On-the-road RV loans and Zoom notaries: Digital lending is smart and scalable

This article first appeared in the April BAI Executive Report. Gain more insights into the value of building banking relationships through lending in that issue, Executive Report: “Innovations in lending services.”

Digital lending has been gaining in popularity for some time now. But even with this groundswell, some loans are better suited for digitization than others.

That leaves our industry asking: if a particular type of loan can’t be approved, closed and funded completely online or via an app, can at least some of its processes be digital? There’s little doubt that both consumers and the banks and neobanks serving them increasingly look to the convenience, efficiency and potential cost savings of digital transactions. Lending is no exception.

Here, experts weigh in on just how far institutions can take their digital lending offering.

And they share guidance on how customers tend to view handing over a process to automation without the deft hand of an actual banker. In most instances, this willingness depends on the type of loan.

Todd Nagel, CEO of the $1.96-billion-asset IncredibleBank, in Wausau, Wisc.

For our home mortgage loans, customers can fill out an application online or on our mobile app—though the app just takes the customer to a landing page on our website, and they complete the application there. Once they submit it, the application will automatically be sent to one of our underwriters, and the customer will immediately get an initial underwriting decision. For simple applications, we use automated underwriting software, and for more complex applications, we use human underwriters. That takes a little more time.

Throughout the process, we pull in different software at different times. For instance, we have an AUS approval in underwriting that’s going to be pulled into our workflow management software for loan processing.

After the initial underwriting decision, our software will then generate emails for each milestone in the closing process, such as, “Your appraisal has been completed and you can download a copy via this secure online portal.”

Most people prefer email so they can print attachments. They can also choose to view messages via the chat function on the app, or some prefer text notifications.

We now have a virtual notary who will set up a Zoom or Teams call with the customer to verify that the human being holding up their driver’s license is the person on the mortgage application. When it’s time to close the loan, our software sends an automated email from the lender to the customer, stating the date and time of the virtual closing meeting, with the closing documents viewed in a secure portal.

Throughout the process, we’ve eliminated phone calls and paper, but if a client wants phone calls and paper, they can choose that option as well.

Our motor-home loans across the country are all done virtually, though most customers want to call us after being referred by the motor-home dealer to make sure we’re the real deal. While our app will take them to a landing page on our website, most customers go directly to the website to complete the application.

Commercial loans are the most complex loan an institution will do, as no two commercial loans—or customers—are the same. We get a ton of inquiries through our website, app and sometimes text. Most small business loans can be originated through our website or our app, but they’ll need human intervention at some point. Customers will need to provide accounts receivable, aging and inventory listings, business tax returns and personal financial statements, including tax returns.

Now, once the relationship starts, customers can use the app or website to take an advance on their lines of credit.

For all of our loans, we’re trying to create an incredible customer experience, so we’re letting customers pick the channel they want. The mistake that some banks make is going all virtual, while at different stages of the loan process, sometimes people just want to talk to somebody. So my advice to other banks is—don’t go 100% virtual and think you don’t need to support lenders and underwriters, because you do.

Peter Pollini, PwC’s U.S. banking and capital markets consulting solutions leader, based in Boston

For consumer personal loans, digitally enabled origination and fulfillment are common. However, while most collateralized loans offer online applications and post-origination servicing account access, they are generally still heavily reliant on manual fulfillment activities to process, decide on and close the loan.

It’s important to note that we continue to see more investment in modernizing lender fulfillment processes today than investments in new front-end features to enhance the mobile or broader online experience. In many cases this is due to cost-related opportunities—however, there is a direct impact on customer experience if loans are fulfilled faster, phones are answered more efficiently and there is more data to leverage as part of an omnichannel experience.

Mobile apps are particularly well-suited for certain types of loans that require quick and convenient access to funds. For example, a personal line of credit or short-term loan can work well on mobile apps. In one scenario, a roofing contractor could use their bank’s app to apply for an extension on an existing line of credit, or apply for a new line, allowing them to access additional funds immediately. This would enable them to purchase the necessary supplies from a building supply company without delay.

Alternatively, the roofing contractor could also have a prearranged agreement with a third-party lender that has developed a digital interface to offer financing to the customer as part of the contracting negotiation—the loan and credit risk is with the contractor’s client who needs a new roof; not the roofing contractor.

Developing omnichannel capabilities is no longer an option—they are table stakes for engaging clients. One common customer journey for complex products like a residential mortgage is starting a loan application on one channel, such as a mobile app, and seamlessly continuing it on another channel, like a desktop website or at an in-person branch meeting.

Another omnichannel capability is the integration of chatbots or virtual assistants across various channels, providing customers with instant support and guidance throughout the loan application process or during loan servicing. Financial institutions (FIs) have also implemented document upload and e-signature functionalities, enabling customers to submit required documents and sign loan agreements electronically. Additionally, FIs are now leveraging data analytics and artificial intelligence to offer personalized loan recommendations and preapprovals across multiple channels.

Commercial real estate (CRE) loans and construction loans are more difficult for digital lending because they need traditional appraisals, site inspections and flood and tenant ratings. However, we do see digital tools being built to help manage the process more efficiently.

Examples would be using generative AI to help extract terms to improve lender reporting, using data to better analyze trends across markets to improve risk analytics and using new tools to improve transparency of loan status during a complex commercial loan transaction.

Graham Tasman, principal and national banking industry leader at Grant Thornton LLP, based in Philadelphia

Digital lending works quite well for a lot of consumer-based loans—personal loans, student loans and auto loans. The same goes for mortgages, though the closing is still done interactively—either in person or virtually and, depending on the state, through an attorney-assist or title company. While we think about digital lending in the context of traditional banks, credit unions are also in the mix offering similar digital lending services.

The area where digital lending isn’t fully mainstream is commercial lending, in part because it’s still more of a relationship-based business, but also because the lending terms are more unique and complex—not something easily standardized in a digital workflow. Nevertheless, there is an expectation that small business lending will be the fastest growth area in digital lending going forward.

As far as omnichannel capabilities, there may be times during the application process when a customer needs to interact in a different way, so the idea of starting and stopping through the workflow process—for either convenience or method of access—is a typical expectation. Mortgage loans are a good example of that.

In addition, at the branch, the loan officer might be able to give a borrower better terms by having the time to interact more fully with the customer and become more familiar with their finances and financing options. That type of insight and benefit can’t reveal itself through a simplified and standardized workflow within an app or the bank’s website.

For CRE and construction loans, those projects are typically more complex, and so we don’t see much of any digital lending in this space. The banker or relationship officer would generally provide a lot more information to a commercial borrower about their particular loan structure, options and terms than what could be digitized ahead of time. Even so, there are still some preapplication processes that can be leveraged to initiate inquiries online.

Jonathan Valenti, principal at Deloitte Consulting LLP, based in New York

Except for some of the simpler loans like installment loans, HELOCs and lines of credit, few loan types are going fully digital with no human connection in the near term because the loan processes are fairly involved and require back and forth. And in many cases, banks actually want that human touch as well, especially for more complex commercial loans. But that doesn’t mean banks wouldn’t want to digitize certain elements of the process. Mobile, for example, lends itself well to some of the simpler points around the application, such as status updates of where customers are in the process.

Customers’ ability to pick up where they left off in other online or live channels— that is very much happening today, especially in the mortgage process. It’s very much designed to make sure there’s a certain level of human advice being incorporated to build a personal connection.

That extends even to the larger commercial loans such as CRE, as it’s too complicated to do it fully on mobile most of the time. In addition, commercial lending has historically been very relationship-driven, and customers look at that as well because they’re also getting financial advice from the relationship manager and a host of other benefits.

The ability to deliver on this digitization vision is more than just technology. It’s very much the intentional design in terms of the roles of different interaction points, the experiences that you want to deliver, the brand messaging and experience you want to convey. It’s also how you’re able to organize more effectively from an operating model perspective.

So today, when you talk about omnichannel experiences, there are few banks that have optimally organized or are delivering on omnichannel. They might have a head of digital, head of branch and head of sales, but there’s not necessarily one person who is truly accountable and has the influence and power to streamline that in an effective way.

Nick Cowell, principal at Deloitte Consulting LLP, based in New York

For simpler loans, it’s not just digitizing the loan application; it’s also digitizing some of the decisioning processes. As part of that, how do you actually educate your customer? Are you providing transparency around some of the terms and conditions of the line, or even comparing credit cards and other products based on customer-specific needs?

You may have talked about, “Hey, can we get you a cash advance or a full extension on a line of credit? Are there microloans or other products which would also be suitable?” But how do you build that into part of the experience? I think that is going beyond just digitizing the application—it’s actually providing deeper value, insight and financial education as part of it.

Banks are now exploring how to bring AI into the process to make it more efficient. For example, how to use AI to brief them on a particular client or prospect—that kind of research is being automated. A relationship manager is having a meeting, and then they have their phone listening in on the meeting, and it’s an AI bot in the back contextualizing it, filling out the insights and sometimes even structuring term or loan documents off the back end.

Digitizing everything is not always the best option for the bank or the client. Institutions need to understand the moments that really matter, where human interaction is so critical for building a relationship and showing value, while also using technology to make that experience frictionless.

Katie Kuehner-Hebert is a contributing writer for BAI.