Achieving Sustainable Loan Growth — Part 2: Addressing Inefficiencies
(This is part 2 in a series. Read Part 1.)
I have the opportunity to meet with many credit unions in my travels. Here’s my not-so-stunning finding: some credit unions are pretty inefficient. But why am I talking about inefficiency in an article on sustainable loan growth? Here’s how I see it. Sustainable loan growth is achieved by focusing on improving the member experience. The member experience is negatively impacted by operational inefficiency. Reduce operational inefficiency and you’ll improve the member experience. Improve the member experience and you’ll grow loans. Simple, right?
Take automated decisioning for example. Anecdotally, credit unions automate about 20% – 25% of their loan decisions. In other words, 3 out of 4 applications are referred to a loan officer for further review. A credit union will likely approve a majority of those applications in the end, but not until they’ve spent additional time and money in the process; and that’s truly inefficient. If your credit union instead made it a goal to automate 50% of those decisions, not only would it save money, in doing so you’d also improve your members’ experience, reducing both their wait time and level of anxiety.
Why aren’t credit unions feverishly looking to eliminate non-value added activities and seemingly just adding more bodies? Even though lending is at our core, most executives on a credit union’s leadership team only have a loose understanding of the loan process. Credit unions hire experts in finance, IT, marketing, and human resources, and they tend to stick to what they know in their respective areas. As a result, the lending executive is often alone in his or her pursuit of, and being tasked with finding, better solutions. As such, I suspect process improvement takes up a disproportionately small amount of time in leadership team meetings, relative to the income generated from the related activities. Yet, that is the ideal place to challenge the status quo. Instead, the group might find itself debating less impactful items, like branch color schemes (“Hey, is that the right shade of mustard? “).
The law of triviality loosely states the amount of deliberation on any given topic is inversely proportional to its complexity. So when a diverse team comes together to make critical business decisions, like a credit union’s leadership team, they might find themselves focusing in on – or even debating – the trivial items they understand, bypassing on the more complex ones (the nuts and bolts of the loan application process). Lending is very complex, so it might make sense to defer to the “expert” to handle that. But in my opinion, that’s a problem.
First, the expert you now trust to deliver a great member experience also owns risk management, efficiency’s archenemy. Think about those automated approval stats I noted above. Second, this individual probably doesn’t have the bandwidth/resources needed to make wholesale changes to the lending experience. Can he or she really command the resources needed to redesign the entire process? And finally, this person may have grown blind to the opportunities for improvement, which can and does happen. To get the right focus on process improvement, this has to be addressed as a team effort, starting at the top.
I strongly encourage leadership teams to openly and frequently discuss process improvement and the member experience, and to learn more about how your members are interacting with your credit union. I’d start with something simple, like applying for a small personal loan on your website (have your lender originate a test application in front of the team and take it to funding, explaining all the steps along the way). I guarantee the first time you walk the path of your member, as a group, you’ll be stunned by how many non-value-added, inefficient activities exist. Once you identify the challenges and opportunities, the leadership team should be eager to allocate the necessary resources to weed-out inefficiency, and in turn, improve the member experience. Again, a team effort here.
Leadership teams can be a pretty powerful tool when used for ideation and innovation, and not just administration. The better they understand the member experience, the more likely they are to spend the time and money improving it. And if the members of the team aren’t comfortable giving opinions just yet, educate them. Complexity is reduced through increased information and communication. Everyone needs to understand what we do and how we do it.
In part 3 of my article, I’ll address specific areas you’ll likely uncover during your process improvement discussion — the growing need for automation and how to improve the ‘ease of use’ for your members. It’s not just about satisfaction any more. You need to rethink and simplify their experience.