Succeeding in the Competitive Indirect Lending Market

In 2022, credit unions surpassed banks and other financial institutions as the top source of auto financing. To stay at the head of the pack – and win a larger share of the indirect lending market – credit unions must continue to innovate and leverage modern technology solutions to enhance their auto lending capabilities.

Enter document processing automation (DPA). DPA tools use artificial intelligence and machine learning algorithms to classify, analyze and extract data from documents containing unstructured data, such as pay stubs, W2s, financial records, credit reports, insurance policies and vehicle service contracts. Advances in automation and AI technology now make it possible to use DPA to quickly and consistently fund loans, delivering a host of benefits to credit unions, dealerships and ultimately members.

Historically, DPA capabilities have only been available to the largest credit unions with the resources and capacity to build customized solutions. But modern loan origination systems now provide robust integrations with AI tools that support DPA. This opens the door for all credit unions to take advantage of the operational efficiencies needed to strengthen relationships with dealers and members – and bolster their position as the most reliable source of auto financing.

Manual Funding Introduces Delays and Inconsistencies

It’s common for small and mid-sized credit unions to rely on manual processes to support their indirect lending businesses. Until recently, the only way to evaluate a loan jacket was for an employee to carefully examine and categorize dozens of documents verifying the applicant’s income, credit history and collateral information, along with other relevant paperwork.

For complex or nontraditional applications, manually processing and funding a loan can take days, increasing the possibility that the applicant will become frustrated with the delay and move on to another dealer and lender. And even when speed isn’t an issue, inconsistencies in funding practices naturally arise as loan officers develop their own methods for evaluating and categorizing documents.

DPA eliminates these challenges by using AI to process every loan application using a consistent set of business rules and document naming conventions that are customized to each lender’s requirements. From there, the solution creates customized packages of documents organized according to the lender’s specifications. Not only do these functions speed processing time significantly, but they also make it easy for human funders to cross-check and verify information, reducing the need to “stare and compare.”

How DPA Can Transform Your Indirect Lending Business

Tech innovations within CUSOs have helped make DPA capabilities more readily available and accessible to credit unions of all sizes. Given these advances, 95% of financial institutions either currently use AI or plan to implement it, according to data from Informed.IQ – but what does that look like in practice?

Consider the primary benefits you can experience after implementing DPA capabilities:

1. Accelerated loan processing. Today’s auto shoppers expect quick decisions, and DPA integrations that use AI enable your institution to significantly trim funding timelines. These AI tools are trained to distinguish between more than 250 types of loan jacket documents, as well as over 45,000 document subtypes – and they can read, sort and categorize them much faster than humans.

The technique that enables AI to process these unstructured documents quickly and accurately is called fuzzy match logic. AI tools equipped with fuzzy match logic can identify similarities and patterns in text and data, even when variations or discrepancies exist. This means the AI is able to recognize that an applicant named Katherine also goes by Kate, and that her employer listed the name of its subsidiary on her pay stubs, a mismatch from the company name on her paycheck deposits. Traditional manual funding methods require extended processing time to reconcile these types of inconsistencies, but AI tools can consolidate and verify relevant information quickly to minimize delays.

2. Improved accuracy. DPA isn’t just fast – it’s also consistently accurate. While humans may deviate from established processes or skip steps, AI-powered DPA tools make fewer errors. Because AI algorithms follow predefined rules and guidelines, their decision-making is always impartial and uniform, applying the same set of objective criteria to every loan application you evaluate.

Additionally, AI has a leg up on human funders when it comes to spotting fake documents. Income and employment fraud cost auto lenders nearly $5 billion in 2021, according to Informed.IQ. AI tools can identify forged pay stubs and other fake documents in seconds, while humans need to meticulously scrutinize each page for discrepancies, which are challenging to spot given the lack of consistency among legitimate payroll documents.

3. Enhanced dealer and member relationships. Speed and accuracy in the funding process results in more positive dealer and member interactions. Deploying DPA capabilities enables buyers to close on cars sooner and auto dealers to get paid faster, both of which can strengthen your institution’s reputation as a reliable auto lender.

And don’t discount the role of technology in fostering personal connections that can help grow a business. Freed from tedious data entry and document analysis tasks, credit union employees gain additional bandwidth to support relationship-building initiatives. That could include engaging in personal consultations with borrowers and nurturing relationships with key dealerships. By investing time and effort in building connections, credit union employees can create meaningful interactions that go beyond transactional exchanges.

Become an Indirect Lending Leader

The improved efficiencies and accuracy that DPA tools deliver empower your organization to fund loans quickly and confidently, driving loyalty among dealers and members.

By embracing DPA technology, you can solidify your credit union’s position as a go-to source for auto financing and as a reliable partner committed to delivering exceptional service. You’ll stay ahead of the competition, build enduring relationships and lead the way as a trusted leader in indirect lending.

Shawn Curran is Senior Director, Product Strategy Management for Origence in Irvine, Calif.