The recent increases in interest rates are forcing mortgage lenders to seek new ways to wring efficiencies out of the lending process as margins are squeezed and the refinance business dries up. Further, other consumer loan types are becoming more competitive as lenders seek to replace revenues from the recent mortgage boom. As a result, lenders are investing in technologies to increase process efficiencies and enable better targeting of loan prospects, according to industry analysts.
Craig Focardi, research director for consumer lending and banking with TowerGroup (Needham, Mass.), says bank lenders are getting the most bang for their buck by investing in technologies that consolidate decisioning engines across multiple departments of the bank.
By consolidating credit approval decisions on a single platform, banks obtain a more holistic view of the customer, relates Roberta Britting, senior analyst, consumer lending, TowerGroup. That single view indicates customers' borrowing histories and needs, which provide banks with better information for targeted marketing campaigns so they can improve their conversion of prospects into new customer accounts and gain a larger share of the customer's wallet - at least on the credit side, he says.
Similarly, banks are investing in data analytics solutions to help identify the best loan prospects and mitigate risk. The better the analytics, the better the closing ratio and risk management, the TowerGroup analysts explain.
Of course, with banks' growing reliance on consumer data also comes increased responsibility - and scrutiny. As fraud threats continue to grow and regulators call for ever-increasing data security, compliance continues to be an important consideration for lenders.
But data analytic software can help lenders' compliance efforts as well as support marketing initiatives, according to Focardi. "The whole business is built around the issues of trust and brand," he remarks. "The big challenge will be staying the course while improving marketing efforts - banks need to make sure they protect client data in this brave new world."
Even in a brave new world of banking, however, straight-through processing still promises to improve efficiency in lending. The ability to go from loan application to approval to closing without shuffling mountains of paper offers obvious savings, but it remains an elusive goal, Focardi says.
"Some of the dots have been connected," Focardi concedes, pointing to increased use of imaging, scanning and electronic document delivery on both the front and back ends of the lending process. And, rather than convert paper documents to electronic files, some banks are leveraging Web-based technologies to capture loan applications electronically over the Internet, he notes.
But, though much more of the process is electronic than it was a few years ago, Focardi asserts, the end-to-end electronic origination-to-closing of loans still is more promise than reality. Part of the challenge, he points out, is that some nonbank documents, such as W-2s and county title records, exist only in paper form until converted by the lender.
Looking ahead, TowerGroup's Britting says the lenders that will be the most successful will be those that invest in and integrate technology with their marketing strategies to identify those opportunities that will result in the most value over the cost of loans. Focardi, meanwhile, points to risk and fraud management technologies as critical for banks that want to be successful in an increasingly competitive lending environment.