Saturday Night Live immediately came to mind during a recent lending debate between Cornerstone consultants Jim Pinckney and Sam Kilmer at Gonzo HQ in Scottsdale. So, we offer up an installment of Gonzo’s Point/Counterpoint. Oh come on, you just know that loan productivity is a naturally riveting debate!
The topic is this: With a massive productivity gap between high and low performing lenders, is the main challenge about people or technology?
Arguing for the people (though that sounds like a personal injury law firm advertisement) is Jim (JP), a re-engineering, governance and risk expert as well as a CPA who has helped numerous lenders improve process and results over three decades.
Arguing for the technology (without a demo) is Sam (SK), who, prior to recently joining Cornerstone Advisors, spent over a decade in strategy at a fintech provider known for lending and CRM and prior years leading banking delivery and marketing.
If it seems like the conflict is a little made-up, well … stay with us, GonzoBankers, we’re trying to mix it up and keep it fresh!
Let the smackdown begin …
JP: OK, software boy, loan productivity is a huge challenge for the industry and especially in business lending. What I find on arrival at a typical consulting engagement is commercial lenders spending only 10% to 15% of their time actually working on new business. And, more often than not, I see organization, leadership, motivation and coordination issues involved. And, that is about people.
SK: Wrong, Jimbo! While I agree on the 10% to 15% new business time, if you look at the sexy loan productivity metrics in The Cornerstone Report for mid-size banks and credit unions, there is a 2-3X difference between high and low loan performers on productivity measures. For those not deploying the form-spreadsheet-stickynote approach to lending, how about the redundant data-entry-into-a-dozen-systems variety we hear about constantly? It’s no wonder there is no time left for new business. That’s a technology problem.
JP: Agree to disagree, Sport. New technology isn’t always the answer. Sometimes the bank or credit union already has solid systems in place or has attempted to deploy a new loan origination system (LOS) and the project hits an organizational meat grinder. I find that reviewing the organizational reporting structure’s match to strategy helps. And, how about a look at lending roles and functions to ensure the right people are performing the right tasks and in the right locations to maximize productivity? This helps improve loan policy adherence but also speed of services delivery, regardless of the technology.
SK [eyes glazed over upon hearing “policy adherence”]: Fascinating. Somewhere in that Shakespearean soliloquy, I think I heard speed of services. We have seen consumer loans move to straight through processing through technology and we hear about the occasional business lender getting decisions consistently streamlined and winning more business. You said coordination earlier. That’s the ticket. How about assignment and completion of lending tasks, eliminating paper-based processes, and ensuring performance goals are met? That smells like software to me.
JP: Don’t tell me, Sam. That “seamless, open, robust, SaaS-based, best-in-class, category-killing, game-changing” software would generate yet another checklist, right? Lenders are already dealing with Checklist Mania. Put yourself in the lender’s shoes. You are under the gun to close a $3 million commercial loan, loan documents need to be created and loan operations informs you that documents cannot be generated because a co-borrower signature is missing on an agreement to provide insurance document. It’s frustrating.
SK: Jim, Jim, Jim. I realize there can be an unhealthy tension between the front office and loan operations. It has a significant impact on the ability of the bank or credit union to get deals done. Technology should ideally help fix that. Currently, many shops have both redundant and cumbersome data entry required to obtain documents or book a loan, require a significant amount of busy work, or have real trouble when requests are sat upon or kicked back. I get it.
JP: Whoa Tech Head! More often than not, it is something as simple as forming a joint team of front office and back office members charged with achieving a gold standard of quality and decreasing elapsed time from approval-to-booking. Often, it’s about modifying the treatment of exceptions based on actual credit and regulatory risks and modifying roles and responsibilities. It’s about teamwork. Any software flows from that.
SK: But, the teamwork can fail in handling the data. Loan related information is rekeyed in documents, emails, doc prep, the core, tickler systems, filings, spreading, CRM, pricing/profitability, appraisals, requests, sales pipeline, and regulatory reporting – and the list just goes on and on. The data is not shared nor is it captured so it can be used in other applications. It’s not collaborative, particularly in business lending. In a word: BROKEN.
JP: You must chill. The first rule for solving loan process issues is calmness in the face of adversity … especially when you throw CRM into the discussion! From our colleague Michael Croal’s experience with ECM deployments and my experience with CLOS deployments, the people matters need to be solved first or at least in parallel. Without the right team in place, the organization will implement a CRM and CLOS system that relationship managers mutiny over and kill. I know because we have been brought into a number of cases to help clean up the mess. And it’s about having the right people involved in selecting a system and the change management. How many times have we heard, “No one asked me, it doesn’t work!” And, technology might help in identifying issues and service level agreement (SLA) violations, but without management’s willingness to hold people accountable – what good is it?
And, pardon the rant, but every one of the systems out there has flaws. With only one exception, none of them have a real CRM integrated. And that one doesn’t have that great of a CLOS solution. And, how about using the wrong technology for the wrong group? For example, what the heck does householding and household profitability have to do with a commercial deal?
SK: How about calmness in the face of regulators, Jim? Aren’t the regulators pushing for more transparency in the loan process and more system-based enforcement requiring automation regardless of the people issues? Beyond clear violations, don’t regulators want to see proof positive that the bank and credit union knows how to systematically manage their shops regardless of their strategy? Emphasis on system. Regardless of whether the organization decides to centralize some function (or not), it needs to standardize. And, from my view, standardize almost always means some kind of technology.
JP: You had to play the compliance card, didn’t you? Want to drop a couple acronyms in there too like CFPB and ERM, smart guy? Well, yes, technology plays a role, but one of the more important considerations is the establishment of an internal SLA. Let the individual institution’s need for responsiveness to its constituents (be it customer, management, board or regulator) drive the technology. And, yes, leverage workflow to automatically track and report. Dashboards are extremely helpful. Internal measures like turnaround time (% within SLA) and outstanding (missing) exception items help. And, external industry comparative measures like loans-per-officer or loans-per-loan review-FTE can be very prescriptive. Then, it becomes a matter of applying best practices to improve responsiveness, whether it is to reduce the costs of delivery or improving the experience of the customer or regulator. Those best practices include technology. But, tech isn’t all of it.
SK: Fair enough, Slim Jim, but our about-to-be-released Cornerstone Report for Credit Unions showed new investments in strategic systems (the area that includes LOS and ECM) growing by 40% over the past two years. And, our number of bank consulting engagements involving lending technology has gone through the roof. To me, that speaks volumes about technology for loan productivity. Along with integrating channel delivery and driving new payments initiatives, loan productivity has to be in the top three or four biggest opportunities in financial services. And, loan productivity may be the lowest hanging fruit because the approaches to solving it are all here now. We can talk all day long about culture and moving a lender’s cheese, but there is a technology opportunity.
JP: But the problems often stem from the people issues. We know there are several solution vendors out there and we understand them from our contract negotiations, system selection and conversion oversight work. Yet there are still redeployment situations where the root issue is organizational dysfunction causing friction in the process. For all the talk about system integration (a VERY big deal), organizational integration is a bigger deal.
SK: Did I just hear you almost agree with me, Pinks? Well, well. Then I’ll play nice and agree with you too. Unlike, say, emerging payments standards, lending integration standards are a fairly settled matter. So, this is all do-able right now. I think we can agree that lending process can be improved nearly everywhere, and people and technology both play a role.
JP: By the way, since you agreed with me, does this mean that I win the argument?
SK: This isn’t an argument.
JP: Yes, it is.
SK: No, it isn’t.
JP: Wait, now you are channeling the Monty Python “Argument” sketch? We were doing the Saturday Night Live “Point Counterpoint” thing here.
SK: No, we weren’t…..
Stay tuned – another installment of Gonzo Point/Counterpoint is coming soon!
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One argument you have left off the table is that most of the senior management and lending officers run the bank. Change has to be driven by them, the back room never tells these prim donnas how the process should look. Unfortunately technology needs to let them drive, just to get them to the table. They drive looking out the rear view mirror because the windshield has too much information about the process and they don’t have the time see the value in that information. At best only incremental change happens under these conditions.
SK,
I am not convinced. I’ve been selling software solutions my entire career. My experience has been that software solutions make you MORE of what you already ARE. If you’re good at what you do in terms of process, culture and discipline software will make you better, if you’re not good it makes you worse. I’ve seen this play out in all different kinds of businesses. Sorry brother, I’m in the process, culture and discipline camp. All the best.
Jon & Tim, Great observations. Jon, to your “people” point here, I think we can all agree that a windshield (and dare I say dashboard?) view is helpful. Keep the ideas coming, Gonzobankers!
This is a very interesting post. Both SK and JP have valid points. Being two plus years into redoing our commercial loan system / process gives us a good rearview mirror perspective. This process must start and be embraced at the top and everyone going into this must accept that process will have to change and staff will have to adapt and use the new system. Do not try to make the new software work like your existing process you must adapt to the systems strengths otherwise you will muddle along spending lots of money with little to no gain.
Mark, Great point about it starting and being embraced at the top, everyone accepting process change, and taking advantage of new system strengths. Some organizations are more open to change than others. In our process improvement engagements, we have found that forming the right internal teams and tackling some early process improvement victories (we call them “process sprints”) can be helpful in creating a sustainable culture for ongoing improvements.