The 2018 Banking News Impacting the Lending Industry Through 2019
We’ve reviewed recent publications such as the Deloitte 2018 Banking Industry Outlook, American Banker – Top Bank Tech Trends for 2018, and ABA – Fintech – Promoting Responsible Innovation, and focused on the banking news that matters most to financiers and lenders.
Here’s the banking news we expect to generate continued interest throughout the rest of the year and into 2019:
- Analytics: Lenders have more data than ever on which to base their decisions. At the same time, analytics software has grown more powerful—providing insight, helping continually improve lending practices, and optimizing portfolio performance.
- Cybersecurity: Attacks targeting that data have increased as well, resulting in more data breaches .
- Regulations and compliance: The data breaches are motivating federal and local governments to impose data security and privacy regulations.
- Paperless: The idea of the paperless office has been around for decades, but there’s a real, sustained focus on reducing the amount of paperwork in the lending process.
- Fintech innovation: Cloud-based and mobile solutions are giving customers a better lending experience. Banks with legacy lending systems need to improve customer interaction, especially for infrequent transactions like lending.
- Mobile: Customers are doing more than just checking balances on their phones. They can now initiate and track progress of complex transactions like loans.
In the following sections, we expand each of these topics with relevant news examples, studies, statistics, and events. In each, you’ll find guidance to help make the most of the banking news that affects you.
Banking News: Analytics
In 2017 new and used vehicle sales were 17.25 million and 39.3 million, respectively. Accompanying many of those transactions is a wealth of borrower data that when properly and regularly analyzed offers lenders detailed insight regarding applications, funding, and portfolio performance. Analytics can be used to improve applicant qualification criteria with the goal of reducing delinquencies and defaults. Analytics can also be used to determine how various segments of your portfolio are performing. This detailed insight can then be used to continually adjust policies, procedures, and processes with the goal of improving profit.
- Answers the question “what happened?” Descriptive analytics can help lenders identify borrower characteristics that may lead to defaults and analyze applications to learn what caused lost sales. By correlating credit scores with alternative credit data, lenders can calculate a more accurate assessment of borrower risk.
- Predict what will happen. Predictive analytics identifies current trends to help you calculate their effects—positive or negative—to determine the future state of your business. Identify factors that predict early loan payoff, then apply that insight to determine how many loans in your portfolio will likely be paid early and calculate the impact on profit.
- Prescribe changes. Based upon the results of your analyses, implement policies or procedures to improve your profitability. If analysis indicates borrowers who change address 3 times in the past 18 months have 83% probability of delinquency, use this information to proactively intervene.
Partner focus: IDAnalytics is a leader in consumer risk management. By combining proprietary data from the ID Network® with near real-time behavioral insight and advanced science, ID Analytics provides in-depth visibility into identity risk and creditworthiness.
Lender adoption of digital technology is accompanied by the increasing risk of data breaches that threaten all participants in the lending cycle. Breaches are expensive—financially and reputationally. The Ponemon Cost of Data Breach Study states the global average cost for a data breach is $3.62 million. The average cost for a stolen record containing conﬁdential information is $141. Corporate acknowledgement of recent data breaches have been embarrassingly slow. To force corporations to more proactively protect personal data and acknowledge breaches, government are enacting legislation. Arizona’s HB 2154, now law expands the definition of personal data and adds notification requirements. In particular the new law:
- Expands the definition of personal information to include online account credentials, taxpayer and passport identification numbers, and even some biometric data.
- Requires that notice to individuals affected by a data breach be provided within 45 days after confirmation of a data breach.
- Requires notification to the three largest consumer reporting agencies for any breach affecting more than 1,000 individuals.
- Increases the maximum fine for violation from $10,000 per breach to $500,000 per breach.
What should you be doing to decrease the probability of a data breach and its financial impact? The newest loan originations systems take advantage of technology that provides a significantly increased level of cybersecurity throughout the loan lifecycle. Fintech companies whose offerings are cloud-based take advantage of these capabilities and standards to defend against data breaches:
- SSL/TLS Secure Sockets Layer/Transport Layer Security provide secure, encrypted communications between web browser and lending system.
- Leading cloud platforms such as AWS, Google, and Azure provide a wealth of authentication and encryption services for applications and data hosted in their data centers.
- Cloud providers that have ISO 27018 certification, based on the ISO information security standard 27002, provide an added level of security for personally identifiable information (PII) stored in the cloud.
Regulations and Compliance
The many benefits technology has afforded the lending industry are unfortunately accompanied by increasing regulations regarding proper acquisition and use of customer data. How important are these? The Auto Finance Performance & Compliance Summit devotes two days to topics of evolving regulatory landscape, state and local regulations, impending regulatory changes, and heightened security demands. With all of these changes, how can lenders successfully deal with pending compliance regulations, particularly at the front end of the lending cycle? Having closely watched the development of these regulations and the challenges they present lenders in implementing them, we believe these capabilities and practices will help lenders successfully comply.
- A formal change management process/team in place to review, interpret, and implement regulations.
- Loan origination system that are configurable to allow business users to make the policy, process, and procedure changes required by regulations.
- Automation and decision rules to transform regulatory requirements into consistently executed processes.
- An LOS tracks changes so you can confidently report when audited.
Partner focus: Carleton is a leading provider of compliant lending and leasing calculation software and document preparation software serving the financial and auto industry.
It seems we’ve been talking about this for decades—paperless or digital documents, yet have made only incremental progress. The proliferation of technologies and devices that eliminate the need for paper or transform paper into digital images have yet to fully transform loan origination and other paper-intensive activities like compliance letters. The 2018 Consumer Survey of Automotive Finance Perceptions USA confirms this, stating, “Only 5% of US consumers applied for their loans online while 29% plan to do so for their next auto loan.” There are well-understood economic and time savings benefits of digital documents that include:
- Eliminated expense of overnight document shipping – $22.98 to $101.57 depending upon weight and destination. What would be your annual savings?
- Guaranteed that all appropriate documents have been submitted using automation.
- Accelerated the application and decisioning process.
- Avoid lost or misplaced paperwork by using digital documents.
- Eliminate long-term paper document storage costs.
- Securely retain digital documents as legal records.
Partner focus: Cedar Document Technologies provides an integrated customer communications and digital servicing platform delivered as a hosted managed service.
According to the AFSA, Fintech innovation is changing auto lending, by increasing the direct lending option for car buyers. In comparison to long-established lending solution vendors, Fintech companies have no legacy systems they need to maintain. They approach the lending process with fresh perspective. And by taking advantage of technologies such as web, cloud, and mobile they offer a decidedly better customer experience. Fintech lending solutions give applicants a greater sense of control, guiding them and allowing them to progress through the loan application process at their pace. Lenders still employing legacy lending solutions, but wanting to remain profitable in a very competitive market, should consider the advantages of adopting fintech lending solutions:
- Functionality that meets the needs of today’s lending market.
- Available virtually anywhere and via any device.
- Easily configurable by business users.
- Pre-integrated with leading data sources and services.
- Supports paperless lending (digital document).
- Lower implementation and operational costs (courtesy of cloud deployment).
Partner focus: CoreLane CreditLane provides enforceable rules to help ensure that the applications you receive match your portfolio requirements.
Business Insider reports that mobile banking is more important than ever. Banks continue to invest to provide better customer experience and increase loyalty. Mobile simplifies common transactions like account management and check deposits, but more complex processes like loan applications remain cumbersome. From the lender side, mobile already helps manage loan origination. From the applicant side, while we don’t expect loan origination to go completely mobile anytime soon, lenders should be incorporating mobile capabilities into the process to:
- Allow well-qualified applicants to initiate applications.
- Let applicants track loan application process.
- Quickly notify applicants in the event additional information is required.
- Eliminate paper by accepting images of required documentation.
Partner focus: RouteOne provides a comprehensive suite of F&I solutions across multiple channels: in-store, online, mobile, and third-party solutions. Products include credit applications, eContracting, compliance and online, and mobile retail services.
Let’s Get Started
Fintech innovation, cybersecurity, and regulatory compliance will continue to be prominent banking news themes throughout 2018. With declining auto sales and the increased competition for prime or better borrowers, and the opposing forces of data breach and regulatory compliance, lenders will need to look to lending solutions provided by Fintech to stay competitive.
defi SOLUTIONS is one of CIOReview Magazine’s 50 Most Promising Fintech Solution Providers in 2018. Our loan origination system (LOS) is quick to implement and completely configurable without specialized technical knowledge. Contact our experts online, or schedule a demo to learn how the latest data and analytics can help you respond as news occurs and trends change.