Credit union lending has changed dramatically over the past decade. It used to work slowly, involving hours of manual application entry and underwriting--and piles of paperwork--before reaching loan decisions and issuing funds. Loan officers were business partners and financial experts, and their customers were loyal for life.

But the American culture has evolved into a society that expects instant gratification and convenience. The Internet and other mass media have driven this transformation, making consumers more financially intelligent and providing access to unlimited and expedient lending channels.

Today, there is little or no loyalty for lenders among consumers and businesses. No matter the products an institution offers--consumer loans, mortgages or commercial loans--the new generation of loan-seekers selects the first financial institution that provides the best interest rate and the fastest service.

To compete in this new age, credit unions must adapt their operations to the changed environment and enact a sophisticated lending system that supports evolving needs and expectations.

Technology plays a key role in this effort, helping institutions adjust to the new standard by automating every phase of the lending process. In recent years, with the refinement and acceptance of reliable credit scoring models, loan automation technology has blossomed.

As companies continue to develop and launch new IT offerings, it's important to understand the key components and characteristics of a modern lending system.

Lending Technology Components

There are three common technology solutions that credit unions deploy to better manage and automate lending operations.
The core system--a combination of hardware and software--forms the base platform for a credit union's overall IT system. Every institution uses this system in some form to store and manage all member information files and transaction data.
Member relationship management software is the first piece of member-facing technology, and can be the lending starting point. This software collects member data across all product lines, and provides that information to service representatives whenever a member visits or contacts a branch.

Automated decisioning and document preparation software, also known as loan origination software, provides automated loan application processing and decisioning.

This system takes an applicant's information from the MRM system, core system, direct from a member service representative or through indirect channels; automatically retrieves and interprets the applicant's credit reports from the consumer and business bureaus, as applicable; consults the credit union's lending policies deployed within the software; and determines the member's credit score and risk-based pricing. This ultimately leads to an automated loan decision.

Once a decision is reached, the software automatically develops necessary loan documents for the transaction. This system then circles back and interfaces with the core system to update appropriate files.

These three systems form a connected lending process that, when fully automated and optimized, exudes four primary characteristics--speed, efficiency, flexibility and simplicity.

Key Characteristics

The phrase "time is money" takes on a new meaning in today's lending environment. With impatient consumers and businesses, speed plays a significant role in modern systems.

As a result, automated workflow is critical to increasing an institution's loan processing speed. All lending technology should seamlessly integrate, using interfaces that are simple to deploy and easy to manage.

It's also important that institutions can easily mine demographic data from the LOS, so they can determine the best cross-selling approach for their membership. Since larger credit unions receive more than 50% of their application volume from indirect sources, data mining is a practical approach for increasing per-member wallet share and speeding cross-selling capabilities.
The decision engine in the LOS should closely mirror a credit union's lending policies and rules to ensure more automated credit decisions. The idea is to streamline all processes into a fast, well-oiled machine.

A modern lending system should be efficient, bringing time and labor savings to credit unions. The goal--to create an entirely paperless process that eliminates redundant data entry and the need to manage and store paper files. E-signature solutions, combined with the technology previously mentioned is making that vision a reality.

Compliance automation also brings efficiency to the lending process and makes the compliance officer's job easier. System reliability with uptime approaching 100% promotes efficiency as well.

Quality IT developers, that are well-versed in both technology and lending, provide professional services that help credit unions customize and optimize lending technology to increase efficiency across an institution's entire loan operations. This is particularly important with respect to small-business lending expertise, as many credit unions are now entering this space.
Modern systems are flexible and scalable, and can adapt to any lending environment. These solutions are built on modular, open-architecture platforms that are easy to configure and modify.

This flexibility promotes loan origination opportunities through multiple branch touch points, including in-person, at kiosks and through a credit union's Web site. Beyond this, flexibility should extend to loan procurement through indirect channels facilitated by dealers, merchants and brokers.

Advanced systems bring simplicity to an institution's lending operations by providing a user-friendly interface for loan officers and other employees. Workflow guidance, like color-coding and highlighting, brings simplicity and organization to an otherwise complex process.

The interface should be simple enough that credit unions could empower member service representatives--who have no lending authority--with basic loan officer responsibilities.

To further simplify the process, institutions should choose consumer and small business loan automation technology with the same look and functionality--if possible, from the same provider. This means less training and confusion for employees.
Simplicity also applies to the installation and integration of modern lending systems, which should require minimal staff, training and downtime.

In conclusion, today's lending environment offers many opportunities and challenges. With the right combination of quality technology and expert assistance, credit unions can adapt their loan processes to conquer this new age and build a foundation for continued success.