And What They Can Do About It
By Trevor Dryer
More than a fifth of small business owners chose not to apply for a traditional business loan because they found the process too complicated, a recent BMO Harris Bank survey found. It’s not too surprising, then, that research released by Mercator Advisory Group also shows that 27 percent of small businesses surveyed in the U.S. have already used an alternative lending platform. And that number is trending up.
Consumers are also increasingly eager to use digital tools to apply for mortgages and other personal loans. A recent Ellie Mae survey found, for example, that two-thirds of respondents expect to be able to apply for a mortgage online, and 70 percent of millennials had used an online application for at least part of their last mortgage. A J.D. Power survey found that 40 percent of personal loan customers applied for a loan online, and those who used online applications were more likely to say they completely understood the application.
Digital lending is the new business-as-usual for a growing number of consumers and small business owners. For banks, the message is clear. Go digital or miss opportunities. Right now, that means losing about a fifth of small business owners. And with small businesses totaling 30.2 million of U.S. businesses — or 99.9 percent — a fifth is no small loss.
How can banks keep step with changing borrower demands? The answer’s plain: by introducing a lending process that’s simple, available and convenient. Essentially, a lending process that’s digital — especially for small businesses.
Why, then, do consumers and small business borrowers demand digital?
Clear communication between bankers and borrowers is critical when facilitating complex processes, like lending. Digitization takes tedious tasks, like data management, off a banker’s plate and frees up time for more strategic, complex human interactions, like nurturing relationships, answering borrowers’ questions and providing financial insights. That’s the human engagement and communication many entrepreneurs crave, look to their banks for and need to manage their businesses — and their finances — successfully. Further, digitization creates a space for digital relationships and, in turn, a way to deepen and retain the relationship between bank and borrower.
Time is money, as they say, so providing an omnichannel experience empowers bankers and borrowers with critical information for real-time decisions where and when they want or need it — on the go, on the fly or in the branch. A day in the life of small business owners is often consumed by the business of running a business. They must invest their time, energy and attention in the success of their business — not in filling out paperwork or managing a loan application through the process. Omnichannel access to information is not an option. It’s a must in today’s small business landscape.
In fact, PricewaterhouseCoopers discovered in its latest digital banking survey that mobile is the primary way many account holders interact with their bank. Does that mean the bank branch is dying? Far from it. Sixty-five percent of those surveyed still want and believe it’s important to have a local branch. Why? Because they want human interaction. Here’s the thing: By enabling the conversation to move seamlessly across channels, digitization removes friction and enhances human interactions so many customers crave.
Banking has already gone digital. In fact, about two thirds of U.S. consumers already do their banking primarily on the internet or mobile, according to a recent American Bankers Association survey. What’s more, Pew Research found that 77 percent of Americans are online every day. Considering that consumer data is already digital, why should we expect consumers and small business owners to revert to a paper-based lending process?
The digital convenience factor is as true for bankers as it is for consumers. And for bankers, digital spells greater efficiency. Digitization brings Mirador’s bank customers, for example, a typical 50 percent reduction in loan processing times and increases application-completion rates to roughly 65 percent, that’s compared to a 25 percent industry average.
Consider the small business owner: She needs a business loan to grow her business. So she visits her bank’s website, finds a digital loan application and completes it in the evening when she has time to think about finances. The next day, she calls her bank with a question about the loan. The information she entered the night before is visible to the customer service representative. And when she decides to drop by her local branch at lunch the following day, her loan officer easily finds her digital loan application, sees the information she exchanged with customer service and picks up the conversation right where she left it completing the loan expeditiously and without hassle. You see, digitization enables an integrated customer experience that shows this customer her bank values her time and business — and that’s the stuff of serious customer delight and increased retention.
Starting the digital journey means recalibrating our perception of technology and alternative lenders using it to bring changes to the industry. Think of them less as competition and more as inspiration, as pioneers blazing a trail forward in the new digital frontier of lending. And it’s a trail banks can follow profitably to new business.
Trevor Dryer is co-founder and president, Mirador at CUNA Mutual Group.