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The Benefits of Digital Lending for Community Banks

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Instant gratification.

You were maybe taught it was an unreasonable expectation. “Good things come to those who wait.”

Or at least, they used to.

But if you’re a community bank you might feel like waiting any longer to adopt a digital transformation will put you out of business. That’s because digitalization translates to “instant” and “more efficient” for your customers—and in today’s world, they expect it! 

Yet in late 2020, while 85% of financial banks claimed to allow consumers to apply for a loan online, only 66% allowed the entire process to be completed online.

Digital Lending: The Bigger Picture

Digital lending is a means of using technology to extend a loan to a customer. In the past, banks were in total control of lending. And for customers, it was a long process that meant seemingly endless paperwork followed by weeks of waiting to hear back on an official decision.

Thanks to technology, younger generations are demanding more efficiency from the loan process.

Why Community Banks Should Go Digital

Your customers win big with fully digitized lending. In addition to speedier paperwork completion, customers can complete applications without having to meet face-to-face with a personal banker and instead rely on the internet or their phones to finish the job. Plus, customers are no longer forced to repeatedly enter the same personal information over and over as smart fields do away with this process. And, of course, there’s the bonus of almost instantly knowing whether or not they’ve been approved.  

Don’t worry—your team wins big, too. On average, the use of a digital lending solution increases loan volumes by up to 20%. Add to that reduced paperwork and filing as well as reduced burdens on your staff and it’s not hard to admit your bank will benefit.

With so much going for it, it seems that embracing tech and digitally transforming your community bank is necessary to keep your up-and-coming clientele happy. If only it were so easy.

Challenges of Digitized Lending for Community Banks

You once had the market advantage. Offering a personalized experience reliant on in-person, face-to-face interaction, customers of community banks appreciated being treated like people rather than numbers—even if they hated that they had to leave the comfort of their homes to complete banking transactions. 

Their appreciation for good treatment hasn’t changed—but their desire to complete interactions face-to-face has lessened. Additionally, the competition has grown exponentially with the rise of the internet. Now it isn’t only national banks that community lenders have to compete with. It’s innovative, online firms who laugh in the face of traditional banking risk.

Bad credit? No problem!

First-time loan seeker? Come on in!

Unburdened by the old ways of doing things, out-of-date regulations, and beastly systems that don’t communicate, today’s lending competition is nimble, pivoting quickly to the needs of its customers. They also tend to have bigger budgets with which to put toward the latest tech.

Many community banks have not had the bandwidth and resources to fully embrace digital transformation. However, by putting it off, you’re putting yourself at risk of losing all the customers you’ve fought so hard to earn through personalized attention over the years.

Big Benefits to Digitized Lending for Community Banks

Community lenders must respond to the increasing demand for digital lending with easier application processes, faster credit decisions, increased transparency, and innovative borrowing options. Despite the seemingly Herculean effort it will take, there are massive benefits to digitizing your small business lending beyond keeping your customers happy, including:

Simplified processes

It isn’t only customers that benefit from digital forms—your team will, too. Walking customers through the complicated lending process and corresponding forms could once take personal bankers hours, pulling them away from other work—not to mention all the time it took to file everything properly. With digital lending, forms can be completed online in only a few minutes with no face-to-face interaction needed. This gives your bankers back time to commit to other tasks like building their books of business.

Faster decision-making

An arduous process, old-school lending responses used to take as long as 90 days. That’s because lenders depended on their underwriters to evaluate a potential borrower’s information. Now, a computer can perform this work in only a few minutes.

However, these efficiency gains don’t translate to cutting jobs. Instead, they support a more secure and efficient process for both the borrower and lender, allowing your team to focus on delivering exceptional customer experience and minimizing your institutional risk.

Decreased Fraud-Risk

All lenders are risk-averse and for good reason. With all the data breaches and hacker stories floating around, it would seem that online lending is more dangerous than old-school methods. 

In reality, digital lending offers extensive safety features, leaving digital trails that make it easier to catch issues, quickly resolve questions, and demonstrate compliance. While those things can always be done manually, the digital form is faster and often more thorough than paper ones. 

Best of all, digitalization doesn’t automatically equate to a big budget or a large team for implementation—so if you don’t have those, it’s okay. More and more fintech vendors like Core10 are creating products and services dedicated to community banks—and they have entire teams to support the implementation of their platform for very reasonable fees.

As you consider moving your bank toward digitizing your lending process, it’s important to learn all you can about it. So, we encourage you to keep finding out more, starting with the 5 myths of digital transformation holding community banks back

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