|The early months of 2020 have been a whirlwind for many industries. We saw businesses of all kinds – restaurants, car selling, etc. – have to reshape their models and processes, in very quick time, if they wanted to survive during the COVID-19 pandemic state shutdowns. The virus has changed many aspects of how we interact, and how consumers borrow money from lenders, such as credit unions, is no exception. Many lenders found themselves unprepared for handling complete digital loan transactions, from signature to eVaulting. While some states are starting to reopen, there is no telling when or if things will fully go back to normal or if people will ever feel comfortable about being in a room with several individuals in close proximity ever again.|
Prior to COVID-19, paper-based lending processes were common, typically taking place in a bank, a lawyer’s office, or a title company’s office where people would be in close proximity, sharing documents and often sharing the same pen: an environment ripe for virus transmission.
Social distancing and the slow road to normalcy means that credit unions need to start thinking about ways to increase their digital lending capabilities, because we are likely not going back.
At the onset of the year, only 23 states had legalized RON (remote online notarization). With the arrival of COVID-19, more than 15 additional states passed emergency legislation making RON partially or fully available; some will remain permanent while others are just temporary.
The virus greatly impacted the auto industry, as most buying is done in person, as well. Approximately 86 percent of car shoppers conduct online research before deciding to visit a local dealership, but most buyers still visit a dealership and the F&I office to test drive and purchase a car. As digitization becomes the new industry standard for auto finance, moving away from paper processes is no longer a can that can be kicked down the road. For dealerships to come out on top after the pandemic, it is imperative for the industry to take full advantage of digital transformation in auto finance.
This pandemic has really brought to light the need to accelerate digital lending adoption. Digital lending enables the entire lending process to take place remotely, offering greater conveniences, security and protective health measures.
A New Stage Has Been Set for Digital Lending
Over the past few months, small businesses across the nation have been scrambling to find financial help during this difficult time. It’s been reported that as of early May, over 4.1 million Paycheck Protection Program (PPP) loans have been issued by the Small Business Administration (SBA) to struggling businesses trying to stay afloat during the pandemic.
For PPP loans specifically, the SBA has issued requirements that go beyond the traditional loan requirements for digital transactions. SBA PPP loans must be electronically signed and stored according to strict guidance in order for them to be legally guaranteed.
The SBA’s PPP loans have set a new standard for all digital lending moving forward. eSignature alone is not enough and very few digital storage platforms are capable of proving the authenticity of a digital loan including tamper-proofing and an auditable digital chain of custody and evidence.
Credit unions closed 2019 with the largest three-month loan origination volume on record. In the fourth quarter alone, credit union loan production reached $158.2 billion. For credit unions to continue this positive momentum, they need to tap into digital technologies, not only to help accelerate loan closings, but to also keep the credit union office up and running. Credit unions who were already equipped with end-to-end digital capabilities had an easier transition to remote work. Before the pandemic, institutions were more focused on efforts to transform customer-facing systems and processes; but today, many of these lenders realize that these efforts are limited without integrated back-office operations.
Digital Lending Technology Adoption – Where to Start
While credit unions are smaller and more nimble than big banks, they must fully embrace digital lending technologies to accelerate their access to funding. Knowing where to start can be overwhelming. Below, are some best practices to keep in mind when going digital.
· Say Goodbye to Paper – This one seems obvious, but there are many benefits to going digital besides saving money on ink and paper. The majority of lenders are still using mostly paper-based transactions. If the pandemic brought one good thing to the surface, it’s that outdated business practices need to go. This lagging piece of business operations has made it difficult for many organizations to do business during this time. The SBA PPP loan program might be short lived, but core SBA loans aren’t going away. That’s why moving your business to digital is a long-term strategy.
· Pick the area(s) that are easiest to digitize – This will vary from each credit union depending on the branch’s existing systems and capabilities, but look for areas to digitize where there are tools and technologies already available that have the capabilities and the experience to digitally transform your credit union quickly and in a safe and compliant manner. This can be as simple as incorporating electronic signature, and leveraging eNotes, the digital version of the promissory note.
· Understand the New Normal – The pandemic presents a unique opportunity to streamline and simplify processes. Digital tools make it possible for credit union employees to work remotely and continue to close contracts for members in a safe and contactless way while social distancing continues.
Credit unions, or lenders of any kind, across the nation need to prepare for the new normal of social distancing and implement a comprehensive digital lending strategy. Technology today has helped simplify the complexities of digital loans by providing end-to-end digital certainty – ensuring that all aspects of lending are compliant – from loan origination and creation, to loan storage, to loan servicing and sale on the secondary market. Making the move from paper-based processes to digital will be a game changer for credit unions today and into the future.
Brian Madocks is Chief Executive Officer and a member of the Board of Directors of eOriginal, the leading platform for creating, managing, and monetizing trusted digital loans.
Brian is responsible for all aspects of eOriginal, including development and execution of company strategy and the operating plans to achieve eOriginal’s goals.
With more than 25 years of experience in business technology and application software solutions, Brian has served as CEO of Revitas, Inc., Vitalyst, Inc. and SunGard Higher Education, as well as Senior Vice President and General Manager of SAP America. Each of these companies grew significantly under Madocks’ leadership and resulted in successful outcomes for customers, partners, employees and shareholders.
Brian is on the Advisory Board of Summer Search, a national youth development organization that makes long-term investments in students from 10th grade through college graduation and produces results three times better than the national average. Brian received his bachelor’s degree from Long Island University, C.W Post and an executive MBA from Insead in conjunction with SAP.