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community bank outsourcing loan servicing

Community banks excel at helping local families and businesses. They’re essential to the development of cities, towns, and neighborhoods. These community banks nurture financial growth in good times and stay the course during economic downturns. As part of the community, they understand local needs better than any big banking conglomerate. Community banks can tailor their services to maintain a competitive advantage by focusing on core competencies.

Today’s community banks are evaluating a spectrum of services they provide, often to enhance core services while outsourcing others, mostly back-office services. Personal, auto, and home loans are essential to any community bank’s business. They must work closely with customers to structure loans that meet their needs. But once a loan has been funded, back-office tasks and the costs of servicing loans can detract from what community banks do best. Their primary focus involves working directly with customers to address their financial needs. Many community banks have voiced the need for greater efficiency in handling high-volume, repetitive loan servicing processes. There are three compelling reasons why community banks are outsourcing loan servicing.    


Why Community Banks are Outsourcing Loan Servicing
Cost Outsourcing loan servicing cuts community banks’ back-office processing costs by reducing the need for IT infrastructure and support. Because outsourcing providers specialize in loan servicing, they can provide these services at a much lower cost due to economies of scale.
Staffing Loan servicing outsourcing reduces the need for in-house bank staff. Community banks can scale up or down quickly to meet the loan requirements of their communities with the help of an established loan servicing provider.
Latest Tech Loan servicing providers know the value of incorporating new technologies into lenders’ platforms. In this way, they can continually improve the efficiency of their processes and the quality of their services while reducing their overall costs for their customers.

Three Reasons Why Community Banks Are Outsourcing Loan Servicing

Deciding to outsource loan servicing simplifies many aspects of a community bank’s lending activities. Consider the investments many community banks have made or may be considering making to support loan servicing needs. These can include:

  • Procurement and installation of IT infrastructure to support the service.
  • Hiring and training loan servicing agents.
  • Implementing processes to accept payments via mail, email, and online/mobile applications.
  • Establishing expertise in managing delinquencies and defaults, along with recovering and remarketing returned vehicles.

This takes a significant commitment of capital and additional and ongoing operational expenses. It requires infrastructure, staff, experience, and an integrated account servicing platform. An alternative approach to meeting these needs involves outsourcing loan servicing to a third-party provider. Outsourcing delivers services more efficiently and cost-effectively than can be done in-house. Here are three compelling reasons for community bank outsourcing loan servicing.

#1 High-Quality Loan Servicing At Lower Cost

Loan servicing requires infrastructure, such as office space, computers, software, networks, and telecommunications equipment. Each of these requires an upfront investment and ongoing maintenance and costs more when upgrades are needed. As a result, many community banks have moved to cloud-based software solutions that manage core processes like opening accounts and originating loans to reduce IT infrastructure and support costs.

For community banks, outsourcing loan servicing is a logical next step in reducing back-office processing costs. With the economies of scale resulting from focusing solely on loan servicing, outsourcing providers deliver these services far more cost-effectively than a community bank.

#2 Never Worry About Staffing For Loan Servicing

The volume of outstanding loans varies throughout an economic cycle. Meeting a growing demand involves hiring, training, and potentially acquiring additional office space. All of these activities detract community banks from focusing on their core work. Similarly, with declining loan volumes, dismissing or redeploying experienced staff and relinquishing office space add to administrative overhead.

Community banks that outsource loan servicing no longer have these staffing concerns. Regardless of loan volumes, an established loan servicing provider will have enough experienced staff available. This lets them quickly scale up or down to meet a community lender’s loan servicing needs. 

#3 Enhance Loan Servicing Using the Latest Technology

Community banks are beginning to outsource loan servicing to companies with their loan servicing systems. These lenders then benefit from the continual innovation and process improvement these third parties provide as their core function.

Technical innovations have dramatically impacted all areas of banking and lending. Loan servicing providers recognize the value of adopting new technologies, then integrating them into a lender’s platform. This lets them continually improve process efficiency and service quality while lowering overall costs.  

Multichannel online and mobile technologies facilitate payments, account management, and customer inquiries. Automated services optimize the processing of inbound paper transactions and communications. Artificial intelligence (AI) and predictive analytics provide detailed insight into loan payment trends, helping to proactively identify potential defaults and initiate appropriate mitigation strategies before they become a problem.

For most community banks, evaluating the latest innovations in banking technology and incorporating the most relevant capabilities into a loan servicing system is a daunting task. Outsourcing non-core functions to a loan servicing provider allows them to realize those benefits without spending time researching, procuring, integrating, and supporting software.

Focus On Your Core Competencies

Having experienced staff, the latest technology, the ability to easily handle changing loan volumes, monthly performance reports, cost savings, increased process efficiency, and improved customer satisfaction when expectations for loan servicing are met or exceeded. The above reasons are just a few that make a compelling case for outsourcing loan servicing. They allow community banks to stay focused on their core competencies, which include understanding local financing needs, being on a first-name basis with customers, and working face-to-face to offer personal, auto, or home loans that help local consumers achieve their financial goals.


Community banks can better focus on their core competencies, such as auto lending, by leveraging defi MANAGED SERVICING, which provides clients with a single hub, digital interactions, and intelligent virtual assistants.


defi MANAGED SERVICING uses AI and Contact Center as a Service to improve operations and processes related to auto loans, leases, and leased vehicle dispositions, reducing budgetary expenses and improving customer service.


Community banks have a choice of end-to-end auto loan servicing or à la carte services, such as loan and lease customer service, lease maturity management, remarketing, and backup servicing.


Getting Started

defi SOLUTIONS is redefining loan origination with end-to-end software solutions that enable lenders to automate, streamline, and deliver. Borrowers want a quick turnaround on their loan applications, and lenders want quick decisions that satisfy borrowers and hold up under scrutiny. With defi MANAGED SERVICING, lenders can improve operations and processes related to auto loan servicing, leases, and the disposition of leased vehicles, cutting expenses through automation and outsourcing services. For more information on community banks outsourcing loan servicing and how we can help, Contact our team today and learn how our cloud-based loan origination products can transform your business.

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