U.S. Bank this week rolled out an online small business loan platform aimed at helping it compete with fintech giants like OnDeck, which announced this month it had surpassed $10 billion in total loans originated to small businesses since its 2007 start.
It’s one of hundreds of banks across the U.S. that are working to use technology – either their own or third-party technology – to improve the customer experience for business borrowers by making it easier to apply and by automating some or all of the decision process.
U.S. Bank in a news release said its fully digital option allows single-owner businesses in the bank’s 25-state footprint to qualify for up to $250,000 and if approved, review loan details and electronically sign their closing documents.
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“We were striving not to compete with traditional banks but to compete with and leapfrog the fintechs,” Scott Beyer, an executive with U.S. Bank’s Business Banking Experience Studio, told American Banker in a published report.
Some of U.S. Bank’s loan decisions will be made entirely by its in-house developed software based on the bank’s existing underwriting process, while loans that appear riskier will require manual intervention, according to the American Banker article.
It’s often the case at financial institutions that fully automated loan decisions are not appropriate for every loan. Some loans require further review by the bankers.
“Loan decisioning is an art with human intervention and it relies on the skills of approving officers,” says Neill LeCorgne, vice president of banking at Sageworks and the former president of a multi-bank holding company.
Tech-enabled community banks compete with fintechs
Fortunately, technology can allow for as much or as little automated scoring or decisioning as a financial institution desires. That’s the case even for a smaller community bank that doesn’t have the interest in, or resources to build, its own online lending platform. “With an appropriate balance of technology and human oversight of both the decisioning process and final approval, automated technology-based scoring and decisioning tools can provide important benefits to an organization,” LeCorgne says.
Some automated loan scoring and decision technology can embed a financial institution’s specific credit culture and policy in a similar way to the manual processes currently in use, and these factors can be adjusted as business strategy or environmental conditions warrant. That way, a bank or credit union doesn’t have to settle for an “off-the-shelf” solution that may not exactly fit the institution’s appetite for risk or market considerations.
Automating at least part of a financial institution’s small business lending business is especially important because it can represent a profitable source of growth for community banks in particular, according to LeCorgne.
“Small business lending can be a lucrative business for your bank, you just have to apply the right kind of technology,” he told bankers this week during Sageworks Lending & Risk Summit in Chicago. “Otherwise, these loans are going to go the way of car loans that are now made by dealerships instead of your bank. I saw it firsthand.”
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