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Friday, January 5, 2018

ABA Says Digital Lending Best "Strategically Applied"

The ABA Journal provides great insight in their article this month Three Big Trends in Digital Lending.  In it they point out, “Digital lending isn’t an across the board pursuit for banks, its strategically applied to specific lending areas.” 

Where are the best areas to focus?  Focus on the areas least profitable and functional now where digital lending can best enhance the efficiency and customer experience.  The two top areas are small business lending and consumer lending.  Here is why.

Small Business Lending:  Over half of all small business loans are under $100k, and over one-third of the business loans on the books at financial institutions are loan relationships under $50k.  These are not profitable to serve with current processes, but are very profitable when served digitally.


Consumer Lending:  FIs have largely given up the $1.3 trillion market of consumer loans to others, but digital lending allows them to serve customers efficiently, profitably and with a superior customer experience.


What are the keys to successful digital lending in these segments?  They are:
          
          A superior customer experience.  A digital lending process should get an application completed and loan offer made for these segments in under one minute, and consummate the loan with e-sign in under five minutes.

          Get the deposit account too. A digital lending process for these segments understands that the checking account helps significantly manage the credit risk of small business and consumer loans, and doubles the profitability of the relationships.

         Leverage the efficiency opportunity.  FIs know credit risk and underwriting, but often don’t know their costs.  Spending extra time to assure a 30 bp loss level is great on a $500k loan, but on a $20k loan, the loan is unprofitable before its made.  Digital lending can efficiently delivery these loans for $200 or so, and accept higher losses with risk-adjusted pricing.

Want to see examples?  Check out our clients and Business MinuteLender® and ConsumerMinuteLender®!





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