Loan management needs an upgrade

In a lending landscape rocked by a year of seismic changes, siloed operations and clogged workflows just won’t cut it.

Over the past year, the financial services industry has watched in real time as the COVID-19 pandemic and related economic fallout dramatically transformed the lending landscape. Market conditions have strained the ability of banks and credit unions to effectively service loans, while at the same time, managing expenses and effectively providing a top-tier experience has grown more complicated.

This comes after decades of siloed operations and digital fragmentation, leading to manual processes and operations that fuel inefficiencies and errors. Even today, limited visibility into loan status and disconnected systems stymie critical collaboration among bank employees in the front, middle and back offices, as well as with the customer.

But opportunity exists if banks prioritize IT investment. By utilizing technology that simplifies and improves the customer experience, banks can better understand consumer needs, respond effectively through a reliable experience and take advantage of a platform that quickly responds to changing needs.

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Since 2020, massive shifts in consumer behavior and macroeconomic conditions have made servicing loans even more challenging. Consider this:

  • Volume: The number of mortgage and refinance loans spiked last year as a result of ultra-low interest rates. This continued in 2021 with a rise in small business and commercial real estate loans.
  • Economic headwinds: This came as the total number of loans in forbearance jumped from 0.25 percent to 2.66 percent in 2020.
  • Customer engagement: Meanwhile, service center hold times skyrocketed to more than 17 minutes from less than two, while abandonment rates hit 25 percent, well above the previous 5 percent.
  • Cost to service: The cost to service a loan has increased 173 percent and a stunning 400 percent for non-performing loans.

To overcome these problems, global financial institutions must invest IT dollars in automation, cloud-based solutions that connect across legacy systems, and seamless collaboration for remote workers. One potential solution is a system that allows users to integrate external data into a single system of action, open external systems with a single click through URL integration and avoid duplication of data and work items.

When it comes to loans, effective products lead to a lifecycle journey beginning with informed customers who can view their status in real time.

Using a variety of communication channels, customers can engage with the servicer and check online for their loan status. Employees, meanwhile, can achieve efficiencies and realize higher customer satisfaction as they act as advisors with added-value knowledge and expertise. Finally, future inquiries and account changes are linked, making updates easier on both the consumer and the employee.

A top bank in New Zealand saw how such a system can benefit lenders. To address a disconnection between its branches, contact centers and operations, the institution implemented a common engagement and action platform to work on complex customer processes and digital workflows for the loan maintenance request process. That single workflow redesign resulted in a 30 percent improvement in customer retention, 1 million employee minutes saved per year and a 25 percent reduction in new hire time to productivity.

In another case, a U.S.-based bank found itself overwhelmed by inquiries after the passage of the CARES Act. In less than a day, it deployed a solution that offered a single view of loan applications through the process lifecycle and worked alongside existing core lending capability. As a result, each case file saw a 75 percent reduction in workload.

Some of the benefits that banks and credit unions stand to reap as they transition away from silos toward a more integrated structure include:

  • Instead of manual processes and inefficient tools, financial services providers benefit from automated processes that span disconnected teams
  • Disconnected systems give way to streamlined operations
  • A lack of visibility into the status of inquiries becomes real-time updates across the enterprise and to customers
  • Complex compliance requiring manual intervention and tracking is replaced by seamless processing that removes bottlenecks
  • Poor experiences give way to higher employee satisfaction and CSAT scores

By investing in end-to-end digital transformation and making it the backbone of the business, banks can do more with less, create an empowered work environment and implement more resilient and compliant operations.

Gregory Kanevski is the global head of retail and commercial banking with ServiceNow.

Learn more about where lending opportunities lie in the BAI Executive Report  “Where banks fit in the new world of lending”