In the last two years a new credit cycle has emerged.
Supporting it were low interest rates, unprecedented customer demand and innovation. Coupled with this was also a host of new entrants in the market, including digital lenders and technology providers battling incumbent institutions in the fight to win market share.
Accelerating process in day-to-day banking
When it comes to the future of lending for both home and business, we’ve moved into the digital and data-driven realm. Technological disruption is transforming the time it takes to make decisions, cutting weeks down into days and hours into minutes for almost every customer application while satisfying the existing risk appetite of a financial organisation.
Key areas to focus on for the future of lending
So what does this mean for major banks in Australia? How should they shape their investment planning to meet these changes? We believe there are four key areas banks can focus on.
Leading banks can leverage verifiable data at scale through data and digitally driven processes to digitise decision-making processes. This moves lending from a linear process to a dynamic model where the customer and the available data can decide a lending pathway. This can include:
- Pre-filling documents with information for customers or bankers to demonstrate a relationship with the customer and save time taken to complete assessment documents.
- Tapping into verifiable external data sources e.g. accounting software packages, tax offices, payroll providers and other banks through Consumer Data Right (CDR), open data and screen scraping to verify a customer’s financial details without the needing to obtain paperwork to simplify servicing assessments
- Using electronic signatures to execute loan and consent documents.
Automating decision-making processes for major banks
Exception based, event-driven, ‘always on’ decision-making capabilities only uses humans for the 5 percent of applications that cannot be dealt with by automation. While 100 percent of the automated decision-making process won’t be cost effective for most organisations, we need to consider how an outstanding, personal experience can be delivered when people are involved.
- Analyse information entered and apply business rules to route applications to where you want them to be approved. This action can be via automated scorecards or to a human-based assessor.
- Leverage real-time machine-learning solutions to manage rule sets and exceptions.
- Maintain humans in the decision-making loop for regulatory or critical application types.
Architecting of banking regulation as a competitive advantage
When delivering compliant services in a rapidly evolving environment supported by an intelligent regulation architecture we need to take these scenarios into account to stay ahead:
- Code rule based regulated financial product to route salespeople through an organisation’s obligations accompanied by precise role-based requirements.
- Recommend best product matches based on customer requirements and characteristics.
- Embed customer permission activities early in the application to avoid the need to go back to customers.
- Enable delivery teams with the skills to deliver low code automation to free up build teams and enable them to focus on platform transformation.
- Encode underwriting and credit capabilities with dynamic segmentation to quickly detect customers that may not meet credit policies or risk appetite.
Adding value to lender services to grow loyalty
Enabling value-added services through platforms and partnerships can help deepen customer relationships. It also provides a differentiated experience to drive loyalty. At the same time, it doesn’t alienate existing brokers or introducer partnerships.
- Lenders are increasing their range of distribution partnerships, including leveraging digital aggregators, consumer choice and comparison websites, real estate organisations and leveraging new brands with strong customer value propositions to drive customer flow.
- Open architectures with APIs, micro-services and collaboration tools enable new capabilities to be provided for multiple partners in one build.
- Surprise and delight customers with small rewards to generate higher returns, which is more cost effective compared to a churn or new customer acquisition.
Call to action for Australian financial services organisations
Digital, propriety and third party delivery models will need to co-exist and complement each other. Working together will help target specific segments with policy clarity and enable predictability of lending value, decision and delivery times to avoid internal channel conflicts and maintain momentum and book growth.
As we migrate to a greater volume of digital applications and decisions, the traditional role of the Home Lending Manager and Mortgage Broker will also need to evolve. They will maintain an important role by offering differentiated experiences and personalised services to help banks extend into a broader range of lending types, e.g. High Net Worth (HNW), Small Medium Enterprise (SME), Agri and Commercial Lending. A hunter mindset with competence in data and network building will become a core requirement.
Achieving high rates of automated decision-making will be complemented by Bankers extending across customer types to more complex customers with nonstandard borrowing arrangements to drive value across more extensive parts of the lending portfolio.
To avoid technology debt and complex legacy platforms, it is a good idea to focus on a simple technology architecture whilst managing the tension between building or buying capabilities.
Servicing and lifetime management will need to become a bigger focus for banks to manage retention and back book profitability leveraging data to proactively monitor customers and ensure they remain on the best product through their lifecycle and situational changes.
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