Digital Transformation: The State of Play for Community Bankers


Digital Transformation: The State of Play for Community Bankers

Digital transformation was on the program ? and on the minds of the attendees ? at the American Bankers Association Conference for Community Bankers in San Diego this week. I moderated a panel featuring Bryan Luke, President and Chief Operating Officer of Hawaii National Bank, and two of my colleagues, Ken Janik and Colgate Selden. We spoke directly with conference attendees about the relationship community banks have with digital lending. Our panel Digital Lending: Risks and Opportunities explored the economic, technological and social forces driving digital transformation efforts. We examined different tech-implementation strategies bankers are considering and conducted real-time audience polls, providing timely insight into bankers thoughts on digital lending. Here are some of the highlights from Tuesday's session. We set the stage by sharing some provocative predictions from leading industry consultants and recent ABA surveys, including:

  • By 2030, digital disruption will force 80% of banks and financial institutions to merge or convert to survival mode; By 2040, we can expect to see a 20% survival rate (Source: The Gartner Group).
  • Digital point-of-sale platforms can increase application completion rates by 20% and LO productivity by 10%. And, digital drives customer satisfaction ? 79% of consumers want to apply for a loan exclusively online and 87% believe digital lending is faster (Source: Boston Consulting Group).
  • 74% of community bankers believe lending will benefit most from using technology to create a service edge; 71% are interested in using a third-party digital platform for loan origination (Source: ABA Community Bank CEO Survey).

A Banker's POV Bryan Luke shared his point of view on digital lending, noting his bank's customers are interested in using technology to accelerate and actively participate in the lending process. Luke further emphasized how technology empowers applicants by offering them the ability to enter information and upload documents outside of bank hours ? a benefit his customers especially appreciate. At the same time, he acknowledged a generational divide on the part of both customer and staffers when it comes to digital transformation. And that digital mortgages do face some unique challenges, given transaction complexity and the need to navigate a wide range of compliance issues. Despite these challenges, his bank is committed to digital transformation because of the benefit not only for its customers (speed and service) but for the bank itself (efficiency and cost).The $8,000 Question Ken Janik, our Managing Director/Business Head, assessed the current state of the mortgage market. He began by noting the average cost to originate a residential loan, according to the Mortgage Bankers Association, is now $8,000 ? up from $5,000 just seven years ago. These higher costs could be coming at a time when the overall market is shrinking, activism by state regulators is increasing and community banks are facing new competition from fintech entrants. Community banks are realizing, to remain relevant and competitive, they'll need to invest in new technology to meet the shifting borrower expectations and drive down costs. The question becomes how to successfully implement new technology in the face of economic and market headwinds. Analog to Digital: The Potential vs. The Pitfalls Colgate Selden, our resident compliance guru, laid out the compliance case for digital mortgages. Done right, digital mortgages will:

  • Seamlessly integrate into existing compliant processes
  • Quickly adapt to business and regulatory changes
  • Be flexible and scalable, driving both efficiency and data quality
  • Enhance compliant customer communications

In fact, he argued digital processes have the potential to make demonstrating compliance and quality to regulators and investors easier these systems can capture immutable data, tracking who said what and when, what actions were taken and by whom, how information was verified and ultimately, what factors led to the final approval or denial decision. Conversely, Colgate acknowledged automated interactions, as compared to in-person borrower engagement, pose the risk of creating confusion, misunderstandings and possible liability. For example: When does a click become an app? How are identity and consent confirmed in a digital transaction? What customer, security or fraud issues must also be considered. Done right, digital lending can accelerate the manufacturing of high quality, compliant loans. Done wrong, you're manufacturing defective loans at a much faster pace. Insight From The Audience As part of the panel, we polled bankers in the audience on their mortgage operations, digital transformation prioritization, digital progress to date and whether ? and how much ? their customers are requesting digital-lending options. Our top-line findings:

  • On mortgage lending: 64% embrace it; 19% see it as a defensive strategy; 3% would like to exit the business; 14% said they don't offer mortgages anymore
  • On whether their customers asking for a digital lending experience: 56% said always/frequently; 30% said sometimes; 14% said rarely/never
  • On whether digital transformation is a 2019 priority: 60% ranked it a top priority; 34% a priority but behind others; 3% have already completed their digital transformation; 3% believe they can compete without it
  • On how they're going digital: 61% via plug-and-play third-party platforms; 26% via FinTech partnerships; 10% via other strategies; 3% using internal R&D.

Community bankers feel a tremendous sense of urgency; they?��re thirsty for knowledge on how to navigate the digital landscape and they recognize the challenges inherent with integrating technology solutions across their lending processes. Lastly, I would note what is always paramount for community bankers they remain relentlessly focused on delivering the best possible customer experience.


February 22, 2019
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