“In-House” Digital Lending For Community Banks

What exactly can “in-house digital lending” do for community banks?  Reports of competitive and regulatory threats from non-bank alternative lenders suggest both loss of market share and revenue, and regulatory concerns.

However, “in-house Digital lending” represents a different animal where community banks use and control their own technology, underwriting, disclosures and delivery.  Select lending processes are automated securely with cloud-based technology where no customer identifying information is in the cloud, but loans can be set up in minutes with online access.  It reflects the new digital world leveraging customer information financial institutions already have, and access customers have in the cloud to information outside traditional bank technology using smart devices and broadband access.  This combination engenders new product and service opportunities that provide new lending efficiency and revenue growth.

An example is what McKinsey meant in their “Digital Models for a Digital Age” for banks in leveraging digitally delivery through existing customer data and targeting existing checking customers.

“Financial institutions can best compete with digital lending by exploiting existing customer data and targeting customers locally.”          

                                                                                      McKinsey

Specifically, the growth opportunity of digital lending in community banking is made possible by marrying bank information with the ubiquitous access of customers to cloud information by high speed broadband mobile access. Data on customers is immediately available so digital technology allows immediate and unique service to a “customer of one.”  Proxy information, such as masked account numbers and truncated tax IDs, can be used so no customer identifying information is in the cloud. But applications no longer have to be completed because the customer proxy data is already immediately available in the cloud from bank CIF files. 

Data analysis and underwriting can be immediate because all the underwriting information can be available and accessed online from credit report information and cloud-stored bank activity data.  Risk rating and monitoring can all be automated.  Financial institutions still set all underwriting and risk management parameters, but the digital world changes the product and delivery.  Compliance is just as if the loan was made by paper with all bank disclosures, pricing, customer protections and storage now managed digitally. 

What is an example of such targeted digital lending sales and servicing leveraging customer information and targeting customers locally?  Business MinuteLender is a perfect example of a targeted digital consumer experience, from mobile access to loan set up in minutes, of the digital lending opportunity.  Existing loan processes are provided at one-third of the cost, and new revenues come from profitably serving customers with small loan needs previously not profitable.