The debate over whether traditional banks, facing stiff competition from Fintech disruptors, should adopt new digital lending practices to survive and prosper has long since settled—they not only should, but they must.
We know that technological adoption in the sector is exploding, and that one in five financial institutions plan to add a new or replacement loan origination system (LOS) this year. But simply installing an LOS isn’t enough. Instead, future success and growth hinge on a bank’s ability to harness the real opportunities for efficiencies and scalable growth—opportunities derived not from the technology itself, but by empowering the people and optimizing the processes around it.
More precisely, implementing a new LOS creates three distinct areas of opportunity.
An LOS is designed to create efficiencies by moving administrative work off front-line staff and providing a more seamless workflow in the once-arduous credit fulfillment process. Ideally, then, there should be a correlative re-alignment of each person’s responsibility —where the right individual is performing the right task at the right time, creating capacity for customer-facing bankers to improve customer experience and drive sales. For instance, we regularly observe bankers performing a large portion of the underwriting. With an LOS, the workflow can be modified to enable a banker to only complete select sections of the credit memo and review the work of others.
However, this kind of alignment is easier said than done. Though small changes may be made at the implementation stage, we typically find that, over the long run, they don’t stick or evolve. The key is not to miss the forest for the trees: rather than focusing on one group’s activities, organizations must do the hard work of creating a thorough, end-to-end view of every individual role within the process. From there, it becomes a matter of collecting data (based, say, on how long it takes X employee to do Y task) and creating models that align activities to role and skill level, as well as developing feedback mechanisms and measurement metrics to support continuous improvement. All of your desired future state changes may not occur with an LOS implementation, but can be phased in over time to reduce change fatigue.
The goal is to move activities downstream, allowing bankers to focus on relationships with prospective and existing customers. If done right, West Monroe has found that organizations can free up as much as 15-25% of a banker’s time. Time that can be re-deployed to revenue generating activities.
Once a bank frees up capacity for bankers to focus on maximizing customer interactions and driving sales, the question becomes: How to make the most of that newfound capacity?
Despite the temptation to rush ahead, bankers would do well to slow down and take time to do things effectively. In order to deliver more frequent and higher-quality customer and prospect interactions, management should begin by thinking through the key components of sales and relationship management:
Client and Prospect Segmentation: i.e., Are you spending time with the right people and do you have the correct number of high-value relationships in your portfolio?
Pre-Call Planning: Create scenarios where multiple lines of business can engage by planning in advance of customer contact points to ensure you are positioning the bank as a thought partner.
Relationship Development Planning: On an annual basis, begin thinking through and setting long-term goals with accounts.
Team Leader Function: Bankers need team leaders in place to ensure that change actually happens and is sustainable over time.
As bankers shift roles and mindsets to focus on sales and relationships, change management becomes critical. Bankers should be comfortable playing a more holistic—yet collaborative—role in their customers’ experiences: surrendering complete ownership of certain relationships while working more closely with teammates in administrative and credit roles in others. Additionally, a framework underscoring new goals needs to be put into place to determine, among other things, which activities drive the best results and which are suboptimal. As always, it’s important to be realistic. Bankers should find the few elements that they think are going to be drivers of revenue and apply focus; only a small number can be implemented and sustained at once.
Banks may see an immediate benefit from their LOS, but using data to make consistent improvements is the only way to ensure it delivers long-term results.
To that end, it’s important to put together reports outlining milestones for various points in the process, such as: the time it takes from application to credit decision, the amount of applications taken in when underwriting is done in-house, and which factors correlate with an approval or decline. For example, banks can check against those milestones to pinpoint the root cause of a growing decline rate. What’s more, by cross-slicing the data, banks can gain insight into which sales tactics are most effective, whether underwriting guidelines and/or credit apparatuses are too strict, and several other key growth factors. It’s crucial that organizations continually evaluate their performance against such KPIs.
Regulatory requirements also get lost in the fray upon initial implementation, and effective reporting capabilities aren’t uncommon for an LOS. Circling back and involving regulatory partners early on in the process not only improves regulatory functions, but overall line efficiencies, as well.
What’s more, when it comes to issuing reports, these requirements should be made a priority—especially considering the natural tendency, once an LOS has been implemented, to create more and more ad-hoc reports. It’s important to not go down the rabbit hole. In addition to regulatory reporting, creating a standardized set of impactful reports will minimize confusion around leveraging data.
Making an LOS work for your bank isn’t a discrete, onetime fix—it can’t just be implemented without follow-up steps. But, for many, bringing in a new LOS is a turning point, an opportunity for organizations to view their processes and peoples’ roles in them more clearly.
That clarity might present challenges of its own, with several top-line priorities jockeying for position. Success will require bank leaders to step back and take in the bird’s-eye view—to avoid getting overwhelmed by the opportunities and instead adopt a data-centric, measured approach, advancing incremental yet executable changes across their organizations to achieve scalable growth.
An LOS itself is not the future, but simply the first step forward.
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