ASSET FINANCE PROCESS IMPROVEMENT FOR BANKS & CREDIT UNIONS

Cars, boats, jet skis, snowmobiles, and other personal vehicles are often financed with consumer asset finance. The loan terms can range from 12 to 60 months with regular monthly payments, although some may also include balloon payments. 

Banks, credit unions, and a variety of financial institutions and retailers with finance options can all function as consumer lenders, but the process varies slightly. This article details how to improve this process for each, as well as how finance tech can help improve the flexibility of their products.

The Asset Finance Process, Explained

The following sections detail this process in greater detail, showing how banks and credit unions can separately optimize each stage of this process. We should note that both financial institutions may benefit from either/both of the suggestions provided, but each has been selected due to their specific relevance to banks or credit unions.

Application Submission 

The first step of the asset finance process consists of consumers submitting an application with the consumer lender. An application usually includes: 

• Personal information of the applicant
• Asset Details – for example, make/model in the case of a vehicle loan
• Associated Cost
• Any special preferred terms

The central challenge for banks at this stage of the asset finance process is the mass amount of applications that come in, making a user-friendly UX essential. In addition, they have to find the right balance for their customers between automation and personalization; leaning too heavily on automated processes may discourage customers.

Credit unions face the opposite problem; the relationship-driven aspect of their accounts often leads to a more limited digital infrastructure, which slows down the submission process and carries the potential to turn away younger demographics of members.

The table below provides a quick summary of what banks and credit unions can do to improve this stage of the asset finance process:

Optimizations
Banks	Credit Unions
Implement AI-assisted screening that evaluates applicants in real-time. Be sure to include ways for applicants to challenge AI rulings which will alert someone on your team.	Focus on mobile-first applications that reduce application friction by auto-importing member data to improve application rates.

Credit Evaluation

The lender assesses the applicant’s credit via the consumer’s financial information. The lender often bases these decisions on the consumer’s perceived ability to repay the loan, which typically consists of examining traditional financial information (e.g., credit score, income, existing assets for collateral). 

The high volume of applications coming in often make credit evaluation difficult for banks, as cut-and-dry AI driven models run the risk of turning away an otherwise qualified applicant based on a few undesirable numbers. 

By contrast, the personalized nature of credit unions tends to favor members a bit more, as they often have account-based overrides that allow for approval even in these situations. This level of flexibility, however, comes at the expense of consistent policy decisioning that runs the risk of treating some members more fairly than others. 

The table below provides a few optimization choices for banks and credit unions:

Optimizations
Banks	Credit Unions
Incorporate traditional scoring with alternative data (e.g., cash flow, utility payment) with machine-learning based credit decisioning	Use the relationship-based nature of your accounts to combine automated decisioning with in-person review to accommodate non-traditional income profiles and long-term members

Loan Approval

The lender approves or denies the application, determining the loan details upon approval. These details include:

• Loan amount
• Interest rate
• Repayment period
• The required down payment

Banks typically handle loan approval through automated systems which are typically backed by centralized underwriters (i.e., underwriters handling approvals for all branches rather than just a single one). These underwriters, however, do get bogged down easily in the event of multiple exceptions, increasing the need for tighter policy adherence. 

Credit unions, on the other hand, have to deal with a greater rate of inconsistency in approvals due to factors like membership history as well as the need for board- or executive-level approvals for exceptions, which can slow down the process.

Some suggestions for each to improve this stage:

Optimizations
Banks	Credit Unions
Minimize time-to-offer with automated loan decisioning that includes instant notifications to the borrower regarding their status	Consider customizable workflows that take member loyalty and repayment history to allow for exceptions and policy-based denial overrides

Documentation and Agreement

The lender outlines the loan details mentioned in the approval (e.g., interest rate, repayment schedules, and other loan terms) at which point the lender and consumer then sign a formal financing agreement.

This is perhaps the area where the larger digital infrastructure of banks becomes a liability, as outsourced/integrated e-sign systems are often fragmented from legacy systems resulting in poor execution. 

Credit unions don’t have a walk in the park either, unfortunately. Relying on more traditional means, they have a higher rate of staff who are not trained or familiar with digital systems, leading to higher drop-off rates in the signoff process.

Some easy ways to fix this:

Optimizations
Banks	Credit Unions
Provide members with auto-generated contracts and abilities to sign digitally (e.g., DocuSign)	Provide in-app agreement reviews and digital signing options; include live support, if possible

Funds Disbursement

The lender disburses the funds to the retailer, allowing the consumer to purchase the asset. 

Banks typically rely on ACH and digital wallets for payments, but these payments rely on operational and compliance constraints that can delay payments due to fraud protection, funding thresholds, or batch timing windows. 

While many credit unions do provide digital payments, many still rely on physical in-branch check pickups, which also slows payments. The ones who do, however, often operate on obsolete systems that reduce transparency due to a lack of disbursement tracking. 

Here’s how both can optimize their workflow:

Optimizations
Banks	Credit Unions
Optimize the payment infrastructure surrounding disbursements to reduce unnecessary delays	Provide disbursement tracking via mobile app; Consider “branchless” options (e.g., remote deposits, debit push)

Asset Ownership and Repayment

The consumer takes ownership of the asset and makes regular payments to the lender. These payments cover both the principal as well as the interest for the loan.

More often than not, banks work with third-party apps to handle re-titling, which can result in errors surrounding complex titling laws in multiple jurisdictions. By contrast, credit unions typically rely on manual processes for re-titling, which may not be sent or tracked properly. 

Here are some suggestions to improve this process: 

Optimizations
Banks	Credit Unions
Integrate third-party API in addition to existing infrastructure for easier digital title registration/asset verification	Prioritize SMS/email updates when ownership records are updated and finalized

Customer Support 

At this point, the borrower is making consistent payments and working their way toward the end of their loan. The lender’s job at this point is simply to make themselves available to provide support and transparent information where needed. 

Unfortunately, both parties sometimes fail at this goal, but for different reasons: 

• Banks have an overreliance on impersonal call centers that provide cookie-cutter advice with little to no actual knowledge of the customer’s account or personal situation. 
• Credit unions have this knowledge and can provide service on a more personal level, but are often not available when and where the member needs them to be.

Optimizations
Banks	Credit Unions
AI chatbots and predictive servicing to anticipate needs for a larger volume of borrowers while reducing inbound support volume	Personalized in-app messaging with scheduled phone call follow-ups as the member passes certain milestones

Payment Completion 

The consumer makes all required payments, assuming full ownership of the asset. The lender closes the financing account and the consumer’s obligation to the lender is fulfilled.

Banks may rely too heavily on automated processes that result in unclear next steps for borrowers once the loan has actually been paid off. Similarly, their overreliance on third-party apps can result in a disjointed title release process.

Credit unions still rely on largely manual processes, which delay getting ownership documents to the member. Similarly, they often go radio silent following the completion of the loan, rather than following up to see if they can provide any additional value to the member.

Optimizations
Banks	Credit Unions
Integrate LOS platforms with integrated ELT and and asset management systems to automate lien release triggers	Provide clear status updates in member-facing  portal that affirms when their loan has been fully paid off

Asset Finance Process: Tech Stack Overview

Asset finance process improvement refers to changes lenders make in their processes and workflows to increase efficiency. Lenders often use technology to automate, improve accuracy, and ensure consistency when implementing process improvements in the finance industry. 

• Personalized Offers
• Fast Approval and Decisioning
• Online Negotiation and Customization
• Real-time Loan Modifications
• Digital Self-Service
• Automated Payment Solutions
• Integration with Financial Planning Tools
• Early Payoff and Refinancing Options
• Real-time Assistance

Banks and credit unions can improve their asset finance process by considering these strategies:

How Banks and Credit Unions Can Improve the Asset Finance Process

By implementing these strategies, consumer lenders can gain a competitive edge and offer a smoother, more customer-centric asset finance process.

Selecting the Right Asset Finance Process Option

With the power of cloud-based platforms offered by defi SOLUTIONS, lenders can improve their asset finance process and drive business growth. Our easy-to-use configuration tools, rules-based workflow routing, and scripting tools allow your customers to choose how and when to contact you.

If you’re considering outsourcing your asset finance process, defi MANAGED SERVICING provides a comprehensive asset finance solution by leveraging Artificial Intelligence (AI) and automation technology. Whether you prefer to manage things hands-on or entrust the process to our experienced team, we would love to see how we can help.