Most banks and credit unions have managed to weather the worst effects of the pandemic so far. The Small Business Association’s Payroll Protection Program (PPP) was helpful in many respects, at least in terms of limiting the volume of related business closures and employee layoffs.
Financial institutions faced several operational and brand-related challenges as they worked to process the deluge of PPP applications from businesses owners who were frantic to benefit from the government’s economic lifeline. Some of those banks and credit unions ramped up their underwriting staff to accommodate the spike in demand, while others relied on Fintech support and external vendors; and there were mixed results industry-wide, in terms of speed, efficiency and customer / member satisfaction. In addition to some fraudulent loans being approved, the PPP application rush also served to push bank and credit union employees and systems to the breaking point. Some damaged their brand equity in the process.
With 5.2 million loans, worth $525 Billion, issued under the PPP initiative before it expired on August 8th, are banks and credit unions any more prepared to manage the massive loan forgiveness process that’s looming on the horizon? Have those institutions learned anything from the PPP application chaos that will ensure a more effective and less traumatic loan forgiveness experience, both for lenders and business owners?
In early October, the SBA announced a new “interim final rule” intended to provide new guidance concerning forgiveness and loan review processing for PPP loans of $50,000 or less. U.S. Treasury Secretary Mnuchin has promised that, “We are committed to making the PPP forgiveness process as simple as possible while also protecting against fraud and misuse of funds.”
On the other hand, many bankers on the front lines are less confident that the forgiveness process will go smoothly. Speaking at a recent Consumer Bankers Association conference, Jack Murphy, president of business banking at Citizens Financial Group, said, “It’s taking us two weeks to process an application. Four to six contacts between small-business owners and our folks that are trying to process the forgiveness applications.”
Preparing for PPP Loan Forgiveness
Financial institutions that are currently coping with dramatic changes in the business and economic landscape are now faced with the prospect of having to process thousands of requests for PPP forgiveness. If recent history is a guide, many banks and credit unions will likely take the traditional approach to increased operational demand by hiring additional full- or part-time employees to expand their capabilities. Others will look to fintech providers to address the challenge. But neither of those tactics provide the most effective short or long-term solution for managing process-related quality and risks, while maximizing returns and maintaining brand equity.
Financial institutions must work to strike a balance between delivering ease of customer experience and the underlying risks and costs of providing a “frictionless” level of service. Again, simply implementing an automation tool is not a panacea. The effort requires the appropriate level of automation combined with human expertise. Unfortunately, there is no one-size-fits-all solution. Each institution must devise an operating model that fits its existing infrastructure and also aligns with future strategic plans.
Banks and credit unions that engage reliable partners who can seamlessly combine with internal resources are likely to achieve success when faced with increased spikes in activity. Outsourcing, if properly applied, can enable financial institutions to focus on their core business, and to achieve processing efficiencies; particularly during periods when capital and customer patience are in short supply.
Ideally, the PPP forgiveness processing strategy at a bank or credit union should be based on driving a level of efficiency that improves profitability, as well as the customer / member experience. This can be achieved through:
Stringent and Consistent Rule Application
To reduce regulatory risk, the entire processing team must have a thorough understanding and rigorous adoption of the SBA’s rules and regulations. Scoring and automated credit analyst review parameters should ensure that the policies are applied in the same manner by all credit analysts, whether operating in a centralized location or distributed application processing environment.
Focus on Turnaround Time and Customer Response
With a combination of manual review and automation, applications should be processed completely, and the accept or decline decision must be reached quickly. Customer inquiries must be processed efficiently. Application status must be consistently tracked and communicated to applicants.
Improved Management Control
Strategic decision parameters, such as cut-off scores or review & decline rules – which enable the financial institution to implement policies – must be flexible and easy to manage. Up-to-date MIS reports should provide information that can be used to monitor and fine tune policies over time.
Efficient Use of Personnel
Automate as many steps as possible, including time-consuming tasks such as scoring applications, checking for duplicate applications, producing letters and assigning account numbers. Determine the criteria for applications that require a more thorough review or additional information to make a decision. Automating these steps provide staff with necessary time for decision-making, to use interpretable information that requires their expertise.
Rapid Acquisition of External Data
The investigation interface must be configured to automatically acquire external credit data, account number data, application data and other customer information. Many of these tasks may have to be performed manually, to lower the costs associated with obtaining data from external sources.
Integration of Software Applications
The entire PPP forgiveness process must be integrated with other complimentary software packages including spreadsheet, word processing, database software and loan document preparation. All internal and external linkages must be smartly managed.
Reduced Training Costs
All workflows and tools should have a “look and feel” that is consistent with the operating models currently in place in the institution. In turn, this reduces training costs and learning time, both for internal and outsourced staff.
The ability of banks and credit unions to expand their franchise, and to be seen in a positive light by customers and regulators (and shareholders) during peak demand periods, always depends on their nimbleness, creativity, and adaptability. The upcoming PPP loan forgiveness process will be a major test, as well as an opportunity, for financial institutions to meet the challenge and to demonstrate those institutional strengths.
Sriram Natarajan is President of Quinte Financial Technologies (www.quinteft.com) a New York City-based provider of operational technologies and services for banks and credit unions.