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BOSTON – Credit unions lead the vastly larger commercial banking space in one area: growth of automated lending. “Our research indicates that credit unions have advanced more quickly in this area than banks,” Celent Communications analyst Isabella Fonseca concludes in her new report, “Lending Solution Vendors in the U.S.” Nearly 70% of the nation’s approximately 10,000 credit unions have some sort of electronic loan origination system, compared with 56%, or about 5,000, banks, the Celent report says. Spending on automated loan origination systems, meanwhile, is expected to increase steadily and reach $350 million for banks and more than $300 million for credit unions by 2005, at which time banks also should have a 70% penetration rate of such capabilities, Fonseca says, while about 80% of credit unions will. “While financial institutions have realized the advantages that the Internet channel can bring, the online lending market is still in its early stages,” the analyst says. Integration of processing and service technologies will be key to taking the online lending marketplace to the next stage, she says. “In order to facilitate seamless customer experience and quick turnaround time in loan decisioning, the key is to create a technical infrastructure that is open and flexible to support multiple channels for loan initiation and approvals,” the Celent analyst says. Right now, the most popular channel for credit union loan origination continues to be the branch (55%), followed by the call center with 20%, and the Internet at 11%, Celent research shows. However, those numbers are expected to change relatively quickly as investment in channel integration boosts Internet lending. “To date, approximately 1,900 credit unions, representing 19% of all credit unions, offer Internet lending options to their members,” the Celent report says. “We expect this number to increase substantially over the next few years, reaching 3,000 credit unions, or nearly 33% of all existing credit unions, by 2005.” Also expected to grow will be the money flowing from credit unions to members. “After a dramatic increase in new loan origination in 2000, as the U.S. economy came back down to earth in 2001, so did the level of new loan sales,” Fonseca says. “However, despite the decrease in overall new loan sales, new Internet loan sales managed to increase in 2002. And we expect online loan sales to continue to grow, reaching over $6 billion in new online sales by 2005,” she says. That would represent about 25% of total new loans from credit unions, compared with five years earlier, when about $1 billion of new loans out of $30 billion were done online at U.S. credit unions. The Celent report examines and compares the lending systems of automated lending leaders APPRO, CUNA Mutual, Digital Insight, FundsXpress and Lending Solutions Inc. as well as the systems of such major core vendors as Symitar Systems, Fiserv and Harland Financial Solutions. It also compares the state of the automated lending industry between credit unions and banks and finds the latter to be playing catch-up. “Most banks claiming to offer a fully online lending process provide nothing more than stand-alone, Internet-based client interfaces which do not fully integrate with core loan origination systems,” Fonseca says. That should change, she adds, as the need for such solutions as CRM systems prompts investment and integration of that kind of technology with online lending capabilities. -

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