Hot Trends in Technology and Lending for 2022

Alex Johnson - Webinar: Hot Trends in Technology and Lending for 2022

Alex Johnson

Director of Fintech Research

Cornerstone Advisors

Ankur Rawat - Webinar: Hot Trends in Technology and Lending for 2022

Ankur Rawat

Banking Products Director


Banks and credit unions face a turbulent year in 2022, as they look to rebound from an industry-wide revenue recession, put pandemic-fueled deposits to work, and start to reap the promised benefits of their digital transformation and fintech partnership strategies. How exactly will they do this? And what technologies will they lean on to help them? This webinar will feature fresh research from Cornerstone Advisors on bank and credit union executives’ technology and lending priorities for the coming year and insights into how institutions can make meaningful progress towards those priorities in a hectic and constantly changing market.

Agenda of the webinar:

  • What are the biggest challenges facing banks and credit unions in 2022?
  • Who are the competitive threats that most concern banks and credit unions in 2022?
  • What are bank and credit unions’ lending priorities in 2022?
  • What technologies are banks and credit unions planning to invest in 2022 and why?
  • What are bank and credit unions’ digital transformation and fintech partnership strategies for 2022?
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Michael Fondessy:          Banks and credit unions may face a turbulent year in 2022 as they look to rebound from an industry wide revenue recession, put pandemic fuel deposits to work, and start to reap the promised benefits of their digital transformation and FinTech partnership strategies. How exactly will they do this? And what technologies will they lean on to help them? To answer all these questions, I welcome you all to the Newgen Webinar: Hot Trends in Technology and Lending for 2022. I am Michael Fondessy and shall your host and the moderator for this webinar. I thank you all for making the time to join us today. The response has been overwhelming and we are excited to talk about the nuances of digital lending in 2022.

Today we have with us Alex Johnson, the widely recognized financial industry strategist. He’s the Director of FinTech Research at Cornerstone Advisors. We also have our co-presenter, Ankur Rawat, who is Director of Product and Solutions at Newgen Software. Alex will take us through the technology and lending priorities for the coming year. And then Ankur will take us deep into how Newgen can help financial institutions making meaningful progress towards those priorities in a hectic and constantly changing market. At the end of the presentation, we will conduct a Q&A session. We request you to type your questions in the question window of your go to meeting anytime during the webinar, and our experts will address them at the end of the session. I hereby invite Alex to take us through the presentations.

Alex Johnson:                    Great. Thank you, Michael Fondessy and thank you everyone for joining us today. As we just introduced, the topic that we have today is trends and challenges in lending for 2022. And as with any discussion around sort of priorities, I think the first place to make sense to start is around strategic challenges facing banks and credit unions in the lending space in 2022. So that’s what we’re going to jump into first before we get into some of the strategic priorities, and then my much better dressed co-presenter, Ankur, will spend some time talking about the technology implications of some of those priorities. And as Michael Fondessy said, if you have any questions as we go, please type those in. We’ll leave plenty of time at the end for Q&A. So to start with challenges, I think it makes sense to start at the very highest level.

So if we go to the next slide, the thing that’s really dragging down sort of banks and credit unions overall is this persistent revenue recession, which is the way that we at Cornerstone describe the profitability and revenue challenges facing banks and credit unions in the United States, particularly mid-sized banks and credit unions. They’re really feeling a crunch between competing with large mega banks on the one hand and competing with Fintechs on the other hand, which is something we’re going to spend a little more time talking about later. So what does this revenue recession look like? What are its characteristics? Well, the first thing and most important thing to note, we go to the next slide, is a strong sort of challenge around net interest margin. So based on the research that we’ve done at Cornerstone, what we’ve seen is a pretty persistent decline over the last four years or so around net interest margin, which is the spread between lending and deposit rates for mid-sized banks.

And while we see this stabilizing a bit in 2022, we don’t see any sort of macro changes in the economy that are going to lead to a significant rebound in net interest margins. Overall interest rates may creep up a little bit, but likely not enough. And consumers are still very flush with deposits, even though we’re coming out of the pandemic, and some of the government assistance that was provided consumers during that time. So while we see this maybe stabilizing a bit, we don’t see it materially improving. And this is important for banks and credit unions, because especially in the mid-size space, this net interest margin bucket of revenue generates a majority of revenue for most of these institutions, usually somewhere in the neighborhood of 75%. And so this is this sort of consistent pressure that’s weighing on institutions. And when we look at how they can maybe break out of this, there are challenges sort of across the board, right?

So if we go to the next slide, one of the challenges that’s sort of hemming banks and credit unions in is this competition that’s starting to creep up around different lending categories. You could tell this story across any number of different products. I chose to focus on mortgage and credit card, but this is kind of a consistent story across the board. So in the mortgage space, what we’ve seen really since the end of The Great Recession is a shift away from banks and credit unions for mortgage lending, which has historically been an enormously profitable lending category, and towards non-bank originators, which could be Rocket mortgage. It could be any number of smaller FinTech competitors that are getting into the space. It could increasingly be non-financial services platforms that are embedding mortgage lending in the broader home ownership journey. But across the board mortgage is really starting to put pressure on banks and credit unions because a lot of the volume is shifting away from them.

By the same token on the very other end of the sort of consumer lending spectrum when you look at credit card, which again, historically has been a huge revenue driver for credit card issuers, we’re seeing some disruption there as well. The emergence of buy now pay later of which Americans used to make about a hundred billion dollars worth of retail purchases in 2021. And we expect that to continue to go up at a fairly steep rate, 80% of people who made at least one buy now pay later purchase in 2021 reported having at least one credit card. And what that tells us is that while there is some filling in of the gaps with by now pay later in terms of serving under banked or sort of credit invisible consumers, a great deal of by now pay later volume is actually going towards people who already have credit cards. And what that means is that buy now pay later is eating into those credit card margins and taking volume away from that.

So we see this sort of consistent competitive pressure around lending that’s really making it difficult for banks and credit unions to sort of claw their way out of this revenue recession. The other challenge that we have, if we go to the next slide, is that the other category of revenue, so non-interest income, is also under pressure, right? So this is the sort of large category of different fees that banks and credit unions assess to customers. And we’ll just pick on overdraft here, but I think this is representative of a larger trend in the industry, fee revenue is under attack. And again, it’s pressure coming from competitors, particularly FinTech companies like Chime and Cash App, but it’s also regulatory pressure. And you’ll see that I have a headshot for the head of the CFPB, Director Chopra. And that is I think, illustrative of these headwinds that are facing any banks or credit unions that continue to try to make an excess amount of revenue, and particularly profitability, on overdraft fees. Or really any fees that aren’t directly connected to value being delivered to customers.

And we’ve already seen sort of a tipping point being reached in this particular area, with Capital One giving up $150 million in annual revenue to move off of overdraft fees, Ally making a similar move earlier, Citi just announcing that they were making the same change. And then smaller changes being made by institutions like Chase, PNC, Bank of America. I have Wells Fargo off on the other end of the spectrum, but I eventually think they’re going to sort of slide down as well. We’ve just reached a tipping point and a lot of these fees are not sustainable as a pricing strategy in today’s market. So all of these things together are putting us in this kind of difficult revenue recession position where growing lending and generating more value through lending is really the only way out of this challenging set of circumstances. So the other trend that we’re seeing from a challenge perspective which we’ve already kind of touched on, is FinTech competition.

So the good news to start with is in our annual survey of banks and credit unions, called our what’s going on in banking survey at Cornerstone. If we go to the next slide, what you’ll see is that we ask every single year bank and credit union executives, who do you see as the most significant competitive threats in the coming decade? And it shifted over time. And for a while, it was mega banks, for a while it was big tech with worries about Amazon and Google and Apple getting into banking. It has finally shifted over to where we think it really belongs, which is FinTech companies. Banks and credit unions finally see FinTech companies as their most important strategic threat over the coming decade. And while I think this is a good sign for the industry, it’s also coming perhaps a little too late, because if we go to the next slide, what we’ll see based on our research at Cornerstone is that FinTech is already won in a lot of cases.

When we look at the deposit space, as you can see from this slide below asking consumers who their primary checking account is with, this represents the growth of the percentage of customers who have a primary checking account with a digital bank, which is to say a challenger bank, a neobank or some other type of digital banking competitor that doesn’t have any branch footprint whatsoever. And as you can see, we’ve seen significant growth with gen Z, with millennials, even with gen X, which has really jumped up over the last year in particular, with baby boomers kind of lagging behind which is not unexpected given sort of the generational differences that we see there. But at the end of the day, what it really means is that more gen Zers and millennials now call it digital bank their primary checking account provider, than those generations that consider a community bank or a credit union to be their primary checking account provider combined.

And if you think that’s a brutal statistic, it’s even worse for mega banks which have lost a huge amount of share over the last couple of years to these digital challengers. Now this is deposits not lending, but the reason that we care so much about primary banking relationships is that lending is next, right? We know that FinTech companies are going to use this wedge that they’ve driven into banking around deposits to expand into lending. And we’re already seen a number of these companies doing this. We have on the screen here, SoFi, which I think has been one of the more aggressive FinTech companies around rebundling to include credit cards, obviously personal loans, student loan refinancing which they’ve done for a while, mortgages, auto loans. They’re really trying to sort of bundle into a full service banking provider and trying to make a majority of their revenue around lending.

We’ve seen Moneyline do something similar. We’re seeing Cash App doing something very, very similar with the acquisition of after pay, and the incorporation of lending capabilities into what they’re offering. And even neobanks like Chime, which haven’t made a jump into lending yet, we see coming down the road fairly quickly. So banks are going to be under tremendous pressure competitively on a lending standpoint, based on the progress that a lot of these neobanks and FinTech companies have made around deposits, which is really the first place that a lot of these things start. So what do banks and credit unions do about this? This is the question that we have around priorities. So if we go to the next slide, we really want to spend a couple of minutes just breaking down what banks and credit unions are doing about this.

And again, a lot of the data from this section of the presentation comes from Cornerstone Advisors, what’s going on in banking survey of bank and credit union executives, where every year we ask bank and credit union executives, what are you going to do? What are your priorities? What are your challenges? How are you addressing them? So let’s dive into some of those ones for lending. And the first thing I want to talk about are the specific new growth opportunities that banks and credit unions see around lending. So if we go to the next slide, the thing that we always ask about in this survey is what are your top lending priorities for the coming year? And then kind of comparing that to previous years to get a sense of how things are shifting around. So we have banks on the top of the screen, and then we have credit unions at the bottom. And as you’ll notice at the very top of each of these lists, there aren’t things that are that surprising, right?

If you survey mid-size banks, they’re always going to say commercial C&I loans, small business, commercial real estate, these are always the most important things. Similarly, for credit unions you’re always going to see mortgage and refi being fairly high, you’re always going to see auto being fairly high. But what’s interesting is if you look at the percentages, those sort of mainstays for lending for mid-size banks and credit unions have actually been decreasing somewhat in importance. Now they’ve jumped around a little bit, commercial real estate loans as an example for banks was really not a strategic focus in 2021 because of sort of larger macroeconomic conditions. And we’re seeing a bit of a bounce back there, but in general, those areas are trending down a bit as these banks and credit unions look for new areas where they can place some of their bets. And the one that stands out to me in particular is home equity.

So you’ll notice that home equity has become a much greater focus for midsize banks, and has also become a much greater focus for credit unions for the coming year. And what that tells me is that banks and credit unions sort of following the mortgage boom that we saw at the very beginning of the pandemic, which is now tailed off to a degree, are now looking at how they can leverage these new financial assets that a lot of their customers or members have in order to deliver new financial services. And I can tell you, that’s a very smart strategic place for banks and credit unions to focus, because we’re also seeing at Cornerstone a lot of FinTech companies coming into this space, building new experiences and platforms, again, designed around equity in someone’s home and helping them tap into that and building new experiences around that. So banks and credit unions focusing not just on the traditional HELOC lending category, but on building new experiences around that category is a very smart, strategic shift.

And one that we expect to see carrying over into not just 2022, but likely 2023 as well. So if we go to the next slide, the next thing I want to talk about is how banks and credit unions are going to build some of those new experiences. So the topic here is digital transformation. And I’m always sort of hesitant to talk about digital transformation because it’s the thing that everyone says they’re doing, but you’re not always totally sure how much progress is being made. We actually have some really good data on this so I wanted to share it. So on the next slide, first question we always ask about digital transformation is how’s your digital transformation project going? Most of the banks and credit unions that we survey will tell us they have digital transformation in progress. And so our question is always, “Well, where are you in that process? How’s it going? When are you going to be finished? How much progress have you made?”

And as you’ll notice, according to our results, most financial institutions are well through their digital transformation strategies in terms of implementation. 15% say that they’re three quarters of the way through, and a majority say that they are at least 25 to 50% of the way through. So most financial institutions have made significant progress towards digital transformation, though a few, only 3%, have said that they’re complete. Now, it’s really interesting when you start to dig into the details behind that because what you want to understand is, okay, you’re doing digital transformation. That’ll make McKinsey really happy to hear, but what specifically are you doing around digital that’s going to transform the results that you are seeing in the market? What are the impacts of digital transformation going to be on your business? What are the tangible results?

So when we ask that question for the banks that have made it a little further through the digital transformation process, we go to the next slide. What we see is that overall it does have a really big impact on lending. So if you look at what impact has your digital transformation strategy had on the following business metrics? While it’s still early for banks around digital transformation and credit unions are a little further ahead here, but for banks when we look at it, the biggest categories that jump out are productivity and volume. And specifically loan productivity, deposit account opening productivity, and then loan volume. And what does that mean? Well, from a productivity standpoint, what it really means is the efficiency with which these institutions can open these new accounts on behalf of their customers. And we’ll talk about why that’s so important in a minute. But really it’s about operational efficiency in terms of manufacturing and producing these loans, and using digital technology to make that more efficient and to shrink the time and effort down to do that.

And then from a loan volume standpoint, what that’s really speaking to is the success that these institutions are having around acquiring new customers, using these new digital experiences that they’re building. So instead of forcing customers to jump through a lot of hoops or a lot of manual steps, or God forbid come into the branch, these digital transformation strategies are making it easier for customers to acquire these lending products in a digital fashion. So they’re having an impact on the overall volume of loans that these institutions are able to produce, which is really important because, again going back to that earlier slide that I shared, they’re under a lot of pressure from competitors. In mortgage and credit card, in unsecured personal lending and auto lending and home equity, as we were just talking about, so there’s a huge amount of competitive pressure. So the ability to be more productive and the ability to drive greater volume are obviously of huge interest. So we are seeing some positive results self-reported from banks around digital transformation. However, there is a reason to be a little bit skeptical, if we go to the next slide.

And the reason that there’s a reason to be skeptical is that there are these blockers that exist within financial institutions that make it difficult for them to fully realize the value of their digital transformation strategies. And the biggest one, our core banking systems. So in a separate survey, we asked bank and credit union executives about sort of blockers to digital transformation. And 70% said that their institutions current technology infrastructure, by which they really are saying core banking systems, are a barrier to digital transformation. So a large majority of executives believe, I think accurately, that their core systems and the sort of traditional infrastructure that they have inside their institution is a blocker to digital transformation. Sounds reasonable. However, what’s interesting is in our what’s going on in banking survey, when we asked will your institution replace its core system as a part of your digital transformation strategy? 69% of banks and 76% of credit unions said no, they’re not going to replace that system.

And that poses a really interesting question, which is how can it be true that these systems are a blocker to digital transformation, and you report that you’re making significant progress on your digital transformation initiatives, and you’re also not replacing your core system as a part of that digital transformation? Something there is not adding up. And so what we’re starting to hear about from bank and credit union executives is while there was some low hanging fruit that they could get through their early digital transformation work. A lot of the sort of more high value, but higher difficulty projects relating to digital transformation are running into this core banking system wall. And so what we’re starting to see are banks and credit unions looking for new strategies to work around their core system and be able to make investments in that space without necessarily having to rip and replace their entire core system.

And we have seen some successful ways of doing that, and I think Ankur’s going to touch more on that in a bit. But you really have to think about if you’re not going to replace your core system, what is our strategy for integrating with, or integrating around that core system? Because that’s absolutely critical. And then the final thing I want to talk about before I hand it over to Ankur is loan origination. So obviously if we’re going to focus on lending as a priority in 2022, which most banks and credit unions said they were going to, they’re going to be making specific investments around loan origination. So what are those investments? Well, if we go to the next slide, we always ask bank and credit union executives, what systems inside your organization are you either going to purchase or replace in 2022 or in the coming year? And what’s interesting is we’ve asked this question for five years and every single year, like clockwork, the things that come up at the top are consumer digital account opening, consumer digital loan origination, commercial digital loan origination, and commercial deposit account opening.

Those are the four that always come up at the top for both banks and credit unions. They shift around a little bit, but they’re always the highest priority. And the question that leaves us with after five years of seeing this same consistent result is why? Why aren’t we making enough progress on digital account opening and digital loan origination for consumer, for commercial, for small business, that we start to see other technology areas creep up at the top of this. Why does this stay as the top priority? What are banks and credit unions not fixing or not doing well enough that this remains a top priority? Because, at some point reminds you of the old adage that the definition of insanity is doing the same thing over and over and expecting a different result. So like how can we break out of that mindset and get to an actual different result?

Well, I think it helps by looking at what some of the problems are that continue to pop up despite this consistent level of investment over the last five years. So if we go to the next slide, when we ask banks and credit unions, what are some of the characteristics of your lending process? And how has that been impacted by your investments in digital loan origination? Well, in a survey 41% of bank executives reported that the abandonment rate for secured loan applications started in digital channels was greater than 25%. So 41% said that the abandonment is 25% or more. For unsecured loan applications, 49% of bank executives reported that the abandonment rate was 25% or more. So there’s this huge, huge abandonment rate problem with both unsecured and secured loan applications that just isn’t getting fixed by these investments in digital transformation and in digital loan origination capabilities.

And if you look at the bottom of the screen we also ask, on average what is the elapsed time from loan approval to dispersal of funds or card issuance? So essentially if a customer makes it all the way through your process for getting approved and they’re approved, how long does it take them to actually get the thing they asked for, which is the money or the car? Well, in unsecured lending as you’ll see, a majority of it takes one to five business days with a disturbing number of people saying that it actually took more than 20 days, which is absolutely outrageous for an unsecured lending process. That is completely not competitive with the offerings that are out there from mega banks or from Fintech companies. And for secured lending, the story is even worse. 53% said that it takes them more than 20 days to actually disperse the funds for secured lending. Again, that’s just not competitive in today’s market.

So these efficiency challenges and these customer experience challenges are really what’s holding banks back, and continuing to have digital loan origination as the top priority year after year because this problem isn’t getting fixed. So what do we do to fix this? Well, I’m going to let Ankur spend most of his time talking about that. But one point I did want to make on this last slide is that there are some emerging technology areas that we’re seeing banks and credit unions focusing on more, not in replacement of their focus on digital loan origination, but really more to supplement it. So when we ask about these emerging technology areas that are a little more cutting edge for mid-size banks and credit unions, the main ones that come up year after year are cloud computing, APIs, robotic process automation, chat bots, and machine learning. Right?

And if you look at the slides, and I apologize they’re a little small, but if you look at the slides and sort of the change over time, what you’ll see is that cloud computing and APIs, that’s a pretty mature area of investment. Most banks and credit unions have some type of strategy around cloud computing and APIs. That’s not to say they’ve mastered it or they’ve gotten all the way there, but they’ve been focusing on it pretty consistently for a while. The ones that are interesting to me are the ones that are slowly growing, and really just expanding over the last couple years in 2021 and now in 2022. So robotic process automation really jumps out in this respect, chat bots really jump out in this respect, and machine learning continues to be kind of a slow and steady climber. And what’s interesting is, and Ankur will talk more about this as well, but these are all technology areas that can be applied to make the customer experience and make the back office efficiency of loan origination better. Right?

RPA can be used to automate a lot of back office processes that people are spending time on unnecessarily. Chat bots can be used to engage customers in a self-service manner to gather more information during the loan application or resolve problems. And machine learning obviously can be applied across the board, both in the back office from an automation perspective, as well as in assessing customers risk and the interactions with customers in real time. So all of these are areas, while they’re applicable across the enterprise, we see having a special focus in loan origination to help get this process unstuck. And help getting banks and credit unions on track towards the metrics and the goals that they have for growing their lending portfolios. So with that, I’m going to hand it over to Ankur to sort of put some sharper points on some of the priorities I was just talking about.

Ankur Rawat:                     Okay. Thank you, Alex. And let me switch to the next slide. So again Alex, thanks a lot for those insights on really a great data pointers on the priorities, the challenges that the banks and credit unions are having. And irrespective of the fact that they’re seeing those year on year, they are still not able to kind of tackle those or invest into those technologies. So I always want to simplify the things and get to the point wherein, what are the problem areas and what are the solutions and what are the roadblocks or further challenges to apply that solution, right? So I’ve kind of summarized your presentation into three different points. So you talk about the problems in terms of the non-interest income which is decreasing, right? So the solution obviously is obviously not to slow down the pace of getting new customers, but also growing that and also investing a lot in terms of adding the loans into your portfolio.

So it’s just a volume game as of now, and as you increase your volume on the new customers and the lending, right? So the margin or the revenue will continue to rise. Okay. Again, adding to that focus on additional products, which are more priority for the customers and the market, including lending on HELOC and other products that you talked about. The second problem you talked about is FinTech is growing and you’re absolutely right. It has already won the deposit game. Fintechs are already on to the lending as a market share and they are eating up the market share from the traditional banks and credit unions. Now, the idea here is to, in terms of the solution, is to partner with digital platform vendor who is able to invest and focus on the innovation, right? So even if the credit unions and banks are able to invest somehow to develop on their own, they don’t have the budgets and the focus, the core business is lending deposits, right?

So they don’t have the focus and the budget to invest into all of those things on a continuous basis. So it’s ideal to partner with a digital platform which is continuously improving and adding innovations to the solution. The third problem that we talked about is core is a hurdle, right? And it, I would say, a necessary evil which all of the institutions have to go through. Wherever we discuss with our customers, no matter how stable, best of the breed core they have, they always have challenges. And it’s natural because core has to handle the transactions and it is a transactional system, so it was meant to serve a purpose, which is very complex, right? So it is but natural that the progression of core to an agile and open architecture based system will be slow and gradual. Okay. The solution here is to kind of avoid the point solutions that we keep on adding as banks and credit unions, and to really invest in the process layer, which will allow more flexibility on the processes whether it is digital account opening, lending for consumers, small business, commercial lending.

So the idea is that it should be agile enough to handle the limitations of the core, whether it is in terms of functionalities, adding fields, adding rules, or even the integrations. Now with these solutions, when I thought through these, these solutions further have few roadblocks that we can talk about today are these are challenges, right? So when we talk about ensuring that we are getting tapping into the market for lending, or we are acquiring new customers. Alex, you already talked about high abandonment rates, broken experience, right? So when we talk about partnering with the additional vendor, right? So who do we partner with? Should we invest into digital account opening? We invest into RPA, we invest into APIs, so what is the right way for the institutions to go forward with? So it’s difficult to find the right partner.

And then the third point, which I talked about, core is a hurdle. And the proposition here is to add a layer, flexible layer process layer, which is agile enough to manage unique requirements of the institutions. Now, how do you create a business case? And how do you understand that and then convince your management to invest into such digital platforms? So these are the challenges we are going to talk about. And again, if you have any questions, feel free to add those into the questions segment. Okay. So let’s take the first challenge, how to tackle the high abandonment rates. Now, this is the most popular topic as of now. We do get a lot of questions and interest from banks, credit unions, asking to implement account opening, digital account opening, digital lending system. It is always on the top of our list, right? Now in order to understand the abandonment rates, it is always coming from multiple factors, right?

So the fear of unknown, or distractions that people have, or the lack of visibility, what am I doing? Fear of security of their data. So there are different reasons for the abandonment rates and how do we tackle these reasons or tackle these challenges? So the very first thing is the convenience that we have to provide to the customers in terms of an only channel experience. So they should be able to apply for a new loan product on tip of their finger, using a device, using a laptop, going to the branch, or just calling up the customer care center. So they should have all the access to all these channels, and it should also be consistent experience. It’s not like you’re asking few different questions when calling up the customer care and a different set of questions when they’re applying online.

Secondly, it has to be contextual. So depending upon the type of need the customers have, the data you are collecting has to be contextual. So you cannot have a boiler plate or a cookie cutter solution, which talks about the same data and captures the same data for all different type of accounts. For example, a lot of our customers have segregated or filtered their customers, the products they provide based upon the date of birth, based upon the zip code so there’s a geo tagging done. And accordingly the experience for the end customers is different, right? So they’re only giving you the data which is required to open that account or to apply for that loan product. The third aspect is anywhere-anytime. Now we talked about omnichannel, but it also has to be cross channel, which means that they can stop at any time during the submission of the application and continue from the very point, same point at another channel.

So somebody filling online application for a HELOC should be able to stop it at their own convenience and should be able to go to the branch and apply, continue from the same point. They should not be filling the same data again. The final experience that we talk about is personalized. So when I talk about personalization here, it’s not to really personalize as for the locale or the individual preferences of the customers, but also to ensure that we are providing a human touch to that experience. Right? So while the digital is great, everybody every now and then would require some kind of support. So it’s always important to add a layer of human touch or assistive technologies along with your digital experience. Okay. So we talk about some of the technologies available in the market. We also integrate with our partner Glia, which helps in co-browsing video chat if required throughout that journey.

So these are some of the ways in which we have tackled or resolved the abandonment, reduced the abandonment rates for our customers. Now, let’s talk about the journey in a digital channel. And I’ll talk about consumer, but the same is true for small business as well. And when it comes to commercial loans, we have seen much of the action is happening in the back office or the operation center rather than online. So in the consumer loans or in the small business loans, again from Newgen solution perspective, we have omnichannel access. So customers can apply from web portal branch or calling customer care center to start the application. We also make the overall experience very convenient and frictionless for our customers, which means the less of the data they have to enter the quicker their journey is. Okay. So we are able to reduce their data entry by getting the data from multiple sources, whether it is online banking for existing customers, getting the data from driver’s license, passport, state ID for new customers, or even the likes of Google and LinkedIn to pre-fill their employment details or just the standard data.

Third is we provide a consistent experience for our customers, irrespective of the load product they’re applying for. Again this is, while it sounds simple, we have seen a lot of institutions who are using multiple products for student loan, a different product for mortgage, different product for consumer loans, and HELOC and so on. Right? So the idea is to provide a consistent experience for all the lending products. Okay. The third challenge typically the institutions have on their own is the lack of integrations when it comes to the digital journey, right? So the abandonment, while it is the customer experience, at the backend what has broken a lot of times is the lack of integrations. With Newgen, we integrate with the different systems throughout the process including IDV systems, ID authentication systems, credit bureaus, E-sign applications, payment gateways for opening the account for these customers.

So the idea here is to have a seamless experience for the customers, as well as the bankers or the credit union employees. Okay. Finally, all of this is happening online in a seamless fashion. And most of the times for the personal loan, for credit cards, the time to say yes or time to approve is less than one minute, right? So you are able to kind of capture these details and based on the details for these unsecured products, you’re able to quickly approve them. For the more detailed products like HELOC, there’s a need to do a back office processing where in the usual digital platform, which is local platform, allows the users, bankers to see these applications review and provide their decisions. Okay. So this is a complete digital journey for the customers, as well as a great experience for the bankers. So we talked about the abandonment rate, how to reduce that right? Now, let’s talk about the key, finding the right partner. And it is completely aligned with what Alex talked about earlier.

So what are the institutions looking at right now? They’re looking at their priorities in terms of what they have to invest in. So they have to invest in digital account opening, they have to invest in digital lending. And in terms of the technologies, the upcoming technologies including cloud API, RPA, chat bots, machine learnings, right? So when you’re looking at the right partner, look at one of the platforms or vendors who are able to provide you all of this in a combined fashion. Now again, one of the ways in which Newgen helps our customers is this. So what we do is we are able to provide you multiple solutions, including digital account opening, including loan origination, commercial, small business, consumer, all onto a single platform. Okay. Now I’ve added this example, and again in a weird world wherein you go to a McDonald’s drive through, right? You order burger and fries. You get the burgers right onto the window.

But for the fries, if they ask you to come inside, you’ll be baffled, right? So, that would be a broken experience and it would be a weird experience. Now this is something that the customers nowadays for credit unions and banks are facing. What they have to do is if they’re applying for a loan, they’re going to a different system. If they’re applying for a new account or if they want to get onboarded as a member to a credit union, they have a different experience altogether because these are two different vendors. Okay? So that’s why the process is broken, the experience is broken for the customers. What we are highlighting here is with the NewgenONE Unified Flow, we are able to handle multiple products whether it is small business, consumer, or account opening onto a single platform. And there are a lot of benefits to it, right?

So you’re able to reuse the data for cross-selling, for simplifying the application for the next product. So somebody who has already applied for an account and they want to apply for a credit card, you’re not asking again in terms of their date of birth or the first name, last name. You already have those things. All you’re doing is getting those additional product details and the documents signed from them. Secondly, all the integrations at the backend that we do are easily reused the data, the user experience, not just for the customers but also for the bankers is exactly the same. So the users in the branch or in the back office who are actually working on loans, can now also work on the accounts in the same system. They don’t have to jump through the systems.

Now again, one of the reasons why Newgen would be the right partner is having multiple solutions in the same framework, but we also invest heavily in terms of the research and development. And all the technologies Alex talked about, we keep on investing into those, add those into our portfolio. The couple of examples I’ll take here in terms of artificial intelligence and RPA, right? So again, with Newgen platform, we have added AI as one of the technologies into our stack, which will help you in getting the clarity and probability of closure offered lead. And an application being fraudulent, or the default rates for an application, or the best suited product for a customer when their original application is declined. So what is the best counter offer for them? And what are the chances of the customers accepting that offer, right?

So the AI allows you to go through your previous data and create models to best predict the customer behavior and help in decision making. Similarly, with the RPA, all of the task especially in commercial lending or small business lending, when you have to actually… the underwriters or the associates have to go outside the system, outside the loan origination. And they have to click on a website, do a Google search, they have to check for a UCC, they have to do a flood check, right? So all of these manual tasks can be eliminated by the RPA ports, which will be doing these tasks in an automated fashion. Okay. Again, on the chat bots, which is again one of the interesting technologies, we integrate with the likes of Glia live person, which allows the credit unions and banks to add that human touch to the journey. So Glia allows the co-browsing, video chats, audio chats along with the customers.

Finally, the big monstrous problem that we all have, how to go beyond core banking, right? So I’ve taken this example here of a television. So we used to have nineties television, very less flexibility with that. Then we moved on, evolved into the standard television that we have seen probably in 2007 or tens, right? And then came the Smart TV. Now, while the technology has been growing in television, still if you have to make a change or add an app to a television, it’s very difficult to add beyond what the manufacturer provided as part of the television. So even if a Smart TV is there, if that TV does not support an app, you have to go ahead and add a layer of plugins so that you can make the television as flexible as possible.

So you add Apple TV, you add Chromecast, you add Roku, you add Amazon Firestick. What it allows you to do is even though you have limitations with the television, with the core technology, you’re adding that layer which makes it flexible to add multiple features onto the original technology. Okay. Now let’s take this example and superimpose it on the banking scenario. We have the core banking, and again core banking vendors, every time they’re doing their best to kind of improve the technology, make it open API, all of those. But that will take time and we don’t have time in terms of the innovation. So, the idea here is to add the NewgenONE platform or the local platforms, which help in terms of adding the process layers which can be more flexible than what core banking provides. So we have worked with institutions, and I’m taking a couple of examples here, wherein Wilson Bank is a perfect example, wherein they started with account opening. They went live with that and now they’re going to the commercial loan origination. Slowly they’ll be moving into consumer lending and account origination.

So the idea here is because the core banking has limitations, you’re not able to quickly add those things. The process layer which is flexible enough, local platform based, you are able to add these additional silos or the solutions on top of the core banking. And there’s no limit to that when it comes to a local platform. So this is what we mean when we say low code, right? So all of the artifacts, all of the objects of a solution where it is processes, the UI/UX, the rules for cross selling for auto approvals, the reports and integrations. All of these are flexible in nature, allow the institutions and Newgen to kind of quickly align it as for customers need, not just for current time, foreseeable future, but also coming times. So it ensures that the solution will never go obsolete. So with that I’ll conclude here and we’ll see if we have any questions. Michael Fondessy, I think you have.

Michael Fondessy:          Thank you, Alex.

Ankur Rawat:                     Yes.

Michael Fondessy:          Thank you, Alex. Thank you, Ankur for the presentation. I’m sure our audience had a lot to gain from here. I am receiving some questions, but I still request our audience use the question features in go to webinar or go to meeting and type in your questions for our panelists. So first question for you, Alex, how does embedded lending change the competitive equation for banks and credit unions?

Alex Johnson:                    Yeah, I mean, that’s the thing that we didn’t really talk too much about, but it’s a great question. So just to sort of provide some context around that, the concept here is that in addition to FinTech companies directly competing with banks to issue loans, we’re also starting to see and we’ll probably see a lot more embedded lending where non FinTech non-bank platforms, whatever they are. Could be a Shopify merchant offering by now pay later, it could be Lyft offering a loan for its drivers to be able to buy a new car so they can drive on Lyft. It could be any number of different things, but it’s essentially the embedding of lending within those non-financial services, experiences, apps, websites. At Cornerstone, we see that as being a big potential threat to the ecosystem from a competitive standpoint, because lending in particular is one of those financial services activities.

It’s really more of an enabler to other activities than it is sort of the end point in and of itself. And so over and over, we’ve seen consumers gravitate to the most convenient way to acquire a loan. And things like Indirect Auto, I think have demonstrated that if you offer a more convenient alternative for getting a loan in order to execute whatever your end goal is, that’s always going to win out over a more direct option. And so we do see a big shift coming across a whole bunch of different areas in consumer lending, which we’re already seen with by now pay later. Small business lending, which I think we’re going to start to see a lot more of through these small business accounting and financial management platforms that small businesses use to kind of run their day to day operations.

And then even commercial, where large commercial enterprises won’t necessarily go to their personal banker to get a loan. They’ll be interacting with some other platform digitally and lending will be built into that experience. So, we’re seeing that happen a lot already and I think we’re going to see a lot more. The question for banks is, are they going to try to build some of those front end experiences themselves? Are they going to try to embed themselves directly into some of those embedded experiences through direct partnerships with the front end non-financial services brand? Or are they going to go the banking as a service route where they partner with a platform, like a unit or a bond or a Synapse or Synctera, and then those vast platforms connect them into all of these embedded lending opportunities. So there are multiple competitive paths, and it’s just a matter of kind of how much work banks want to put in on the front end from a partnership and experience perspective, versus just sort of plugging into the infrastructure and being the backend balance sheet.

Michael Fondessy:          Thank you, Alex. Ankur, next question for you. Is there a bank that is doing it right with online small business lending?

Ankur Rawat:                     Yeah. And thank you. And I did see that question and I think the usage of word is perfect, very apt here, Joe. I think is there a bank that is doing it right? So again, it really depends on the institution’s mindset and the initiatives that they have. Right. So we do have few banks who are actually doing it right. Getting a bit of feedback if everybody can be on mute. So yes, it really depends upon the institutions and their willingness to do it. So we went to a bank and they had, I mean, they kind of pioneered this word, no code, low code, and… Sorry. No touch, high touch, and low touch, right? So they started with no touch, which will be qualifying a lot of your unsecured loans that there’s no touch and credit card is issued, personal loan is issued, right? That is no touch.

Then we come to a low touch, which you are talking about, Joe, wherein institutions have categorized and built rules that if there’s a small business asking for 52, I think they had a limit, right? They categorized it. So 5250K, their existing customer and there has been no decline in their existing deposits, there was no decline in their credit score. Based upon few of these factors, they were auto approved. There was no manual approval for them. It just went to the processing. And then obviously anything beyond that would go through a set of eyes and all of those things. Now we are not saying that these are auto dispersed, but these are auto approved because if this is a new customer and you’re still auto approving them, you would like to see their documentation. Right? Just to validate that.

But yes, there are institutions who are doing it right, but it is a combination of the technology. We have the technology which allows you to categorize your processes, allow a different set of loans to follow a shorter route with the auto approval auto decisioning, and a higher risk, high amount loans to go through a different workflow. So the technology is there, but yes, a lot of it depends upon how the institutions have the initiative. They’re ready to kind of align their thoughts on this and bring in compliance and everybody together to segment this clearly. I hope I’d answered the question. You can go to the next one.

Michael Fondessy:          Perfect. Perfect. Thanks, Ankur. Alex, question is for you. Where has FinTech made the most progress disrupting lending, and where will FinTech companies go next?

Alex Johnson:                    Yeah, it’s a good question. I mean, I kind of think about this in terms of generations. And so if you think that FinTech in sort of its evolution in the different generations of FinTech, from a lending perspective, it really started in the unsecured personal lending space with P2P lending, LendingClub, Prosper, those types of companies. And what they, I think, demonstrated and the lesson to learn from that generation of companies is what we’re now seeing banks and credit unions really embrace on mass, which is simplified digital acquisition can be a huge driver of volume. Now, those platforms eventually ran out of steam to some degree because there’s only so many unsecured personal loans to be given out, and only so much kind of credit card debt to be refinanced to a lower rate. So there is a limit to the growth that you can drive with that one particular lever. But I think there was a valuable lesson to be learned from that generation of FinTech companies.

The next one that we’re seeing play out right now is the focus on buy now pay later. And basically I think the lesson to be learned there, and we talked about the amount of volume that buy now pay later is already generated and how it’s impacting the credit card space. The lesson there is that even for a customer who has a credit card, who maybe prefers using their credit card, or who likes getting the points for their credit card, there’s something very powerful about presenting a compelling financing option in the moment when the customer is making the decision. Like at that exact moment, boom, it pops up, it’s ready, it’s right there. And so we see in a lot of cases, consumers sort of acting against their own best interest in a sense by taking on this other loan. Instead of just putting it on their card and getting the points and continuing to sort of transact, they make this sort of spur in the moment decision because the merchant is able to sort of push them down that path by just in time offer presented embedded in the point of sale.

So the focus again on embedded lending, I think is something that we’re learning that can be a powerful driver from this generation of buy now pay later companies. And then, not that this has played itself out totally, but I think the next generation of FinTech disruption and lending is really going to be around small business and commercial. And making it much easier and more seamless for businesses to get access to capital, to have sort of a great deal of competition for their business lending needs, and be able to drive the pricing and the terms in a more positive direction for business owners through again, that embedded lending model. So I think that’s where it’s going to shift, but we haven’t quite seen that happen yet. I hope that answered the question.

Michael Fondessy:          Thanks.

Ankur Rawat:                     Michael Fondessy, do we have any other question? Michael Fondessy, if you are speaking, we cannot hear you. Okay. So I think there’s this question, where can we download and review the deck? So the recording of this webinar will be available. And I think I can check with Michael Fondessy if you can connect with us, we can surely circulate the deck with you as well. Okay. Yeah. So I think we have another question here. So have you arrived at the correlation between abandonment rates and the associated costs? And again, this is this probably a matter of all, a lot of discussion as well. There’s no right answer to that, but yes. We did some research and based on different other research that has been done. So we’ve seen that typically, if you look at a digitized process wherein the abandonment is less, and a non-IT digitized process, sorry where the abandonment is high.

So we have looked at it. We have seen that there’s around $62 per customer who’s acquired, right? So if you’re acquiring a new customer and your process is digitized, we are looking at around 62 to $68 at using a conservative estimate for each customer that you have added. Right? So even with, let’s say, a 300 customers per month kind of scenario, which is true with a lot of community banks in these days. We are really looking at a saving of more than 100,000 every year, if the processes were digitized. And this is the reason for a lot of institutions to sit on the fence, not to digitize is that they’re not able to see this kind of value in terms of the digital transitions that they do. Okay. I do see another question here. What are the advantage of going digital for account opening, opening accounts in branches, or applying for the loans in the branches? So this is a very unique question, right?

So typically the account opening, whenever we talk about digital, people think always online, right? So digital is not just limited to online account opening. It cuts across the channels, it cuts across the departments. The idea here is to digitize end to end process, minimize the human touches, integrate with the systems as much as possible, and reduce or eliminate the duplicate data entry. So even with the digitalization happening in branches, we are looking at automated ID verification, authentications with the data, with the documents, authenticating the validity of the documents. Getting the E-sign in the branches instead of using a two pass and other things, you can really get the S-sign right from the customers on a kiosk, right? So we’re talking about lot of benefits or advantages for in all the channels. It’s not just online account opening or online lending. It is also in the back office with respect to the approvals, diversions assignments of the loans and auto approvals, auto decisioning, all of those things.

Okay. So I think that was it. I do believe Michael Fondessy, who’s the moderator, is having some challenges in terms of the connectivity. But thanks a lot for joining in. Hope we’ve added value to your time and the recording will be available on the same link for this webinar. And if you have any questions, any clarifications, feel free to get in touch with Newgen on our website. Okay. Thank you. Thanks everyone.

Alex Johnson:                    Thank you.