Commercial Loan Growth May Hinge on Customer-Facing Technology
In today’s world, customers are using technology like never before when it comes to their finances: online banking, bill pay, and so on. Increasingly, business customers are expecting the same ease of use when interacting with their lenders and vendors. Simultaneously, pressure to increase commercial and industrial loans across all financial institutions has risen, as has the scarcity of these opportunities since the recession.
In order for credit unions to increase their C&I lending portfolio in a measured, profitable manner, they must evaluate and employ customer-facing technologies. Back-office improvements alone will not appeal to those customers who bring in a sizeable portion of revenue; efficient processes and cutting out the busy work will.
Advantages to borrowers
Typically, when a borrower is approved for a loan, it is simply processed and the money is received. Afterwards, they have no visibility into what is happening such as what they are doing on their covenants, the trend of their borrowing activity, or any other activity. In the same way, customers can access their checking accounts to evaluate their budget, spending and expenses, borrowers need insights into their company’s overall financial health, not just receive a lump sum of money. With customer-facing, cloud-based technologies that tie both the customer and the lender together, everyone is on the same page. Therefore, both parties are aware of potential pitfalls well before they actually occur, and can chart a different course of action.
When it comes time for a company to submit regular financial information to a lender, be it through borrowing base certificates or other conduits, stress starts to set in. With software as a service or software as a service program at their fingertips, they can now see what the lender sees and understand which aspects of their business the lender cares about most. If consumers can log in to their account online to see their checking account balance, why shouldn’t borrowers have the same features with their commercial loan?
Advantages to lenders
If credit unions don’t embrace technology and find more cost-effective ways to lend to small businesses, the directive to increase business lending will fall by the wayside. With systems in place that create more efficient processes and cut down on costs, credit unions can lend to small businesses they’ve historically shied away from and they can do so more effectively and efficiently. In fact, we think SaaS solutions for financial institutions may be the hot new trend of 2013.
With more credit unions trying to increase their C&I loan portfolios, there are fewer opportunities given that the number of quality applicants went down during the recession, and business is only recently beginning to improve. Coupled with record low net interest margins, credit unions must leverage their ability to forge personal relationships with prominent businesses in their communities in conjunction with better customer-facing technologies for a competitive edge against banks.
Credit unions that preemptively put the right technology in place will be more attractive to quality borrowers in the long run. With the way borrowing base certificates and other application procedures are done, telling a business owner that they need to fill out a spreadsheet and run manual calculations on a monthly or even weekly basis is not going to win over new business.
Technology should not impede upon the traditional ways credit unions and other financial institutions recruit new business, by forming strong relationships, but should instead allow for the opposite: more time doing the things that makes your organization stronger, like focusing on the customer. Like online banking completes the circle of communication between a financial institution and its individuals, Web-based programs that facilitate communication and loan tracking between the lender and borrower completes this circle by allowing borrowers to glean insights from their own accounts.
By providing customer-facing technology, credit unions can expect to have best practices such as uniform processes in place. These methodologies should be explicit and uniform across the board. Since some credit unions are relatively new to C&I lending or have shifted staff to focus on C&I portfolios, ensuring best practices are in place is important. Additionally, anyone involved with the loan process should have access to the same information that front-office programs can provide. This reduces human error and aids in standardization of processes.
Another best practice is increased efficiency. Credit unions face a competitive credit environment since C&I lending is rising across the board. Integrating tools that augment an organization’s current risk management protocols is imperative. SaaS-based programs can help credit unions and staff at all levels tune into industries, borrowers and other situations where overexposure can cause future problems.
Credit unions do not have to be at a perennial disadvantage when it comes to attracting high-quality customers. The cloud-based SaaS market is changing for the better, moving away from expensive subscription-based models to ones based on per-user fees, which are easily scalable and meant for organizations of all sizes. By implementing customer-facing technologies that connect financial institutions with their commercial customers online, face-to-face relationship management becomes that much easier.