Up Your Loan Automation Game, TransUnion Says in New Report

The onset of the pandemic forced consumers of all ages and backgrounds to use online tools with their banks and credit unions, but many financial institutions have not yet updated their systems to meet their consumers’ heightened expectations, according to a TransUnion report released Thursday.

The Chicago credit reporting agency also released a survey of 2,664 consumers conducted in mid-September that found 40% of the consumers said they use digital platforms more frequently since the onset of the pandemic. About 60% of consumers said they conduct most of their financial transactions on mobile applications.

“The pandemic has acted as a catalyst for lenders to adopt new technologies and stay competitive in this changing environment,” Liz Pagel, SVP of consumer lending at TransUnion, said.

“A strong digital presence is now all but required to meet the evolving needs of consumers,” Pagel said. “Financial institutions that prioritize digital innovation to optimize their consumer interactions are likely to see the most upside over the long-term.”

Among 20 financial services executives were queried during TransUnion’s Sept. 21-23 conference, half said the lending industry will take a year or longer to return to pre-COVID levels. And half said their organizations will be making more investments in digital capabilities as a result of the COVID-19 pandemic.

TransUnion cited a 2020 eMarketer report that found 52% of U.S. financial services executives said their top priority after the pandemic is rethinking and digitizing client interactions. TransUnion recommends financial institutions improve their processes in three steps.

The first phase is adopting automated intelligent systems that provide consumers the immediate decisions on loan approvals and rates that they expect. In a 2018 ABA study, 96% of banks offered online applications, but less than 20% offered instant credit decisioning.

TransUnion recommends financial institutions plug into trended credit data.

“Traditional credit data may show a consumer has paid their auto loan on time every month — but no detail beyond that,” the report said. “Trended credit data tells you whether the consumer consistently pays more than their minimum due, which means they have additional funds available for a new loan.”

In the second phase, financial institutions need to clean up fraud-detection systems, which it said are often a patchwork of insufficient, outdated solutions from different vendors. The goals are fewer manual interventions, less unnecessary friction for customers, and, of course, less fraud.

In the third phase, banks and credit unions need to spend more on digital advertising to lower the risk of losing growth opportunities to competitors. A 2020 eMarketer report found that despite the pandemic, digital ad spending in financial services will grow 9.7% in 2020, reaching $19.62 billion.

To keep up with tech-savvy competitors, TransUnion said lenders should adopt tools for prequalifying loan applicants and reduce customer hassle with device-based authentication. And TransUnion said other perks loan applicants appreciate are tools that explain to applicants their credit scores and allow them to simulate the impact on their scores from certain actions.

“Lenders need to ensure their strategies offer easy ways for consumers to accept and apply for offers online” the report said. “If an offer is presented digitally, but the application process is cumbersome, lenders will lose the customer and waste their marketing spend.”