Releasing Data to Boost Lending Opportunities

Are financial institutions missing out on lending opportunities concealed within their data? Traditional financial institutions may lose out on lending opportunities without more user-friendly digital lending programs. Application programming interface (API) based analytical technology could help bring in more loan prospects based on already obtainable information in its databases.

Forty-two percent of Americans said their credit scores prevented them from obtaining a financial product in the past year, rising to 74% among those with poor credit, according to a LendingTree survey. 

Meanwhile the competition for loans is more intense than ever, with nonbank lenders now holding a greater market share. The amount of commercial and Industrial (C&I) loans held by banks virtually equaled the amount held by nonbank lenders at the end of 2021, according to American Banker. 

Reasons for the non-bank lending surge could rest with traditional financial institutions inability to capitalize on credit and lending opportunities due to restrictive requirements and less digitally-advanced loan acquisition programs. 

Acquiring Data Alternatives

For many years, lenders mainly used consumers’ FICO scores to determined credit risk and worthiness. But, some in the industry anticipate change looming in the FICO-based lending space led by challenges to FICO’s algorithm by consumers concerned about personal data use. 

FICO 10 and FICO 10T, jointly known as the FICO Score 10 Suite, is designed as a more predictive and comprehensive credit score model. A key feature of FICO 10T is the use of trended credit bureau data on individual borrowers to calculate their credit scores, and provide a more complete picture of potential credit risk. 

Another emerging model utilizes so-called “alternative” data. Alternative data, which brings in any type of data not normally part of the decision-making process, can include rent and utility payments, part-time and rental income, education and more.

Alternative data can also utilize spending habits, the use of revolving credit lines, and even web surfing tendencies. The use of alternative data at many community banks and credit unions could help capitalize on their regional focus advantage. 

Shifting Customer Expectations

Before the pandemic, lenders were beginning to see a digital shift as many financial institutions were gradually adopting new technologies, but digitally mature nonbank lenders were already beginning to gain a foothold and more market share. The pandemic rapidly accelerated digital transformation and led to major changes in the competitive landscape for banks and credit unions, especially in the lending space.

Unconventional lenders led by fintech with innovative loan programs now pose a threat to many financial institutions. In a digital ecosphere where borrowers can receive financing within minutes, the definition of outstanding customer service fundamentally shifted in the blink of an eye.

Fintechs and digitally-mature financial institutions make it possible to receive a loan completely online. A digital loan origination system can help banks and credit unions fulfill their promise of providing an exceptional customer experience. 

Lenders should also meet customers wherever and whenever they need to be met. A digital loan origination system makes it easy for banks and credit unions to service customers online, in the branch—and even allow borrowers to self-serve.

Digital Loan Systems Deliver

Digitalization and automation technologies help financial institutions to enhance their customer acquisition and retention while lowering operational costs. 

Numerous phases of the loan origination process are extremely inefficient for many traditional financial institutions, as well as laborious for loan applicants. These include document collection, customer authentication and verification, credit decisioning, and regulatory compliance.

Utilizing a digital loan origination system allows lenders to save time and resources by radically reducing work, allowing institutions to focus on providing an exceptional customer experience. A digitalized and automated loan origination system can simplify the process to the point that any branch employee can help with a loan application, allowing credit-trained employees to focus on the most important pieces of loan origination: spreading, underwriting, and decisioning. 

RPA (robotic process automation) technologies takes advantage of big data and analytics to digitalize repetitive tasks and provide speed to decisioning and better-quality loans. It can also lower delinquencies and collections activities; improve the data quality and accuracy of the automated collection process; and increased loan throughput.

Show Me the Data

Making the loan application, underwriting, credit decisioning, and loan funding more efficient, streamlined, and responsive requires access to data every financial institution already maintains. New infrastructures such as open banking initiatives require financial institutions to share customer data via APIs with fintechs. 

Banking tech executives are increasingly growing their usage of APIs. With their ability to support interconnections among all manner of devices, applications, and data, APIs facilitate a growing range of internal and external bank strategies and activities. Because most banks maintain a substantial reliance on intricate legacy systems, they are challenged to utilize APIs to tap into the functionality and data embedded within. 

At a recent “APIs in Banking” roundtable hosted by McKinsey, participants from more than a dozen global banks and smaller regional institutions exchanged updates on their plans for using APIs. They revealed financial institutions are increasingly relying on APIs internally to reduce costs and complexity associated with IT integration. 

Additionally, according to a 2020 McKinsey global survey on APIs in banking, roughly 75% of banking APIs are used for internal purposes, and banks plan to double the number of internal APIs within five years. Nearly 20% of banking APIs are used externally to support integration with business partners. Banks also have plans to double the number of these APIs by 2025. 

Open banking, which proposes all participants should have access to bank data to build and use applications, requires a connected network of financial institutions and third-party providers. 

NXTsoft offers several secure routes to free up and connect banking data. OmniData enables financial institutions to access its data quickly and securely when a financial institution is involved in connected different systems such as a loan system with their legacy technology; and OmniConnect, the vendor agnostic premier open banking marketplace for all API needs, uses cutting-edge cloud technology to connect fintech solutions to financial institutions. OmniConnect removes integration obstacles and provides a seamless connection between third-party lending solutions and financial institutions’ core digital banking, item processing and other systems.