There are advantages to being local

Whether they prefer to interact with an institution online or in person—or a combination of the two—millennials tend to look for organizations that are involved in making their area a better place to live. This represents another potential advantage for locally-based institutions.

In the blue-collar community of Clute, Texas, First State Bank’s biggest competition is the credit union serving the dominant local industry, petrochemicals, and the two institutions tend to compete over who helps the community more. The result is greater customer loyalty.

Familiarity with the local region combined with the assets and diverse products of a full-service bank can often provide advantages for community banks against national alt lenders. As an example, First National Bank in Damariscotta, Maine, processes a lot of mortgages for coastal and island properties.

As a local bank, they know their region well enough that if there are no comparable properties for an appraisal, they still have a good idea of the value. And as a bank, if the loan doesn’t fit the requirements of the secondary market, they can still close it and keep it in their portfolio, which is something that the alt lenders cannot do.

Optimizing the electronic customer experience

These local connections, along with the ability to look someone in the eye when exploring borrowing options, give banks and credit unions a distinct advantage over alt lenders. But these attributes alone are not enough to make an institution competitive. Well-integrated technology, covering the entire loan process from beginning to end, and the business process improvements that optimize that technology’s impact, are a must for any lender to be competitive in today’s climate.

Alt lenders have raised the bar regarding online customer experience, at least for the application phase of the process. There is an argument that alternative lenders captured a better workflow and user interface for the beginning of the process, but at the end, the results are more mixed.

Customers often run into issues with pricing, process management or compliance later in the process. Traditional financial institutions are better equipped to deal with these issues if they can get the technology right.

As the retail industry is learning, an omnichannel approach is best as it optimizes the experience regardless of how the customer elects to interact with the institution—and many clients will use a variety of channels for the same transaction. And including mobile devices in the omnichannel lending experience becomes more crucial every day.

Getting lending right in 2017

Local connections plus well integrated technology can give traditional financial institutions a leg up in competing with alt lenders in today’s climate. So what should their technology priorities be in 2017?

Here are three suggestions:

Refine your digital strategy. Banks and credit unions are still evolving on the journey to the digital experience. They have picked all the low-hanging fruit, but many opportunities remain to transform digital channels into revenue generators with user friendly consumer interfaces integrated with efficient back office systems.

Optimize processes for efficiency. Even if you just save ten minutes here and five minutes there in your lending process, it helps the customer experience. To squeeze out the maximum efficiency, an end-to-end technology solution, coupled with deliberate process improvements, is best.

Think creatively and find new ways of doing things. Sometimes banks can learn something from alt lenders about creativity and innovation. Working smarter and challenging convention is always a good thing.

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By John Zepecki, D+H group head of global lending product management