunities to re-design old manual processes to centralize loan processing from initial enquiry right through to post settlement. An integral party of the journey is business integration to third party service providers in the value chain for valuation data, credit decisioning and LMI providers. Automating the credit approval process reduces manual re-key, allowing a faster “time to yes”. Once the credit origination solution is deployed, Banks can service an omni-channel strategy via mobile, online and broker channels to drive new distribution channels to fuel lending growth. By taking on such a transformational vision for lending, Banks can “Challenge the Challengers” in this period of Fintech disruption.
It needs to be clearly understood that the end objective of digitization is not about let’s go digital itself. Rather, there needs to be specified goals for measuring the effectiveness of the digitization program such as improved productivity/efficiency, reduced operations costs or improvements in the quality of credit etc. In order to be really successful, the digitization has to be ‘outside-in’ focused on the customer’s experience instead of being ‘inside-out’ - focused on the bank’s needs. This may require a change in the traditional mindset which has held been partially responsible for stopping the banks from innovating. Choosing the right technology solution, backed by the right partner, is crucial for the success of the digitization journey. A balance must be struck between latest technological capabilities and deep domain functionalities, to use that old term it should be ‘leading edge’ not ‘bleeding edge’.
Lending is a prominent area to be considered for end to end digitization as the investment here can lead to big returns in terms of improving the customer experience and reducing the cost to serve. The end point here is for banks to realize that while it is crucial to embark on the digitization in lending, it is equally important to go the whole mile and finish the job to realize the substantial benefits.
Source : http://www.australianbankingfinance.com/technology/digitization-in-lending--going-the-whole-mile-counts