Matters of Speed and Automation

by Paul Kirkbride
Matters of Speed and Automation

CU Direct’s maxim “Getting to Yes Faster,” referencing quick yes decisions on loan applications, has a nice ring to it. But I’d argue this isn’t just about getting to a “yes” decision quickly.  It’s also about making fast loan decisions in general, regardless of whether the answer is yes or no.  Fast decisions overall are simply good for everyone involved.

Let’s start with automated approvals and why those matter. Based on our research, there’s a direct correlation between automatically approving a loan and a higher ‘booked to approved’ ratio (number of approved loans that subsequently fund).  It’s an intuitive concept, in that saying yes faster eliminates the need for a consumer or an auto dealer to shop for alternative financing while they wait for your decision, and this results in the credit union having a higher likelihood of closing the loan. There’s also the intangible benefit of instantly pleasing the borrower with a “yes” decision.  No trustworthy borrower wants to see a “Your application has been referred for further review” message.  That’s not a feel good moment for someone with good credit and a stable job.

But what about saying no quickly? Does that also matter?  Yes, it does, for two reasons.  The first reason being efficiency.  Very likely, at every credit union, there are certain application and credit characteristics that will always result in a decline.  So why send those applications to a loan officer for further review?  That would be wasting an employee’s time, and maybe worse, impacting turn-around time for other applicants.  Thankfully, with just a little bit of work, a credit union can quickly identify those “always decline” characteristics and then setup its underwriting engine accordingly.  Just a ten percent reduction in manual reviews could result in material time savings for a credit union and provide measurable improvement in overall turn-around times.

Additionally, making an applicant wait for a loan decision, when the answer is obviously going to be no, is not providing them a good service. It seems taboo in our industry to instantly say no to an online or dealer application, without human intervention, but trust me, it’s actually better for everyone.  The credit union avoids the cost of the manual review and the applicant gets a fast answer so he or she can immediately look for other options.  Plus, for direct loans, the applicant gets to avoid the embarrassment of having to speak to someone in person, which is always an awkward conversation.  I know it seems cold, but I believe it’s the best way to handle these situations, assuming the credit union can control its messaging online or with a dealer.

The simple point here is that speed matters, especially to applicants. Credit unions are feeling pressure to deliver a better overall borrowing experience, and a significant way to do that is to respond to loan requests in the moment, whenever possible.  So automate the easy yes and no decisions, letting loan officers spend their time reviewing applications that are truly on the fence.  Each credit union has a different lending strategy, so the right mix of automation will differ, but we recommend targeting an overall goal of fifty percent instant decisions (mixture of approvals and declines).

If your credit union is looking for ways to improve its loan process – getting to a decision faster — CU Direct’s Advisory Services can help you find automation opportunities.

About the Author

Paul Kirkbride
Paul Kirkbride is the Senior Vice President, Credit Union Solutions, for CU Direct