The future of digital lending: Achieving competitive advantage in 2024

With bank technology investments estimated to be on the rise by 5.2% in 2023, banks continue to make tremendous strides in digital lending.¹ 

Nearly three-quarters of FIs now use digital channels to serve both new and existing clients. More than 70% of FIs have implemented or are implementing digital loan origination for personal loans. Some 73% can electronically prepare loan documents, and another 73% have invested in eContracting/eClosing technologies. Finally, 55% now have at least one digital content repository, or eVault.²

But today’s competitive and complex marketplace requires a more aggressive approach. Now more than ever, lenders need digitized capabilities to efficiently manage lending processes, deliver superior borrower experiences, and automate operations end to end – from loan origination, to eContracting/eClosing, to the sale of eNotes into the secondary market.

The power of purpose-built content management

To meet these challenges and achieve competitive advantage, banks must elevate the returns on their technology investments. One way to accomplish this is by leveraging advanced content management systems to increasing the flexibility and adaptability of contracts, which can empower the business to fully utilize them in response to market fluctuations or changes in lending practices.

When banks have ready access to the assets they own or have a stake in, they can quickly adapt to changing market conditions, confidently enter new channels and markets, and openly accept partnerships with other FIs.

That’s the power of enterprise content management – as enabled by a digital content repository, or eVault. Traditional content management systems aren’t designed for the unique requirements of digital lending. An eVault, on the other hand, is purpose-built to empower banks to secure and manage key documents and data across loan types and throughout the lending lifecycle.

With effective eVault technology, banks no longer treat content management as merely a point solution in their tech stack. Rather, an eVault can become an enterprise-wide differentiator for banks, a way for them to reimagine how they approach, manage, and monetize digital lending end-to-end. The technology offers innovations and flexibility to support a broad range of document management use cases – from eContracting/eClosing till after the loan is complete. In this way, an eVault can enable content services that provide a foundation for other core bank capabilities.

Three pillars of operational efficiency

Taking vault technology a step further, the strategy and platform that generates the most value provides three pillars to support the end-to-end lending ecosystem and give banks competitive advantage:

Value Pillar 1: Support for enterprise loan operations agility

Many banks have built disparate revenue channels and lending scenarios over time. They might manage different vaults for each scenario, which limits leadership’s ability to analyze assets enterprise-wide and consider how to best utilize those assets to respond to market fluctuations or support operational change.

An effective eVault solution can match operations for various lines of business, regions, and product lines. Leadership can analyze individual assets or the entire portfolio without having to gather and assemble reports for each. At the same time, granular permissions ensure strong security.  

More importantly, this level of rapid flexibility provides enterprise support for any kind of counterparty relationship as they evolve. So even if the bank is not pledging today, they can if they need to. And if they don’t have a need for temporary cash flow today, such as through a mezzanine or warehouse, they can tomorrow. The lending ecosystem can expand, or contract as needed.

This not only facilitates the movement of assets, but it drives greater operational efficiencies through centralized enterprise management. As a result of having this dynamic capability, banks can withstand the unique set of risk factors that banks face today including capital flight and equity fluctuations.

Value Pillar 2: Partner access to documents they need while protecting contract integrity

eVault-enabled enterprise content management can optimize visibility and data sharing across the partner ecosystem. For instance, let’s say a bank has digital assets in one or more eVaults. Servicers need access to contracts so they know exactly what they’re taking on and how to handle payoffs. The trustee of securitization in the secondary market needs to see asset values before transfer to be sure the assets are what’s being claimed. Ratings agencies need to be able to determine asset quality. And when pledging assets, the Federal Reserve needs to see assets in one location to meet the requirements of the electronic Borrower-in-Custody (eBIC) collateral program.

With an effective eVault solution, all these parties can have access, without the bank having to manually manage each entity. Discrete permissions allow each stakeholder to access only what they need and manage their own users, while original contracts remain untouched.

Value Pillar 3: AI and advanced tools for greater productivity and accuracy

Going forward, artificial intelligence (AI) and machine learning (ML) hold great promise in optimizing accuracy, efficiency, and experiences across a broad range of lending scenarios.

For instance, banks typically do whatever they can to accommodate customers – which sometimes means accepting wet-ink signatures on paper. AI and ML can extract data from contract details locked in image files, which can ensure data accuracy, regardless of original document type.

It’s a similar situation for secondary-market participants. With contract details locked in images, prospective buyers must view each one and then manually enter the data into another system for analysis. With AI, stakeholders in the secondary market will be able to instantly gain the information and insights they need.

Conclusion

These three pillars – support for enterprise loan operations agility, ecosystem partner access, and AI-enabled accuracy and insights – enable banks to differentiate themselves in the marketplace and achieve competitive advantage.

From rising competitive pressures to continuing economic uncertainty, the lending landscape is full of challenges. But with the right technologies and strategies, banks have an opportunity to chart their own path. By adopting the three pillars of value and leveraging eVaults to optimize the end-to-end lending value chain, banks can position themselves to:

• Adapt quickly to changing market conditions
• Confidently enter new markets and channels
• Openly accept partnerships with other FIs
• Keep capital flowing freely
• Deliver superior experiences to customers and partners while achieving differentiation and marketplace advantage

¹ “Retail Banking Technology Spending Forecasts 2022-2027,” Celent, August 2022
² “State of Digital Consumer Lending: Automation Is Accelerating,” Celent, April 2023
³ “Retail Banking IT Spending Forecasts by Technology 2023-2028,” Celent, September 2023