LAS VEGAS—Banks may have the advantage over CUs of larger branch networks, but they don’t have the advantage at the branch, with CUs closing 10 times more consumer loans per branch than do banks, according to one analyst.
But that statistic just puts more of a premium on a “frontburner” issue, according to that same analyst: efficiencies. The search to squeeze out costs is the primary reason so many credit unions continue to search for the complete end-to-end loan origination solution (LOS), noted Daryl Jones, a director with the Scottsdale, Ariz.-based consulting firm Cornerstone Advisors.
“Credit unions are further along in the electronic/paperless/remote signing ceremonies than banks, although there is a great deal of interest in paperless lending from all FIs,” Jones told the CU Direct DRIVE 15 Conference here.
But he also noted, “Increased regulatory requirements for mortgage lenders and the declining mortgage volume are resulting in lenders replacing their MLOs and reconsidering their strategies for their mortgage portfolios. A lot of clients are saying ‘We need to switch our mortgage LOS.’ That is one of the bigger themes we have noticed. The concept of a universal LOS is also brought up by a lot of our clients.”
Jones said the good news is that numerous lending LOS vendors have retooled their solutions to be true end-to-end systems, including in their solutions web apps, borrower portals, product eligibility and pricing and web service integration to a variety of third party providers, internal document management, compliance testing and design capabilities.
The less-good news is that it is mortgage origination providers whom Jones said have the best chance of providing that universal LOS, but they also have the “least interest in moving downstream into the consumer LOS space.”
But that’s also not a particularly critical issue, Jones said, observing that “(FIs) aren’t expecting a mortgage LOS to do consumer, and a consumer LOS to do mortgage. But
Jones said advances in LOS functionality have been hampered due to regulatory and compliance development efforts, much of which is related to the CFPB. Nevertheless, he said most vendors have weathered the storm very well and he is looking forward to more exciting functionality enhancements.
What credit union LOS systems must be able to do, said Jones, is get the credit union right into the heart of the transaction.
“You need to get into a position where you are in the middle of the POS in a digital environment is getting more and more important,” Jones told the meeting. “What faces the member needs to be the best thing you can put in front of them.”
What Interface Should Include
The member-facing interface, Jones said, should include:
- Seamless and intuitive lending technology
- Graphically natural end-user interface using icons/logos.
- Very few variables in order to reduce loan abandonment.
“Nine times out of 10 we see our clients going to the vendor that has everything inside one solution,” said Jones. “A lot has to do with the simplicity of the process, including on the back end. Self-administration and key customizable workflows that can extend beyond the origination process are key. Amazon is a good example example. They offer robust analytics for cross sell and upsell to quickly and intelligently make recommendations to the user.”
The last piece of the LOS, said Jones, is around a consistent look and feel. The interface does not need to look the same for the member and the employee, but what is important is that consistency for both. There must be integration between systems—including Internet banking, mobile, cross-sell engine, decision engine, credit bureau, etc.--and as the member moves from one device to another they need a consistent, updated experience.
And credit unions cannot forget about the speed of the process, especially for the member. “I toured a Subaru plant once. They can build a car faster than we can originate a loan. Humans don’t touch a Tesla during manufacturing. As more and more automation rolls in, it’s going to effect efficiency and staff.”
That’s why process design—on which Cornerstone consults—is so important, said Jones.
“Don’t replicate a bad process into a new system,” he advised. “The organization needs to set expectations with branches, operations, channels, etc. Knowing the expected process is critical before the initial vendor meeting. You have to get everyone in the same room to map this out. The other piece is just knowing that when you walk into a first meeting with a vendor to map out specs, you already know what you expect. I would say that’s a best practice and I don’t see a lot of FIs doing that. To get an LOS, if you don’t have the right one build out the processes around what you need to have for the next five to seven years. Build out what you need to compete.”