Three Common Lending Misconceptions to Avoid02.13.2017
In a recent blog, we posed four questions that you should answer about your lending experience. Today, we want to drill down a little further into some common beliefs that have, more often than not, been disproven by the data.
1. We prioritize service for our direct members.
Do you think that the loans you make directly to your members should take longer than loans initiated through dealerships? Most would say no, but it’s common to see that times for approval and funding are slower for direct lending channels. On the surface it doesn’t make sense, but the dealer space is competitive. Credit unions know they must act quickly or lose the deal, so those processes are designed for speed. It’s not that credit unions want to make their “real” members jump through hoops and wait longer while offering a streamlined process for booking loans to people they don’t know at lower rates, it’s often a lack of focus on improving direct lending processes.
Action item: Don’t go by your gut. Actually count your lending business by tracking how long it takes for the different channels. Hint: Look at it by credit tier, too.
2. We are staffed appropriately for when our members want to do business.
Lending data often shows a dip in the number of loan applications (apps) that come in during lunch time.
This seems counter-intuitive until you look at staffing during those times. People need to eat, so it is common for fewer representatives to be available just when members want to drop by at lunch to talk about a loan. A mid-day dip in loan apps could mean that members are walking away or hanging up because the wait is too long.
Action item: Track application received times for branches and call centers, and look at scheduling if they drop in during lunch. Note: When we analyze by channel, we don’t generally see any slowdown in online and mobile applications during lunch.
3. Approval times for our online and mobile apps are longer than branch/call center because most of them come in outside of business hours.
The numbers don’t usually bear this out. While some apps are received outside of hours, the bulk of online and mobile apps are typically received throughout the week during business hours. If that’s the case and those members are waiting longer for a decision, it could indicate a poor process for handling those apps. Consider that members who choose to apply via digital channels may be expecting a fast, easy, fintech-like experience.
Credit unions that deliver a clunky experience run the risk of not getting a second chance. Even if the software interface isn’t where you want it to be, the rest of the process can still be fast and efficient.
Action item: Track the approval times for online and mobile apps. Track those that come in during business hours separately for a clearer view of the member experience. Hint: Look at them by credit tier, too; don’t assume they are all low credit or frivolous applications. It is true that digital apps have some unique challenges, but there is big growth in this channel, so getting great at processing them is key.
The biggest challenge in validating assumptions is simply recognizing that they exist. Any time you find yourself saying, “Oh that’s because . . .” pause for a moment to consider whether it’s actually an assumption.
There is a treasure trove of data at the fingertips of most credit unions that can be used to ferret out the truth about assumptions once they’re identified. The three misconceptions in this blog were uncovered by going beyond looking at overall funding ratios and other common high-level metrics.
Slicing and dicing the data that’s readily available by credit tier, product, delivery channel, branch, and time received, to name a few, and tracking trends over time creates actionable business intelligence that sparks the necessary questions. Expanding queries beyond lending to account opening and other areas could also reveal many meaningful, valuable process improvement opportunities.
C. Myers is a consulting firm that helps credit unions develop effective strategies for A/LM, CECL, liquidity, process management, validation, budgeting, and forecasting. Reprinted with permission from www.CUInsight.com, an independent source for credit union news founded by Randy Smith and John Pettit.