As consumers get more and more used to simple and convenient online experiences with retailers, they become less patient with difficult and time-consuming online interactions in other areas, including loan applications. Consumers don’t care that the process is more complex, due to the higher risk of the product type, they only care that it’s fast and convenient for them.
“We have a big task ahead; it’s our job to make sure firms put their customers at the heart of their business and don’t just see them as an easy target or a profit line.”Martin Wheatley, Financial Conduct Authority Chief Executive
A loan application process that is fast, even when additional ID checks may be needed, helps increase loan conversion rates and reduces instances of consumers “dropping off” and going elsewhere during the application process. At the same time, however, processes need to be robust enough to minimize the risk of fraud.
It’s common in the financial services sector for sophisticated web front ends in consumer loan applications to disguise what is largely a manual process in the back office. Typically there are multiple internal systems that can’t communicate directly; requiring frequent and cumbersome manual intervention to complete the loan process.
Fraud prevention processes, particularly since the FCA formally became responsible for the regulation of consumer credit in 2014, have only increased the frequency of manual processes as firms integrate the additional compliances. As credit checks become more robust, there may be, for example, the need to request additional proofs of identity from the consumer, and rekeying entries into a variety of data sources that are now available to support the lending decision, can also increase the loan approval process time significantly.
The good news is that these operational areas provide opportunities for improvement via automation. According to McKinsey, it’s possible to achieve between 40% and 90% cost reductions from automation efficiencies, and increasing consumer satisfaction during the loan application processes directly increases revenue from these loan products as conversions improve. An additional benefit of automation is that the compliance is easily recordable, making it easier to sell loan packages on later.
In this report, we have pulled together the top 4 key operational areas that should be improved on, in order to realize the cost savings and bottom-line improvements promised by automation:
1. Making sure verification problems don’t slow down the process
A straightforward application is easily handled, if the consumer has good credit, the verification process is typically simple, and only requires one or two pieces of documentation, if any.
The problems and costs, of handling an application, tend to escalate when the applicant is referred, perhaps additional ID documents need processing in order to provide proof of identity and address for example.
Automation can help in both of these areas, making it easy for consumers to share their information with the financial firm, by using their mobile to provide their driver’s license, ID card or passport for example. It’s also possible to provide the capability for consumers to submit utility bills via mobile, which can further support the address verification process when required with little or no effort from the consumer.
Both of these methods can use the information from the documents to auto populate application forms, saving the consumer time, and ensuring the information is more accurate and auditable. It can cover a wide variety of documentation such as driving licenses or pay slips for example.
ING DiBa in Germany has recently launched the ability for consumers to digitally submit their information in order to improve internal processing. Consumers are able to scan a variety of documents, including bills and remittance slips, and ING convert these directly into bank transfer forms, for example, making it much faster for consumers to process payments. Once implemented, consumers reacted quickly, and within 3 months, in excess of 3,000 documents were arriving daily through this new method.
In the consumer loan environment, this technology can be used to capture the applicant’s documents, such as a driving license, and then use it to verify their ID and autocomplete key information. The consumer verifies the information as they progress through the application, and can respond quickly with more information and/or documents using their mobile phone camera if they are referred during the process.
2. Automated sophisticated information gathering
As compliance increases, and pressure is mounting on financial firms to demonstrate they are robustly working to prevent fraud, particularly those in the payday loan sector, an increased number of systems and data sources are being used to profile consumers.
This can cause delays in complex or high-risk applications, because, as we mentioned earlier; while the front end looks sophisticated, this part of the back end often requires manual rekeying to investigate the broad range of data sources.
Sites such as LinkedIn can be used to verify someone’s job title and employment history or spotting risky behavior patterns on social media. All of this additional info can now be gathered automatically and fed into in-house credit models for more effective and reduced risk in decision making.
While this type of information gathering needs to be carefully managed in terms of legal implications, there are huge opportunities open to the consumer loan market. Galen Buckwalter, the scientist who helped develop the matching engines of e-Harmony dating website, and is now in the alternative lending company “Payoff” stated recently: “The genie is out of the bottle, there’s no going back in terms of pulling this information or telling companies they can’t be
“The genie is out of the bottle, there’s no going back in terms of pulling this information or telling companies they can’t be analyzing click times, even typing patterns and things like that.”
Using automation to remove the requirement for manual rekeying, not only speeds up the process by up to a factor of 4 but also ensures greater information accuracy. Other lenders have seen processing times drop from 2.5 minutes to 35 seconds, and initial applications from 15 minutes to 7, leading to savings of $6m in one instance.
3. Improve customer communications
As firms recover from PPI claims, more are focusing on ensuring that consumers are very clear on what is being sold to them, and how financial products are personalized according to that consumer’s particular credit, financial and personal situation.
This is creating a lot of manual processes in order to not only provide the communication to the consumer but also to ensure that processes are followed correctly and compliance is audited.
Automation can create illustrations for consumers for personal loans tied to financing a vehicle for example, as they explore different financing options. Documents for quotes and contracts can be automatically generated, with the bespoke combination of terms, conditions and compliances for the consumer populated by the system, depending on the financial product and model selected.
Loan companies can also use this capability to illustrate clearly the differences between various product options and costs.
The consumer hugely benefits from this type of automation, as the information is digital, it becomes available from any device, across a variety of document types, meaning they can then access it online at home or work, or in branch face to face. Documents can be reviewed and signed digitally for maximum speed and convenience, and the firms benefit from accurate and fast information receipt, and proof of acceptance from the consumer.
An example of this type of automation and the resulting benefits can be seen with Cetelem, a BNP Paribas company, who provide loans through retail partners. For example, purchasing a sofa with 3 years interest-free credit. By implementing an easy way to create, process and sign documentation in store via tablets, they were able to deliver payment to the stores in one day instead of five – a 400% faster order to cash process for the retailer. It’s also had the additional benefit of cutting costs in paper consumption, reducing it by 1.6million pages per year.
4. Improve customer experience and insight
One obvious benefit of automating many of these processes is that it’s possible to begin compiling a much more detailed picture of the consumer which can be used not only for speeding up the application processes and reducing fraud, but also to help provide them with better and more tailored services and communications, improving their overall experience.
Consumer loan providers have the advantage of being able to look to the insurance sector, as some leaders in that sector have been leveraging the technology to tackle all of these issues.
For example, AIA, one of the largest insurance companies in Asia, has been looking at making each part of the consumer process as digital as possible. This has meant that they are able to build a far more complete picture of the customer’s needs and aspirations in order to provide the most relevant services and offers, and a historical picture of the customer that can be used to speed up processing of applications and claims.
This automated processing can be used in the consumer loan application process, where the customer information is a digital input when identification is required, and credit checks need to be completed.
This would lead to a reduction in costs, driven by less back and forth between the applicant and the loan company, i.e. enabling straight through processing, as automation handles any exceptions and referrals. At a consolidated level, the consumer profiling would also provide insight into risk profiles, as well as purchasing patterns and preferences, helping to improve services and loan conversion likelihood. It’s also possible to see where the fail points (i.e. where most consumer applicants drop out) in the process, and to measure the tangible business outcomes from the operational areas improved by automation.
In order for the back office to achieve the same streamlined front end experience, common in the consumer loan environment, automating key operational areas such as verification, checking multiple credit sources, product tailoring and customer insight can lead to significant cost savings. It can also enhance the experience for consumers both during and after the initial loan application process and can provide significant amounts of insight to help increase sales and profit.
Loan applications become faster, but also more robust in terms of preventing fraud, a win-win for both firm and consumer.