Findings from ABA Research
To learn more about how banks are moving away from paper-based lending processes, the American Bankers Association conducted a survey, drawing responses from nearly 200 banks. The resulting report, The State of Digital Lending, provides a new window into the current landscape in digital lending.
Here are case studies of two banks that set out to expand their student loan capabilities. One partnered with a third-party provider, while the other developed its own technology in-house.
WSFS Bank listened to its customers.
“We heard customers talking about their kids getting ready to go to college or having just graduated with high burdens of student loan debt,” said Lisa Brubaker, senior vice president at WSFS Bank. “We were looking at ways we could be more useful to our customers.”
WSFS Bank is the oldest and largest locally managed bank and trust company headquartered in the Delaware Valley.
“As a community bank, we want to be able to provide solutions our customers are asking us for,” Brubaker continued. “One area where we saw a gap was in having a viable student loan program. We didn’t have any avenues for education lending in general except for general equity and unsecured loan products, which didn’t really work for our customers. Obviously, we didn’t want to encourage our customers to look outside of the bank because we didn’t offer the solutions they need. We wanted to help those graduates come out with something more affordable for them long-term.”
To respond to this need, WSFS Bank in 2013 adopted the LendKey platform for originating student loans. This partnership approach enabled WSFS Bank to quickly deliver a program to market that uses the bank’s underwriting criteria and standards. The bank keeps the asset on its balance sheet and LendKey services the loan.
Borrowers have two avenues to find their way to WSFS Bank:
- They can visit the LendKey online marketplace, which is open to anyone, and peruse a buffet of choices that match their needs. If they are in the WSFS Bank service area—Delaware, Pennsylvania and New Jersey—WSFS Bank will be offered as a choice.
- They can go to the WSFS Bank website and click on Education Lending, where the LendKey offering for both student loan consolidations/refinances and private student loans is available under the bank’s own brand.
Applicants for consolidation/refinances can receive a credit decision within a day, as long as they have provided the necessary supporting documents.
WSFS Bank has made a series of acquisitions over the years, and the student loan platform has easily adapted. “That has actually worked out very well,” said Brubaker. “Most of those acquired banks didn’t have a robust student loan platform in-house, so getting access to the LendKey platform brought this additional benefit to joining the legacy organization.”
But it’s not just about addressing the demand for student loans. Because the heavily marketed LendKey platform drives new customers to the bank’s offering, the technology opens the door to a whole new cohort of customers for the bank to cross-sell.
“The LendKey offering has been a good way for us to get into a market that enables us to reach a broader base of customers,” said Brubaker. “It offers technological efficiencies that save us time and money, since applications are already filled out with LendKey. It has worked well for us and been a positive experience. It has certainly opened our eyes to other, similar partnerships.”
Darien Rowayton Bank and the student lending platform so strong that it rebranded the bank.
In a short time, Darien Rowayton Bank of Connecticut has evolved from a traditional community bank to a national online lending entity with customers in all 50 states, the District of Columbia, and Puerto Rico. The bank’s online student lending business—which was branded Laurel Road—uses proprietary technology to streamline and fully digitize loan processes.
Laurel Road has become such a powerful brand, in fact, that Darien Rowayton recently changed its name to Laurel Road Bank.
Laurel Road has helped thousands of professionals with graduate and undergraduate degrees to refinance and consolidate more than $3 billion in federal and private school loans since 2014, saving borrowers an average of more than $20,000 per loan—more than $400 million in savings to date.
Serving technology-driven consumers
“With millennials, online lending is really table stakes,” said George Sclavos, chief financial officer at Laurel Road Bank. “When we chose to target a highly sophisticated millennial base, we knew that our customers would accept nothing less than a best-in-class online experience and we built a platform to enable them to complete the entire process online, from application to e-signature.”
The application process is speedy, completed in just a few minutes. Applicants discover their rate options instantly after filling out a short online form—no hard credit pull is required to view these initial rates. (The system calculates a debt-to-income ratio based on a variety of factors and does the verification later.) Borrowers easily upload a few documents to verify their identity and the desired student loan.
Once approved—a credit decision is usually made within 24 hours of receiving the customer’s documentation—the bank sends final rates, terms, and disclosures via secure electronic communications. The borrower approves the terms and e-signs a promissory note—all online from start to finish. The entire process can be done without talking to a human—or if preferred, by talking with a human via secure online chat and a proprietary email system.
Implementing a digital lending platform—build or buy?
Laurel Road initially used a third-party vendor’s platform to manage the student loan refi application process, but determined that it needed to elevate its customer experience beyond what the third-party platform could offer.
“We did surveys to see what type of experience customers were specifically looking for and used that to build our proprietary loan origination system,” said Sclavos. “We will use outside third parties where a digital capability is a commodity or an industry standard. But where we think we can build a competitive advantage, we’ll invest in our own technologies.”
The student lending platform was built by the bank’s team of 15 developers, augmented by outside contractors as needed. The platform went live in early 2016 and has been enhanced over time, with upgrades released about once a month.
Positive results of the investment…
- Rapid growth without adding staff. The bank was able to grow its student lending business by about 60 percent in 18 months without adding any operational headcount. Originations are up about 50 percent year over year, with loans sold to banks around the country. “It has been a great product for us and for the other banks [to which the loans are sold],” said Sclavos. “With the digital lending platform, we have been able to expand into other types of lending and diversified our balance sheet.”
- Satisfied borrowers. “We survey every customer who goes through the loan application process,” said Sclavos. “We often hear that they’re very amazed they can do the entire process without ever talking to a human, how fast and how easy the process was—and of course, how much we’ve been able to save them with a lower interest rate.” Net promoter scores for Laurel Road are in the high 60s, compared to the low 40s for the banking industry at large.
After looking at more than 100 different service providers for a comparable mortgage lending platform, the bank chose to develop in-house there as well. The 100-percent digitized mortgage platform beta version rolled out at the end of 2017, integrates with 40-plus other service providers and offers a host of custom features for underwriters and processors on the back end.
Next month we’ll look at a case study of a bank that partnered with a fintech firm to enhance its small business lending capabilities.