Bankers have been talking about achieving straight-through processing (STP) for years. The concept of being able to cut through all the paper and complete a transaction electronically from start to finish obviously has its appeal. One area in particular that lends itself to STP is, well, lending.
With some of the technologies introduced in the past decade, lenders have made respectable progress toward reaching STP. Banks finally have been able to start automating and streamlining their loan processes to the point where, one day perhaps, there will be virtually no paper or human intervention.
David King, SVP, business technology, with Dallas-based First Horizon Home Loan (a subsidiary of First Horizon National Corp., $37 billion in assets), believes "tremendous strides" have been made in the lending industry around STP. "There's greater pressure to turn deals more quickly," he explains. "Competitive pressure has squeezed that duration so much. Technology has been thrown at this issue and is helping along STP [efforts]." But while he is optimistic about the industry's progress toward automation in lending, King concedes that there still is a way to go.
"Great strides have been made in this space," agrees Madhavi Mantha, a senior analyst with Celent (Boston). "Lenders are trying to capture as many documents digitally as early on in the process as possible in order to reach STP." Mantha says lenders recognize that open technology with strong integration capabilities is necessary to capture papers electronically, and as a result, she is seeing more and more banks replace aging loan origination systems. "In general, more technology is available to the industry," she says. On top of that, Mantha adds, the state of the lending market and deposits today also are nudging along STP efforts. "The days of heavy deposits are over. There's an impetus [among banks] to get their fixed cost base down in order to bring per-loan costs under control," she relates
One Step at a Time
Not surprisingly, however, banks are cautious when it comes to revamping their lending systems and processes, say experts. As John Gordon, president of the leveraged product development group with core processing solutions provider Fidelity National Information Services (Jacksonville, Fla.), says, banks are taking "a dip-your-toe-in-the-water and walk-before-you-run approach" to STP in lending. As a result, many streamlining efforts are being carried out on a piecemeal basis rather than over the entire loan system.
"STP is being done today," states John O'Connor, practice manager, commercial lending, with Benchmark Consulting (Atlanta). "If you look at the history of lending over the last 30 or 40 years, you've seen us become very efficient with credit cards, where it costs a fraction of pennies per transaction. Home lending has gotten more efficient with imaging and scoring technology. And more recently, we're seeing this in the small-business lending space, too. Some organizations have gotten pieces of this together and are trying to complete the entire process."
Despite this progress, there still are areas in lending that require more manual intervention because of their complexity, such as commercial lending, for which there is more information to track, capture and hold. Consumer lending in general is easier to automate because the information load is not as great, O'Connor says. In addition, he notes, some banks are more willing to automate the lending process on the retail side, and thus commoditize retail lending to some degree, because there is more at stake in terms of relationships and money with their commercial businesses.
Like many banks, Birmingham, Ala.-based Compass Bank ($33.6 billion in assets) is finding that along its STP journey, some processes are easier to automate than others. According to Lee Weinman, SVP of investment operations with the bank, there are numerous areas on the front end of the lending process that can be automated and streamlined, such as imaging of documents, document management and data management, including passing information to the appropriate decision level. However, "You still have to get the customer to sign a document," he notes. "Also, once you get to the dispersal process, that's where things start to slow down because you're dealing with legal documents that require paper and signatures." And finally, things come to a crawl when servicing the loan, Weinman says.
Celent's Mantha affirms that most of the focus in streamlining loan systems has been on front-end processes; closing a loan, however, typically creates a bottleneck. "In the closing part, that's where third parties get involved for title issuing and verification of liens," she explains. "The secondary market -- those who invest in the loans -- has different criteria. That's where a lack of standards leads to more complication. At origination, the lender has more control over the loan."