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Make loans part of online process

Britain has warmly embraced online banking but is falling behind European counterparts on the more sophisticated web processes such as loan applications, says Mikael Krohn, vice president at EDB Business Partner

Mikael Krohn
Mikael Krohn

It has been just over a decade since internet banking began, but its popularity has gone from strength to strength. The UK Payments Administration reports that in the first half of 2009, 22 million adults used internet banking on their main current account. This meant that for the first time ever more than 50% of regular internet users (41.4 million) are banking online.

The Payments Council also reports that in 2009, 26.8 million adults made use of at least either online or phone banking and for many people, internet banking clearly has become an integral part of their day-to-day lives. It enables a bank’s customers to easily manage their financial affairs without having to go into the branch. This concept of so-called self-service banking is becoming a favourite with many banks looking to improve their customer service, reduce operational costs and expand internationally. In particular, self-service internet banking that allows bank customers to apply for loans is increasingly common across Scandinavia. The Nordic banks have seen a change in attitude among their customers moving from branch to online.

But in many ways the full potential of self-service in banking is yet to be realised. While the majority of financial institutions now enable customers to complete basic banking tasks online, such as checking their account balance, transferring money or making payments, far less than allowing customers to complete more sophisticated tasks, such as loan applications, completely online.

The global banking market is characterised by increasing competition, downward pressure on margins and new requirements from the official authorities. These trends create new challenges for the banks in terms of expertise, products and better solutions to ensure efficient processes and customer service for credit approval and lending. In conjunction with this, banks need to ensure that their service meets customer expectations for easy access, rapid response and attractive financing solutions at the right price.

In order to help combat this downward pressure, financial institutions should be looking at how they can make further use of the online channel to encourage greater self-service as a way of improving the customer experience. Self-service is the fastest-growing customer service channel and is widely recognised as a viable means to dramatically reduce operational costs and create efficiencies for banks while ensuring they remain competitive. But at present many banks handle the entire lending process manually as the right technology is often not in place. As a result, costs are high and the application process is time-consuming. This lack of automation also means that time-to-market for new bank products is drawn out and lenders are unable to evaluate and make a decision on a customer’s self-service loan application quickly.

True self-service lending also requires online collaboration between the banks and their customers. But until now this is something that technology has not been able to deliver. This stems from the tendency in the financial services industry to build solutions starting from its needs rather than the customer’s needs. However, bank customers of today expect more value from services and a better user experience. That means access to meaningful information 24 hours a day that is well presented, where complex data simplified and so that ultimately, the bank’s customers are encouraged to interact and engage with the service.

Self-service internet banking that allows bank customers to apply for loans is increasinglycommon across Scandinavia. The Nordic banks have seen a change in attitude among customers moving from branch to online

In order for lenders to address some of the technology issues, they should look to those regions, such as Scandinavia, where self-service lending is already reached an advanced level and gained acceptance from bank customers, to see what systems banks have put in place in recent years to take advantage of the evolving nature of self-service.

As banks are looking to increase online conversion rates through offering a more sophisticated self-service offering, they need to look at efficient web-based services for processing applications, self-service for customers and credit analysis tools for decision making. For a more efficient customer acquisition process and work processes, they should look to automate data capture, objective decision making criteria and support for automated pricing and credit approval. That way, banks can deliver a higher level of efficiency, in part by moving the approval and production process into self-service channels, and in part by integrating the bank’s credit policy into the tools used by its offices by means of workflow management.

An additional benefit of this approach is that staff can focus on making business critical decisions or on more complicated referrals, rather than on manually processing all loan applications, so their time is used more wisely and cost-efficiently. Self-service loan application solutions also enable innovation and help banks to expand their distribution and customer service channels from being purely branch-focused to making more use of the online channel.

Sparebank 1 in Norway, for example, is already employing a loan application solution that delivers cost-effective business processes and which supports and improves communication and response times with customers.


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