Where and how small businesses access capital has changed a lot in the last few years. Although traditional sources like the local bank remain one of the first places an entrepreneur may look when seeking financing, other lenders, such as tech-enabled online lenders, are serving more and more borrowers that don’t even consider the bank. This increase in non-traditional competition has many banks re-evaluating how they approach small business borrowers and has caused them to focus on streamlining their origination processes to make them easier and faster.
"We want to be the easiest bank for small businesses to work with, and part of that is simplifying delivery of our products"
This is a challenge faced by many banks. Andrew Kresse, CEO of Chase Bank Business Banking recently stated: “We want to be the easiest bank for small businesses to work with, and part of that is simplifying delivery of our products so they have more time to run their businesses.”
For banks, manual processes are expensive; it simply may not be profitable to lend in the smaller loan amounts many of their small business customers are seeking. Research has shown that institutions transitioning to a digital originations process can make 40-50 percent of the loans under $250 thousand self-service, thereby lowering processing costs from thousands to hundreds of dollars per loan, while still delivering Net Promoter Scores in the 80+ range. By automating and simplifying the loan origination process, a bank can increase its share of the market, retain existing banking relationships, and gain an edge over competitors who are slow to adapt to these fast-moving changes in the market.
Depending upon your bank, there are different ways to approach this. As an implementer of new technology, you will have to help decide whether your approach will be:
1. To build a new streamlined origination process internally. This could be a good option for a tech team with the knowledge, experience, and budget required to build a new platform and successfully launch the technology.
2. Or, partner with a fintech provider to leverage their expertise within your organization. This could be a good option if you don’t have the internal expertise to build, don’t have the budget for an expansive development process, or you see value in getting to market as quickly and efficiently as possible.
3. Or, possibly purchase the technology you need through an acquisition.
Regardless of the approach you take, the need to automate an efficient online origination process isn’t going away. In fact, I believe that within the next three to five years, it will become the norm for any small business lender and will be considered “table stakes” for those entities competing in the marketplace. If your bank isn’t adapting to market forces and automating your origination processes online, your share of small business loan applications will continue to diminish over time.
The small business-lending marketplace is evolving right in front of us and there are a number of aspects to consider as you evaluate your options to either build, partner, or acquire to move your originations process online.
What a Tech-Enabled Online Origination Process Should Do for Your Customers
At OnDeck, we recently partnered with Chase to help create an online small business loan originations process for their customers. This is what they were trying to do. “Over 18 months ago, we set out to simplify the conventional originations processes, which can take weeks to months—time that many small businesses don’t have,” said Julie Kimmerling, senior manager and head of the Chase Business Quick Capital product at Chase Business Banking. “Today, our digital lending product allows us to provide a superior client experience, and we’ve been pleased with customer feedback.”
Recently, we have spoken with many banks considering a move to digital lending, and we have found that the following four considerations should be at the top of the list:
1. Will this improve the customer experience and deepen customer relationships? The primary goal of any initiative to automate the small business loan process should be to make it easier on customers with the aim of providing answers quickly. For many business use cases, a weeks- (or months-) long application process means there may be growth opportunities that are missed that can drive a negative impression among small business customers who leave the process. Any effort to automate the process that doesn’t improve the customer experience is destined to fall short. On the other hand, banks that are successful at creating an easy and streamlined process will ultimately deepen their customer relationships.
2. A digital originations process is more than an online application: Any originations process you consider should enable you to access and unlock the data within your bank’s systems quickly to help you make loan decisions efficiently. It’s not enough to post an editable PDF online that feeds into the same manual processes. The right process will allow you to better leverage your bank data to serve your small business customers and transform the entire “time to money” path rather than just “time to apply.”
3. An automated process should accommodate your credit model: This is probably a larger consideration if you’re considering a partner or an acquisition, but any technology solution you choose should accommodate how your bank approaches risk and credit. A good partner, for example, will enable you to leverage the model that makes the most sense for your organization and won’t force you into a box that fits their model. Further, if you’re considering this as an opportunity to enter new markets, you need a partner who is able to co-develop an origination process that respects your bank’s values and objectives at the same time.
4. Product flexibility can’t be overlooked: This is another consideration for acquisition or partnership that you can’t assume or take for granted. Implementing a new origination model shouldn’t require your bank to accept a number of loan products that don’t fit within your bank. You’ll likely want to make sure you’re looking at options that support the range of products you want to offer your customers.
Whether banks choose to build internally, partner with a fintech provider, or buy the technology, the rationale behind digitization will be consistent: to improve the customer experience. I’m convinced that creating a well-executed efficient lending process and a streamlined digital experience will enable banks to do just that, ultimately enabling them to serve their customers even better in the new era of small business online lending.