How to create a frictionless experience for commercial lending

Facing competition like never before, banks should understand the need to modernize their commercial lending processes, which often rely on manual methods. Such reliance often causes friction for lenders despite being a crucial profit center for financial institutions (FIs).

Borrowers are accustomed to the conveniences of consumer banking, with an increasing number of digital experiences and low-touch transactions. Business clients especially expect to be able to connect to their banks anytime and from anywhere. To survive and grow, more banks need to win on convenience.

Understanding the bottlenecks in commercial lending

Commercial lending can be surprisingly cumbersome due to several factors. Borrowers often must visit branches and meet with bankers to provide documentation and fill out loan forms. In-person meetings can be time-consuming and inconvenient.

Furthermore, commercial loans can take up to four months to complete, with constant back and forth communication between lenders and borrowers to secure new documentation and answer underwriting questions. The continual exchange of information between lenders and borrowers can slow processing times.

An unfortunate challenge the industry faces is the decrease of experienced commercial bankers.  A study by Arzient found that 70% of senior executives say recruiting and retaining top professionals is a major challenge. This makes it difficult for borrowers to find the expertise they need at their local branch.

These hurdles collectively contribute to the complexity and frustration often associated with commercial lending transactions.

Key factors for a frictionless experience

A seamless commercial lending experience requires bankers to take the extra step to ensure their customers are satisfied. With the world going digital, customers are expecting the same convenience when it comes to lending. This entails streamlining the documentation process and reducing hurdles, ensuring that borrowers can navigate the lending journey with minimal friction.

Another key to improving customer experience is to ensure easy access to the product. Accessibility can often be overlooked but can give a modern look and feel to the process. This can be achieved by providing multiple channels through which borrowers can apply for loans, such as online platforms, mobile apps, and when necessary, streamlined in-person interactions.

When it comes to commercial lending, clarity should be at the forefront. Having a clear process with simple steps and transparent communication is crucial. By outlining the lending process in a straightforward manner and maintaining open lines of communication, borrowers can navigate each stage confidently, knowing what to expect and how to proceed.

These elements collectively contribute to a frictionless commercial lending experience, creating an enjoyable process for both borrowers and lenders alike.

Benefits for financial institutions

When borrowers encounter less friction and enjoy a smoother experience, they are more likely to remain with the institution for their future financial needs.

Plus, focusing on efficiency can reduce operational costs, which can lead to increased profitability. By automating processes and minimizing manual intervention, institutions can cut down on overhead associated with traditional lending practices.

Banks are in a tough position today, facing an increasingly consolidated industry that’s feeling disruption from new competitors who offer speed and convenience as differentiators.  It’s essential for traditional banks to adapt and offer comparable levels of service to maintain their relevance and market share.

Embracing a seamless borrowing experience is not just about meeting customer expectations but also about ensuring the long-term viability and success of financial institutions in a dynamic market environment.

Overcoming challenges to embrace innovation

Embracing innovation and transitioning away from traditional platforms can be seen as a risky strategy for several FIs. Concerns surrounding security and regulatory compliance are often a deterrent from fully embracing new technologies and methodologies. However, overcoming these challenges requires a strategic approach. FIs must be willing to invest in solutions that not only address their current needs but also have the scalability to grow with the institution.

Integrated solutions that are seamlessly built within existing infrastructure can help mitigate risks and facilitate a smoother transition towards innovation.

The reluctance to invest in modernizing payment platforms is revealed in the IDC study “Future Ready Payments Platforms Enabling the Next Phase of Growth for Banks,” which shows global FI spending on legacy payments technology is expected to cost banks and FIs a rising $57.1billion in 2028. This increased spending on outdated systems contributes to technology budget constraints, mounting technical debt and hinders innovation in the financial services industry.

To truly embrace innovation, FIs must confront these challenges head on, prioritizing investment in modern solutions that enable agility, efficiency and long-term growth.

Dan O’Malley is CEO of Numerated.