From trends to true transformation: The state of digital lending
As digital lending continues to be a critical factor for market success, AI and other technologies are revolutionizing consumers’ day-to-day lives, compelling financial institutions to rethink their approach to meet the growing demands of today’s members. In partnership with Jim Marous and the Digital Banking Report, MeridianLink® commissioned the 2024 State of Digital Lending report to better understand lending trends, member expectations, and actionable steps for driving growth. Data from this report shows that almost 75% of surveyed institutions have adopted digital channels to serve their client base, with a significant portion implementing digital loan origination for personal loans and electronically preparing loan documents.
As we explore the findings from this report, you’ll gain valuable insights into where most financial institutions currently stand in their digital lending journey and key opportunities for continued growth. Throughout this recap, one theme stands out—simply offering digital lending isn’t enough. To truly meet your members’ expectations, you must reimagine your operations and policies to align with evolving behaviors, regulatory changes, and the need for seamless user experiences.
A perfect union of a member-centric approach and cutting-edge digital capabilities is essential for staying relevant in an increasingly tough market. This means creating an integrated experience that combines the efficiency and convenience of digital channels with the empathy and expertise members expect from their credit unions.
Key challenges facing lenders today
While 90% of financial institutions offer online and web applications — up from 76% in 2019 —the availability of loans through in-person branches remains over 80%. Despite what seems like progress, 50% of organizations with digital lending processes still struggle to provide the speed and seamless experience members want.
The saturation of basic digital lending solutions has created a crowded marketplace, making it challenging for lenders to find the right solution for their needs. This is exacerbated by outdated legacy systems, which are difficult to integrate with modern technologies and hinder the ability to adapt to evolving market demands and regulatory changes. As competition intensifies and consumer expectations for fast and personalized lending experiences rise, lenders are under increasing pressure to advance their digital capabilities. However, outdated processes and policies continue to obstruct this progress.
The need for comprehensive transformation
The real problem is that many lenders have only digitized existing analog processes rather than rethinking the ideal digital journey. This superficial digital transformation leads to some efficiency gains but restricts the ability for credit unions to implement meaningful systemic change. This not only negatively impacts the institution, but also the loyal members who are looking for a trusted partner. A poor user experience compounded by frustrations with inconsistent and clunky applications, approvals, and servicing can certainly hurt a credit union’s reputation and force members to evaluate other options to meet their financial needs.
While technology is changing how financial institutions provide services, some things will never change, like the need to keep up with regulatory requirements. For example, data shows that fewer institutions are allowing members to complete their online loan applications without requiring a visit to a branch. In 2021, 76% of banks and credit unions that supported an online loan application process did not require a branch visit. Today, that number is 57% and 52% for online and mobile applications respectively. This is likely due to increased regulatory and compliance requirements.
The complexities of maintaining compliance through outdated systems are undeniable, however, the right lending solution can make it both easier and more effective to manage regulatory requirements while simultaneously scaling up and enhancing the member experience.
Rethinking the entire lending process
To truly transform the lending experience, credit unions must go beyond simple digitization. Begin by reimagining your end-to-end member journey, assessing every touchpoint from initial engagement to post-application support. Explore how technology can elevate these interactions, delivering a seamless and personalized experience for your members. Embrace advanced tools that offer comprehensive process optimization, utilizing automation, AI, and machine learning to accelerate decision-making and enhance risk management.
Next, it’s all about your members. A member-centric approach is crucial for operational excellence. Automating manual tasks, utilizing workflow management tools, and implementing intelligent underwriting algorithms can significantly boost the speed and accuracy of lending decisions. Real-time data integration enables institutions to deliver personalized loan offerings, enhancing member satisfaction and loyalty.
Finally, the lending technology must be agile and scalable. Credit unions need a system that can evolve with market and member demands, enabling seamless adjustments to changing regulations and economic conditions. One way to do this while gaining a competitive edge is to invest in strategic partnerships with fintech companies and technology providers that can accelerate your digital journey efficiently and effectively.
A call to action for lenders
By adopting a member-centric approach to lending and investing in the right technologies, talent, and partnerships, credit unions can drive growth, improve efficiency, and build lasting competitive advantages. Ultimately, the future of lending belongs to the institutions that can effectively blend the trust, stability, and personal touch of traditional banking, with the speed, convenience, and innovation of digital lending.
MeridianLink is committed to leading this digital transformation through its Digital Progression Model, an innovative framework designed to guide financial institutions of all sizes and at different levels of digital maturity to realize the full potential of adopting a sustainable digital ecosystem. By investing in modern technology solutions that prioritize data-driven decision-making, personalization, and robust security, credit unions can enhance member satisfaction and achieve long-term success.
