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With ever-increasing oversight and regulation, lenders are having a tough time keeping pace with regulatory requirements (Truth in Lending Act just being one of them). Endless compliance and legal team hours are spent ensuring that all business processes are in step with the latest requirements. However, with auto buyers more distracted, and more mobile than ever, the challenge in completing all requirements has grown.
Truth in Lending Act requires the origination fee to be added to the interest charge, and then that Finance Charge is annualized. The origination fee does not reduce the principal of $200.
As a lender, you often arrange financing for your customer’s purchases. Besides the obvious convenience of this service and the benefits of closing the sale quicker, lender financing is an important profit center for your business. However, if your financing practices do not comply with TILA, you may be liable for lending fraud, or compromise your own ability to pursue legal action against a delinquent borrower.
TILA was passed in 1968 to protect consumers in their dealings with lenders, including car lenders, by requiring full disclosure of the cost of credit. Full disclosure allows consumers to shop around for the best deal. The Act is implemented by the Federal Reserve Board via Regulation Z, which has effect and force of federal law.
Car Sales and RISC
With the cost of new cars often exceeding $30,000, consumers are relying increasingly on credit to purchase their vehicles. In fact, more than 80% of new car shoppers are financing or leasing their new cars. When a customer chooses to arrange financing, you will prepare a Retail Installment Sales Contract (RISC) which outlines the credit terms. The RISC sets forth the details of how the financing is to work. For example, the interest rate, the finance charge, amount financed, total payment, total sales price, and the number and amount of payments.
The majority of dealers do not extend credit directly to their customers in the sense of holding the RISC and charging and accepting the payments outlined within. Rather, they rely on sales finance companies, banks, or other lenders who are willing to extend credit to the customer and sell the RISC to them.
Nonetheless, because the dealer was the one who initially offered the credit, TILA defines him as the “creditor” and he must provide his customer with disclosure of how the financing is to work as outlined in the RISC. These disclosures must be made before the customer becomes legally obligated to buy the vehicle on credit. Among the necessary disclosures is “An itemization of the amount financed.”
It is here where most TILA violations occur in the form of hidden or disguised charges that should have been disclosed as finance charges. TILA requires any charge that is “incidental to the extension of credit” to be disclosed as a finance charge. In other words, any penny that a borrower pays that he wouldn’t otherwise be paying if he were buying the same car with cash, is a finance charge, and has to be disclosed as such.
TILA helps consumers fight back against collection lawsuits and lending fraud. So where exactly must dealers be careful in their disclosures?
The sale price of the car: They may not raise the agreed upon cash price after a credit check returns a poor rating. This is considered a hidden charge and is therefore in violation of TILA.
Down Payment or Trade-In Value: Any changes in the agreed upon down payment or trade-in value are considered hidden charges and are therefore in violation of TILA.
Monies Paid to Third Parties on Behalf of the Borrower: Any withholding of the total amount due is considered a hidden charge. In the case of negative equity on a previous car loan, any increase to the balance is considered a hidden charge and is therefore in violation of TILA.
Government & Recording Fees: Overcharging for “out of state” borrowers is considered a hidden charge and is therefore in violation of TILA.
Doc Fees: Some states place no limits on these fees, but if your state has such limits, you must abide by them. Any amount beyond the limit is considered a hidden charge. Charging a higher doc fee for a borrower, as opposed to a cash buyer, is also considered a hidden charge and is in violation of TILA.
Service Contracts, GAP Insurance, and Credit Insurance: These are completely optional for the borrower and the contract he signs must state that he is not required to buy them. You may not insist on raising the sales price of the vehicle if no such “extras” are purchased. Doing so is considered a hidden charge and is in violation of TILA.
TILA violations entitle a borrower to sue for actual damages, statutory damages of $1,000, plus attorney’s fees. Action may be brought in any U.S. district court or in any other competent court within one year from the date on which the violation occurred.
This limitation does not apply when violations are asserted as a defense, set-off, or counterclaim, except as otherwise provided by state law. If a creditor is found guilty, enforcement agencies can issue cease and desist orders or hold hearings pursuant to which creditors are required to make adjustments to the borrower’s account.
Citibank must pay $335 million to credit card customers for violating Truth in Lending Act restrictions on annual percentage rates. https://t.co/OOmey5rVHc
If the Federal Trade Commission determines in a cease and desist proceeding against a particular individual or firm that a given practice is “unfair or deceptive,” it may proceed against any other individual or firm for knowingly engaging in the forbidden practice, even if that entity was not involved in the previous proceeding. Willful and knowing violations of TILA permit imposition of a fine of $5,000, imprisonment for up to one year, or both.
Most cases however, end in arbitration. As a lender you are required to provide your customer with TILA disclosures prior to his signing of the loan contract. Often, disclosures are included as part of the loan contract itself. Disclosures must be made:
“Clearly and conspicuously”
In meaningful sequence,
In writing, and
In a form the consumer may keep.
Layers of Regulation Created A Heavy Compliance Burden
Part of the challenge in managing layers of regulation are the numerous processes, people and technologies they impact. Because each regulation applies to a certain subset, it becomes a challenge to restructure and simplify the layers of compliance, as a result, lenders often compensate with ‘bandaid’ like solutions to adjust for each nuance. The result is a cobbled and fragile web of compliance documentation, procedures appended to match each circumstance. This is fragile and risky.
Paths to Simplify Compliance In Lending
Thankfully, new solutions enable digital workflows to automatically piece together and deliver the exact regulatory package to meet each customer need. Moreover, these packages can be simply executed by the customer using streamlined, mobile-first technology.
Real-Time Collaboration platforms, like Lightico, enable lenders to instantly supply customers with itemized and standardized disclosure forms. In addition, electronic records of what was sent, to whom and when it was completed, ensure that lenders have the transparency and accountability to simplify compliance audits. Thanks to agile technology solutions, lenders can now streamline regulatory compliance for TILA and all its associated regulation.
Compliant Texting Is An Untapped Customer Communication Channel
Texting is no longer the playground for sending silly messages and photos. Smart businesses have understood the value in communicating with customers in a simple, intuitive and compliant fashion over text.
Because of its ubiquity, simplicity, and speed, Business-to-Customer texting has the efficiency and efficacy to help businesses complete processes faster.
Here are a few statistics that show the potential of integrating compliant, texting services to accelerate your business’s processes.
98% of all texts are opened
90% of texts are read within the first three minutes of receipt
Businesses convert 40% more customers when texting in conjunction with an interaction
80% financial services firms already use texts for customer communications
Texts Are Replacing Emails as the ‘Go-To’ Communication Channel
Financial institutions must be able to communicate and transact business quickly. With the heavy regulatory environment, businesses need to find ways to speed up their compliant processes. They understand that branch visits, paper-based processes and spammy emails simply don’t work anymore.
Given the efficacy of texting, it’s no wonder that businesses that have integrated text-based solutions have seen it has fast become the communication tool of choice for rapid response and efficiency. Financial services institutions must adopt new communication techniques to take advantage of enterprise-scale secure messaging platforms that can deliver complete content control and compliance to meet their needs.
Texts Have Four Times the Response of Email
While email still has a strong presence in business to business communications, texting has taken over as the efficient way to communicate with customers. Unfortunately, because of the explosion of email marketing, email has become inundated and spammy – reducing the chance that email will be understood as legitimate, and actually opened and read.
Conversely, SMS messaging still has high legitimacy. Because of strict regulation, this communication channel still has a high open and response rate, especially compared to email, and even more so, amongst mobile phone users.
SMS/text messages have a phenomenal open rate of 98%. No other communication channel can offer a similar rate, making SMS communication one of the most effective ways to get your message to your customer. In contrast email communication reports a 22% open rate, this significantly reduces the chance of success.
Simplify Communication – Especially Regulated Businesses
Customers expect that all aspects of financial services be secure and simple. Today’s consumers expect an immediate response when it comes to their financial transactions as well as having the ability to communicate financial data anytime, anywhere in a secure, confidential manner. And if financial companies intend to communicate via text, they must assume the responsibilities of keeping text communications secure.
Text Messaging Compliance Concerns?
The Telephone Consumer Protection Act (TCPA) governs mass transmissions of phone calls and text messages (SMS) in the United States. The TCPA was signed into law in 1991 as a response to a growing rise in unregulated and harassing telemarketing calls and faxes. It has since been updated to include SMS messaging.
Essentially, the TCPA restricts telephone solicitations (i.e. telemarketing) and the use of automated phone equipment. It limits the use of pre-recorded voice messages, automatic dialing, fax and SMS use. Without explicit customer consent, companies must adhere to strict solicitation rules and must honor the National Do Not Call Registry. As a protection, subscribers may sue a company that does not follow the TCPA guidelines.
Consumer consent is an essential factor under the TCPA and should be a primary focus of any business that communicates with consumers and customers directly via any telephony method.
The Declaratory Ruling and Order of 2015
The TCPA was once again amended and more clearly defined in July 2015, when the FCC officially released the TCPA Declaratory Ruling and Order which addressed petitions and requests for clarity on how the TCPA is to be interpreted by the FCC.
This new order defined a handful of terms found in the TCPA and further clarified restrictions on telemarketers and consumer rights. Some key components on this ruling include:
Telephone service providers can offer robocall blocking to consumers.
Telemarketers may not use automated dialing to call wireless phone and leave pre-recorded telemarketing messages without consent.
Consumers may revoke consent to receive calls or SMS messages in any ‘reasonable’ way, at any time.
Callers must cease calling any reassigned phone numbers (wired and wireless).
Consent ‘survives’ when a person ports their landline phone number to a wireless number.
Some ‘urgent circumstances’ still allow a company to call or send SMS texts to wireless phones without prior consent, such as alerts about potential fraud or reminders of urgent medication refills. However, the company instigating such communications must offer consumers an ‘opt-out’ option.
Is the TCPA Similar to CAN-SPAM?
From a regulatory perspective, text messages though should be treated similarly to email. Email has its own set of consumer protections. But do they extend to business relationships?
The CAN-SPAM Act regulates commercial email messages from a business to a customer or potential customer. CAN-SPAM defines commercial messages as advertisements or promotions for a product or service.
As an important note—this definition does not extend to messages that communicate about an existing or ongoing transaction or relationship. This would include delivery notifications and communication about any active process with a customer.
Texts as Part of the Business Process
When it comes to doing business in the digital world, it stands to reason that transactional texts should be set apart from marketing messaging because it is part of concluding a business process, in which the consumer has already engaged. The details of a transaction have already been identified and the consumer has agreed to continue the digital dialogue.
Consent and Transactional Communication
Prior consent may include agreements obtained for text message opt-in via email, website form, text message, dial pad or voice recording.
Transactional texts contain no marketing messaging and therefore should be exempt from any compliance details that govern promotional texts. The TCPA doesn’t, nor should it, apply to transactional texts just like email spam laws don’t apply to transactional emails.
Doing business in the digital age should protect both parties in a business equation. Both parties should know what type of agreement they’re entering into at the beginning. Businesses, then, can incorporate checks and balances into their strategic plan and mitigate risk when it comes to TCPA, or any relevant regulatory compliance for text messaging.
Applying Compliant Texting to Improve Business Results
House Financial Services Subcommittee Hearing on CRA Modernization
The CRA is under periodic review, most recently April 9, 2019, when the House Financial Services Subcommittee on Consumer Protection and Financial Institutions held a hearing on “The Community Reinvestment Act: Assessing the Law’s Impact on Discrimination and Redlining.”
The purpose of the hearing was to focus on review of the CRA effectiveness under current law and execution and whether new initiatives are necessary to modernize CRA while maintaining the core mission of the law.
Main Take-Aways from the Hearing
Output from the hearing includes the following key points:
CRA needs reform; a fact supported by Members of the Committee as well as from witnesses. There is also a need to increase consistency among regulators as related to CRA approaches in terms of implementing an examination process which is more thorough and fair to all parties.
Not surprisingly, Committee Democrats are concerned that CRA changes will leave low- to moderate-income (LMI) communities in need of financial support in spite of witnesses noting that changes could increase support to these groups.
Mobile and digital banking initiatives related to the CRA need to be updated according to many Republican Committee Members.
During the session, committee members questioned witnesses about CRA requirements related to nonbank lenders. The Chairwoman and some of the majority witnesses said it was a loophole in the law (which was written prior to fintechs) that banks were exploiting since nonbank activity ultimately had to be channeled through a regulated institution. The Subcommittee Ranking Member suggested compliance costs would rise if CRA was pushed onto non-bank lenders.
CRA Requires Technology Advances
Technology advancements take a front seat especially with the role of mobile devices available to potential prospects. The group supported the concept that the digital shift in communications has propelled consumers ahead but that CRA may not be keeping pace. Discussions also included the concept that a service test can be expanded to incorporate mobile apps and online banking.
The need for face-to-face interactions to support technology was discussed as was the need to integrate mobile banking into non-served areas, especially those in rural communities. A new concept of revised metrics was raised, given the need for reinvestment due to new fintechs entering the market, especially when considering the inclusion of both rural and urban areas.
Some Members agree that the CRA is adaptive and lets lenders move where there is need. It is also the opinion of some that under CRA guidelines, banks still have public service duties in economically depressed areas even if the chance of profitability declines.
Banks must be made aware of technology initiatives to support mobile customer interactions that are focused on supporting digital experiences that open up more financial opportunities for consumers in low- and moderate-income (LMI) neighborhoods.
Since 1977, the U.S. government has required the Federal Reserve and other federal banking regulators to motivate other financial institutions to support the credit needs of those in their communities where they operate.
The Community Reinvestment Act (CRA) is backed up by examiners who review bank compliance for full community support*. Three federal agencies that monitor for CRA purposes include: Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board (FRB) and the Office of the Comptroller of the Currency (OCC).
Each of these regulators has, in turn, a dedicated CRA site to provide information about the banks they monitor as well as the CRA ratings and Performance Evaluations of those financial institutions.
CRA Addresses Loan and Credit Discrimination – Especially in the Lower Income Segment
Prior to implementation of the CRA, banks and financial institutions were not required to market their services and products to those living in LMI neighborhoods. This practice was called “redlining” determined by economic and demographic statistics where lower income people resided. This was clearly a discriminatory practice and the efforts of the 1977 CRA initiative ended the illegal practice.
Today, through the CRA, banks are required to review assessment demographics, economic and market trends when making qualified loan decisions. Clear cut strategic CRA goals are set and progress is monitored to maintain compliance.
Are Banks Inadvertently Being Discriminatory with Digital Processes?
On boarding, credit, and Loan applications are being processed in dramatically different ways over the past few years. Digital options are taking the place of more traditional, in-person banking, giving consumers a much wider variety of financial choices. As a result, consumers of any economic background have become empowered to shop for the best credit options, loan rates, and checking accounts available and financial institutions are offering up ways to better facilitate applications, regulations and compliance adding up to fluid customer experiences.
However, by offering the ability to access Apps and websites assumes that the entire process can be completed in one fluid process. Often for LMI households, credit or loan applications must include various stipulations, which would require the person to take off from work to visit a branch ( an option, may LMI customers don’t have) or print and scan an application using tools not even more well off households have.
Simplified Onboarding and Access Points To Serve the All Segments
Outdated application processes are driving prospects away even though financial institutions are investing widely to attract many applicants in a non discriminatory way. There is a huge hole in the financial application process in spite of attractive offers. In fact, only 20-30% of applications reach completion and in some cases, more than 70% of applicants just give up the process.
Amazingly, more than two thirds of abandonment situations originate from slow and sloppy processes—not pricing or even customer service. Many banks provide excellent customer experience on their websites, apps and various marketing processes. But they are failing to deliver a frictionless final stage of any application. Instead, they lose customers because of one of 3 core reasons:
Process & Documentation Requirements
Application Timelines and Interest
A Push to Simplify Complex Processes
The two most wide-spread and costly challenges impacting the conversions of loan applications are unwieldy application forms and clunky collection processes of stipulations.
Understanding and resolving these two application problems is the key to improving application yield.
Incorrect, incomplete, unwieldy application forms gathering stipulations and compliance
Today, banks are losing their applicants in the critical last part of the application process. When banks ask applicants to complete unwieldy forms and submit documentation and stipulations, applicants get frustrated and lose interest. They feel like they are being bounced between different channels. This results in high abandonment rates.
Worse, these customers abandon the application after they have already decided to become a customer of the bank. The problem is that it takes an average of five touchpoints for each borrower to finish one loan application, which translates into a very poor customer experience. This consumer experience gap only grows if an application is not compliant and has to be returned. At any one of these touchpoints, borrowers may simply decide that they don’t want to continue the application process.
Removing Impediments In Financial Transactions
Those final banking onboarding steps are precisely where Financial Institutions need to intervene. It’s precisely in those critical moments when customers determine whether to complete their process, and whether they will remain a loyal customer. Even if a customer’s entire journey to find a financial service provider has gone smoothly, it’s only the ‘last mile’ that really counts.
It’s in this final part of the customer experience that a CRA is drawing its attention. Currently this “last mile” is a painful experience, the customer often abandons the application process, frustrated and dissatisfied. To step-change performance and better serve LMI audiences, it’s imperative for lenders to invest in streamlining the final stages of the application process – The Last Mile.
Equip Banks with Tools to Streamline Processes
Real-time collaboration tools empower agents to provide exceptional experiences to customers even when they are on the go. Prospective clients stand to benefit from greater convenience in complementing and signing forms, providing stips and executing payments while lending agents will capitalize on the ability to immediately process loan applications.
The result? Higher conversion and yield rates. Lightico enables banks, credit unions, and other financial service organizations to make it easy for their customers to complete forms, submit stips, provide signatures, and collect payments. Offer customers a smoother experience that eliminates any obstacles that could cause a customer to abandon any application.
Electronic Signatures on Applications
Complete Application Forms Easily
Immediate and Secure Payment Processing
Collect and Verify ID and Supporting Documents
In lieu of one of the three primary evaluation methods, the CRA regulations provide banks the option to develop a strategic plan with the input of the community. Strategic plans allow banks to tailor their performance goals to the needs of their community by working directly with the community to develop the goals. This community input into the development of the strategic plan is conducted by soliciting public comments which may be submitted for up to 30 days during the process.
Strategic plans must be approved by the bank’s regulator in advance and must provide measurable performance goals sufficient for a satisfactory rating. Pre-defined performance goals may be included that, if met, would merit an outstanding rating.
In addition, a bank may choose to have the Federal Reserve Board evaluate its performance under another appropriate evaluation method if the bank fails to substantially meet its planned goals for a satisfactory rating. Please refer to the guidelines for requesting approval for a strategic plan (PDF).
Strategic plans may cover a time period of up to five years and must be submitted to the bank’s regulator for review and approval at least three months before the proposed effective date.
It will be interesting to see how CRA evolves with the advancement of digital banking options.
Most of us have probably played around with our signatures and eSignatures and have even taken fun personality tests that show who we are based on the style we show when signing our name. It may seem a bit far-fetched, but there is a science dedicated to analyzing and understanding handwriting styles. And while it’s fun to try to understand how and why we sign the way we do, there’s definitely a serious side to creating and projecting a personal signature. Some of the more obvious signature cues include angle, size, legibility, completion, and embellishments.
Let’s learn more about what your signature says about you and does it really matter in today’s digital and hyper-speed mobile world?
The science of personal signatures (and eSignatures)
You’ve probably seen more than one signature with a definite upward or downward slope. These styles tend to indicate either high or low confidence and it’s easy to see how they’re defined. Which one of the signatures below would you characterize as being more optimistic and high energy based on the slant of the signature?
Another factor is the size of a signature. Typically, the larger and bolder the signature, the more confident the individual. It doesn’t take much to think that this person has the confidence to spare.
Legibility matters a great deal to some people and others don’t even attempt to rein in their wild signatures. This is also a sign of how people feel inside and how their personality exhibits in their signature. If a signature is simply illegible, it’s probably fine with the owner who prides himself on being a rebel and someone who enjoys mystery and intrigue.
If a signature is incomplete or just a nickname, it suggests that the owner has high self-esteem and is preoccupied with efficiency. It simply takes too long for some people to sign their name when they feel there are more pressing matters for them to attend to. Some people add embellishments to their signatures to add additional flair which they feel conveys their personality. Curlicues, dots, and dashes all convey personality flourishes exhibiting determination, drive, and persistence.
What does your signature say about you?
Below are widely accepted meanings behind the kinds of signatures people use:
Illegible letters = Quick mind, mental agility
Legible = Open and straightforward person
Easy to read first name but hard to read last name = Places importance on personal accomplishments, and easily approachable
No underline = Prefers to let personal achievements speak for themselves
Underline = Sense of self importance
Closing flick or line at end = Drive and determination, proactive
Sharp lines = Impatient and aggressive
Upward slope= Sense of ambition, a tendency to look towards the future (the more slanted the more ambitious)
Downward slope = Pessimist, cautious in meetings, weighs risk
Rising up only towards the end = Sense of optimism
Slant towards the right = Outgoing persona
No slant = Balanced
Nickname = Independent, confident in own abilities
Initials only = Private person
No dot on ‘i’ = Reluctant to dwell on small details, a bigger picture person
Open ‘o’or ‘a’ = Collaborative nature, desire to share ideas
Pronounced capital letters = Confidence, strong sense of self-worth, perhaps arrogant
No surname = relaxed approach to business
Full stop = strong character in business
Straight letters = precise and meticulous attention to detail
Scribbled = sharp intelligence and busy lifestyle
Large, swooping letters = extrovert, confident
Highly stylized = creative flair, likes to make a statement
Flamboyant first letter = strives to make presence felt
However, with the growth of eSignatures, and the difficulty of capturing exact handwriting, what we can glean about the signer’s personalities will matter less.
What really matters: eSignatures speed up business agreements
The science of signatures can be fun to analyze but creating and using eSignatures can dramatically impact the nature of conducting business. It used to be that contracts could wallow in someone’s to-do pile for lack of getting them signed and returned in a timely manner. Business agreements may have been verbalized but nothing was official until the pen met the paper and sealed the deal.
Fortunately, companies no longer have to wait unnecessarily for signed agreements due to electronic signatures. eSignatures have been accepted legally since the passage of the Electronic Signatures in Global and National Commerce Act in 2000.
Most large businesses have integrated eSignatures and even smaller companies have jumped on the electronic signatures platform because of its ability to speed business documentation and processes. A study of 472 organizations conducted by the Aberdeen Group found that users of e-signatures were 50 percent more likely to show improved customer renewal rates. They were also 41 percent more likely to reduce proposal errors and 18 percent more likely to shorten their sales cycles. “A key challenge facing businesses is achieving cost-effective sales growth,” says Peter Ostrow, Aberdeen research director. “Users of electronic signature technology outperform non-users in areas that significantly impact sales growth.”
What is an electronic signature (eSignature)?
The term `electronic signature’ or eSignature as it is commonly referred to, means an electronic sound, symbol or process, attached to, or clearly connected to, a contract or form and executed by a person with the intent to sign the record or form.
eSignatures are legally binding for nearly every business or personal transaction. Businesses can obtain eSignatures legally that are binding from their customers, even while the customer is out of the office and on a mobile device. Businesses trust electronic records and legally-binding electronic signatures thanks to its simple user interface and its security procedures.
What to Look for in Next Generation eSignatures
Most of the electronic signature choices already in use operate with secure digital technology. And chances are that they are ESIGN and UETA compliant as well. But these are rather basic criteria to meet. To enhance the customer experience and drive business value, you’ll need to use an eSignature that’s more in line with the behavior of today’s consumers.
Some key drivers to consider include:
● Is it easy to use?
● Is it flexible?
● Is it in real time?
● Is it comprehensive?
Since their introduction in the late 1990s, basic digital signatures have enabled parties to contract with one another remotely and digitally, but haven’t evolved much beyond that. Meanwhile, next-generation eSignatures that are part of a wider, customer-centric system are making it possible for agents to instantly collect documents, eSignatures, and payments while customers are on the phone. This use of next-generation eSignatures streamlines workflows, ticks up customer satisfaction and increases completion rates.
In short, next-generation mobile ready eSignatures unlock enormous value from their customer interactions, removing friction that frustrates the customer expereince, hurts business and weakens brand loyalty.
eSignatures may not have the entertainment appeal of analyzing personalized handwriting samples but they’re good for the most important thing of all: securing business agreements when customers are ready to sign in order to process sales in a timely manner.
Some examples of famous signatures from people in tech companies:
Myprint247 created a great infographic of signatures from famous tech leaders and possible revelations about their personality. Which one is your favorite?
Apple recently announced Apple Card, a new kind of credit card built into the Apple Wallet app on iPhone. Customers can sign up on their iPhone and get a digital card in minutes that can be used anywhere Apple Pay is accepted, in stores, in apps, or online worldwide.
Innovation in Financial Onboarding
Apple is positioning the new Apple Card is a revolutionary credit card experience, which is only possible with the power of iPhone. Its noteworthy that they are highlighting the experience aspect of the card. As the fine print appears to mirror many competitive offerings. Apple are continuing to bet big on their ability to differentiate the experience.
Apple Experience Takes on Credit Card Challenges
The application process is simple, with no fees and a higher level of privacy and security. When the customer applies, a unique card number is created on the iPhone and stored safely in the device’s Secure Element, a special chip used by Apple Pay. Every purchase is secure because it is authorized with Face ID or Touch ID and a one-time unique dynamic security code.
Upping the Ante for Digital Financial Services
Apple is upping the ante when it comes to alternative banking services providers, leveraging its mobile penetration and partnership with Mastercard to handle payment processing. By offering users a seamless onboarding experience, with no fees, competitive interest rates, and attractive rewards program, Apple is poised to take the credit card niche by storm.
Issuers – It’s Time to Streamline Credit Processes
Traditional banks and credit card issuers have good reason to be evaluating new approaches to onboarding their customers. With Apple’s focus on mobility and simplicity, it’s clear that other issuers must reevaluate their readiness. The new battleground has been set and speed and simplicity just got a boost as Apple will push the industry towards products and services that are designed for the mobile customer.
The electronic signature (eSignature) has facilitated business operations for almost two decades. An eSignature locks in legally binding documents in business and personal interactions every day all over the world. A large part of their acceptance hinges on tight legal and security measures and a simple user interfaces.
Despite the incredible growth in eSignature adoption, there are still significant reasons constraining eSignature completion rates. We’ve identified the top 4 reasons why your eSignature completion rates are so low and share with you ways to fix them.
1. Emails Don’t Work Anymore for eSignatures
Thousands of businesses today use eSignature software to conduct business. Sales contracts, employment paperwork, procurement and purchasing documents and more are finalized via eSignatures.
When eSignatures started coming into their own nearly two decades ago, email was the typical medium for delivering the relevant documents. However, email today simply doesn’t compare to other channels of delivery when it comes to completing transactions requiring an eSignature. Consider these stats about email today:
74 trillion emails are sent each year
269 billion emails are sent each day
2.4 million emails are sent every second
121 average number of emails received by an office worker each day
49.7% of all email is spam
Email open rates are only 20%
Email response rates are only 6%
So while email used to be the go-to delivery mechanism, today inboxes have been abused and have lost their visibility. Now emails take a back seat to texts, social and almost everything else. When you consider receiving 120 emails a day, it’s hard to imagine any emails getting the cut through they used to have. Today, its more likely that emails will wallow in your inbox until one day you purge them, forget about them, or even change email provider.
Letting critical documents and contracts decay in email boxes is not a strong business strategy when it comes to critical business processes. So, if receiving documents signed and completed is important to your business, it’s probably a good idea to find an alternative delivery method for your eSignatures to ensure you get a higher completion rate.
2. Your Contracts and Documents Aren’t Always Clear
So, you’ve crafted the perfect document package and sent it to your customers. To complete the transaction, you just need the appropriate eSignature and the contracts will be completed. But, for some reason, people aren’t responding to your carefully crafted documents. Why?
We are simply expecting too much from today’s distracted customers. Customers want processes and contracts to be simple. They are not interested in sorting through the docs and trying to figure out what is expected of them.
In many instances, the documents businesses send to customers are not as clear as they might hope for. They often are misunderstood and cause the customer to hesitate or abandon their process. Moreover, many important, formal documents can look scary – especially when there’s no one available to provide clarifications and explanations.
With these ‘scare factors’ so prevalent in contracting, it’s important to provide simply mechanisms for customers to understand and complete their documentation. Customers oftentimes need guidance and clarification that rudimentary digital signatures don’t account for. As a result, such signatures are typically sent to customers but then customers abandon the processes -having been scared off by the heaviness of the process and the lack of immediate reassurances.
So when you send out your digital documents for signatures, do your customers have the ability to review documents live and collaborate with an agent that answers any and all questions?
3. Your Customers are Mobile but Your eSignatures Aren’t Mobile-Friendly
We’re definitely living in a mobile world and your business processes must reflect that. This is especially true when you are asking customers to complete and sign any formal documents – you need to anticipate and simplify how they will be received and completed on a mobile phone.
There has been a seismic shift in digital communications and the electronic signature your organization is using could be causing your conversion rates to plummet. The reason is that within the last couple of years, mobile web usage compared to desktop has skyrocketed. Some stats to consider: The percentage of people visiting mobile devices grew from 57 % to 63%; the percent of time spent on mobile devices increased from 40% to 49%.
If you are sending customers heavy documents that assume full keyboard and screen visibility, your mobile customers are going to have a tough time. Customers are simply not in front of their desktops as they used to be, nor do they have the patience to try and navigate clunky documents on a 4 inch mobile phone.
Several studies point to a faster than expected shift from desktop to mobile usage. However, most first generation eSignature solutions require mobile users to access their email, and then present their documents in full Letter size or A4 presentation on small screens. So while they are in fact mobile accessible, they fail to deliver a mobile-optimized experience. This poor mobile experience is hurting completion rates.
4. Your eSignature Requests Lack Context
It’s probably happened to you at some time. You receive something in the mail or email and the message is just vaguely familiar. And on top of that, the message indicates that a company is waiting on your signature to complete your sale.
Most people in that situation simply toss the communication because it has no relevance at the moment. In all candor, the sending company means no harm, they just want to sign you complete what they thought you already agreed. But, by the time you get the email or letter, you’ve lost all context. It’s lost all the excitement that you had to close the deal.
Now, it looks like what it truly is: a legal document with lots of fine print. No benefits. No features. No reason to buy.
When eSignature requests are made in a vacuum, they’re likely to stay there. However, if a potential customer receives an eSignature request after having heard the company’s product with benefits and terms, they are more likely to respond and complete the document with an eSignature.
To Drive eSignature Completion, Consider These Key drivers
There are some criteria to consider when creating an eSignature solution consistent with consumer behavior and great customer engagements.
First, is the solution easy to use? If your clients are required to scan documents, they’re more likely to abandon the entire eSignature process. To boost completion rates, it’s crucial that your users’ experience be seamless, particularly for on-the-go customers, so that they can complete any task directly from their mobile phone in one shot.
You’ll want to use an eSignature that enables different solutions, like agent-assisted or self-serve options. For your agents, an eSignature solution should be easily incorporated into your organization’s wider processes and workflows, including contracting, form filling and collections. And if you manage to find an eSignature that integrates with your current CRM system, all the better.
To increase form completion rates, your eSignature should facilitate an open, real-time and secure customer-agent collaboration. For instant processing, it’s important to find a solution that’s compatible with your organization’s document generation and other systems.
A next-generation eSignature that enables live collaborative document review and instantly completed signatures will enhance the customer experience while reducing the chance of abandonment due to customer frustration.
Ideally, your eSignature will be able to facilitate the completion of the entire process, everything from ID/document collection to form-filling and payments. Ultimately, the goal of every agent/customer interaction is to close as quickly as possible, with electronic signatures being one component of this process.
Next-generation eSignatures that are part of a wider, customer-centric system are making it possible for agents to instantly collect documents, eSignatures and payments while customers are on the phone. This use of next-generation eSignatures streamlines workflows, ticks up customer satisfaction and increases completion rates.
Now that so many documents are shared, sent, and stored electronically, having to download them into paper form, receive a physical ink signature, and then upload them again is a real burden. Hence the development of the electronic signature, or eSignature (sometimes referred to as digital signatures). eSignatures allow someone to confirm their agreement to a document or activity using electronic means.
eSignatures have a particular impact on financial services, however, any business that sends large volumes of documents that require a signature must have an eSignature solution. If you expect a customer to sign an arrangement, it can take several attempts because of the hassle involved, and being able to catch them when they are able to take care of it. An eSignature can be captured through email, text message, over the phone, or on a shared platform, removing obstacles and speeding up the process. More so there are questions you should be asking which eSignature solution really covers your true needs.
While eSignatures are extremely important for speed and improved customer experience, they need to conform to legal requirements. If they aren’t carried out correctly, you risk having documents that aren’t considered legally binding.
In this article, we’ll cover the legal issues and requirement for various jurisdictions and take a look at what makes a great eSignature solution. First, a note that our lawyers made us put in: This article is for reference only and should not be considered legal advice by Lightico or the author of this article; consult your own attorney if necessary.
eSignature Legal Issues by County – US, UK, & EU
eSignatures are accepted around the world, but different regions and countries have different frameworks in place to permit them. This post will address the United States, the United Kingdom, and the European Union.
eSignatures in the US
In the US, the legal acceptance of eSignatures is based on two main acts: the state Uniform Electronic Transactions Act (UETA) and the federal Electronic Signatures in Global and National Commerce Act (ESIGN). Both acts were passed in 2000.
Both ESIGN and UETA note five main elements that make an eSignature legally binding:
Validity: Signatures and records that are created electronically carry the same weight and import as traditional paper and ink versions. Just because a signature was recorded electronically cannot be a reason for invalidating it.
Consent: The person signing must give consent to using an electronic signature. That involves making certain disclosures to them before they sign.
Intent: Just like a physical signature, an eSignature demands that the person signing has the intent to sign the document. They must agree to what’s written in the document they are signing and fully understand the effect of their signature.
Recording: An eSignature needs to be accompanied by a record that makes it clear that this is an electronic signature and not a physical one.
Data integrity: Just like a paper document, records that have been e-signed need to be kept secure from tampering, alteration, or unintentional loss of data.
In the US, documents that have been signed electronically are accepted in almost all situations. That includes B2B, B2C, and C2C interactions, as well as interactions between the government and businesses or individuals. There have been many court cases that recognized the reliability of eSignatures, enshrining them in case law.
There are some instances when eSignatures aren’t accepted in the US. Sometimes, the process is formulated in a way that restricts signatures to ‘wet ink’ or formally notarized signatures. Cases when eSignatures aren’t accepted include:
Adoption and divorce agreements
Court orders, notices, and official documents
Termination of health or life insurance benefits
Wills, codicils, and testamentary trusts
eSignatures in the UK
Like ESIGN and UETA, the UK Electronic Communications Act in 2000 confirmed that an agreement can’t be termed invalid purely because the signature is an electronic one. Electronic signatures were accepted in the UK under the Electronic Signatures Regulations Act in 2002.
According to English law, a valid contract doesn’t necessarily need a written signature, as long as both parties have full understanding of the contract and reached a mutual agreement. This being the case, an electronic record – like an eSignature – is acceptable proof that both sides agreed to the document. These are Standard Electronic Signatures, or SES.
An SES isn’t seen as having the same weight as a handwritten signature, but UK law does accept a particular type of eSignature as equal to a handwritten one. These eSignatures are termed Qualified Electronic Signatures (QES) or Advanced Electronic Signatures (AES).
An AES is:
Uniquely connected to the person signing
Identifies the person who signed it
Created using a process that can only be accessed by the signator
Linked to other data, so if there is an alteration then the change will be detected
A QES is:
A particular type of digital signature that has been approved by the government
Created using a secure signature creation device
Accepted as the equivalent to a handwritten signature under all legal conditions
In the UK, standard eSignatures are accepted on most documents, including HR documents, employment contracts, commercial agreements, sales documents, short leases, guarantees, and loan agreements. Other documents need QES or AES.
There are some documents, however, that still have to be signed by hand, including:
Some family law documents such as prenups and separation agreements
Real estate deeds such as transfer of title, legal mortgage, and release of a mortgage
HM Customs and Revenue documents
eSignatures in the EU
In 2000, the EU accepted eSignatures as legally binding through the Directive on a Community framework for electronic signature (eSignature Directive). This confirmed that an electronic signature can’t be rejected just because it was created electronically.
Many European countries share the UK’s approach of accepting contracts as legally binding without a handwritten signature. In 2015, EU legislation replaced the 2000 eSignature Directive with Regulation (EU) No 910/2014, usually referred to as eIDAS. eIDAS stated that there are three types of eSignatures – SES, AES, and QES, just like in the UK.
The standard eSignature (SES) is accepted for most contract and documents, including employment contracts, purchase orders, invoices, sales agreements, software licenses, and real estate documents. An SES is accepted in B2B, B2C, and C2C situations. AES or QES are accepted for most court briefs, consumer credit loan agreements, and residential and commercial leases.
Like in the US and UK, there are just a few situations in which only a handwritten signature will do. These include:
Contracts to transfer or buy real estate
HR termination notices
Incorporation of a limited liability company
It’s important to remember that each member of the EU has its own set of requirements for eSignatures.
You don’t want there to be any chance that your customers’ eSignatures aren’t accepted. To avoid this, follow these best practices:
Make sure that there is a clear audit trail that backs up the eSignature’s validity. This includes actions that the signator took before signing the document, like having checked a box to show they agreed to terms and conditions or clicked Next Page to sign.
Set up a secure signature site that uses user authentication to ensure that only the customer can sign.
Use third-party software to verify that you complied with disclosure regulations.
Use a third party to maintain a secure storage site that ensures that the document can’t be tampered with after signing.
Include an easy way for the signer to download and save a copy of the document for their own records.
Next-generation eSignatures that are part of a wider, customer-centric system are making it possible for businesses to instantly collect documents, eSignatures, and payments while customers are on the phone. This use of next-generation eSignatures streamlines workflows, ticks up customer satisfaction and increases completion rates, all in a fully compliant and legally binding manner.
As electronic signatures became more popular and accepted, numerous eSignature solution providers sprang up. The challenge is to choose the one that matches the needs of your business and your customers, while also complying with the requirements that make eSignatures legally binding.
Defining a Reliable and Powerful eSignature Provider
eSignature solution providers must posses stability and reach. Buyers should check the number of documents and signatures each provider processes each year and for whom. Depending on the diversity of your industry and your customers, you should look for a soltuion that fits your needs and market.
The eSignture solution must provide professional services and a customer success team. If a provider has a small staff, they might not have enough skilled professionals to serve your needs. Look for a company that has at least 15 employees focused on implementing eSignature and other solutions.
If you are an enterprise, even more so. Companies that need to implement different, customized eSignature use cases within the same solution, such as across multiple departments, will need a provider that’s able to deliver enterprise-grade services.
How to Choose an eSignature Solution Provider
Before choosing an eSignature provider, it’s important for enterprises to think about the most important elements for it to deliver. Some issues to consider include:
Will eSignatures be mediated by a company employee, agent, or customer representative (e.g., insurance agreements, auto loan agreements)? If so, you’ll want strong collaboration capabilities that you can rely on.
For non-mediated eSignature use cases, ease of use for signatories becomes a paramount concern. You’ll also want a solution that is highly customizable and delivers mobile support. E.g., eCommerce purchases, self-serve.
Are your eSignatures needed for high-value transactions, like loan applications and agreements or investments? The higher the value of the agreement, the more important it is to choose a solution that delivers strong electronic evidence and has increases the chances that the contract will be returned signed.
Will you be using eSignature solutions for internal workflows, such as quality assurance or revenue recognition for SOX compliance? In these cases, ease of use and low cost is key, along with a reliable audit trail to track user history.
10 Things to Look for in an eSignature Solution
1. Smooth integration with other tools
Your eSignature solution doesn’t operate in a vacuum. You want one that integrates easily with your CRM, customer service portal, contact center, and payment processors, etc. so that you can match it to different use cases according to your needs.
2. A complete, end to end solution
Ideally, your eSignature provider can handle the entire signing process from end to end. It should allow the signatory to add documents, pause and save the process before completion to return to it later, and save it even if a document is missing. This is especially important if you need it for unmediated eSignatures.
3. Strong proof of signing
The best eSignature solutions deliver strong electronic evidence that links the signature of the user with the records that they have signed. It should also be impossible to change the data within the records without it being immediately obvious.
4.Real time collaboration
An eSignature solution that enables both parties to examine the document or action and e-sign in real time helps eradicate misunderstandings, increases mutual trust, and helps identify and correct errors. In the case of customer transactions, contracts, or other agreements, you need to be sure that both signatories understand the conditions laid out in the document. Real time collaboration helps make sure that the document to be signed is accurate, with all details completed and any necessary documents uploaded. It enables all parties to verify that the documents are presented correctly and that both sides have the same view.
5. Cross-device compatibility
Today, most of us are connected to our phones at all times. We are used to shopping, banking, and learning while on the go, so we also want a digital signature solution that is easy to use on mobile. This is especially true for eCommerce purchases, e-voting, completing employment forms, and employee quality assurance workflows. That means using a responsive electronic signature solution that can transfer from mobile to desktop to tablet, so that users can complete and sign on any channel.
6. Easily customizable
Look for an eSignature solution that is flexible enough to meet your needs and offer different methods for approval or signature capture, like finger swipes, clicking a checkbox, and free-drawing a signature with a finger or stylus.
7. Reliable authentication and identification
eSignatures stand or fall by their authentication methods. You’ll want to look for an electronic signature solution that also incorporates ID verification and authentication as an option.
8. Clear line of consent
In order to be legally accepted, your eSignature solution needs to incorporate all the necessary disclosures. The solution should make it very clear that this is an electronic signature platform, and allow the user to decline if they aren’t comfortable with that option. It should make it easy to verify that the user is aware of their actions.
9. Secure, and tamper-proof
Maintaining data integrity is a key element in assuring the acceptability of electronically signed records. You want an eSignature solution provider who can deliver a reliable, and secure solution. It should include third-party certifications, encryption over the internet and tamper-proof features that make it obvious if the records or the data within them have been altered or changed in any way.
10. Clear audit trail
If you should have to prove the validity of your e-signed documents, you’ll want to be able to draw on a clear audit trail. This tracks the actions taken by the signator along each step of the signing process, in order to demonstrate the entire interaction and prove the user’s intent to sign.
Lightico eSignature Solution
With its advanced security, real-time collaboration capabilities, strong authentication and electronic evidence, and a reliable audit trail, Lightico more than checks the boxes for a versatile eSignature solution provider. Lightico’s proprietary eSignature solution integrates seamlessly with the rest of the Lightico platform, making it easy to guide users to complete agreements in real time, collect supporting documents, complete forms and more.
Auto loan delinquency is a rising problem in the US. Over the last five years, the number of loans that are more than 90 days delinquent rose by 77.7%. Among subprime borrowers, the increase in delinquent loans is the most stark. In 2018, 33% more loans became delinquent than in 2015. By the middle of 2018, America’s auto loan debt had reached $1.06 trillion. Yet at the same time that auto loan delinquency rates are rising, the default rates for mortgage loans have hit rock bottom. It’s important to examine what’s behind these high delinquency rates, and what lenders can do to help reduce them.
The Causes of Auto Loan Delinquency
There can be a number of reasons why someone might default on their auto loan. However, one of the most common causes is simple forgetfulness. Living hectic lives, borrowers can easily lose track of the date and accidentally skip a payment. By the time they realize their mistake, they may have fallen so far behind that accumulated interest and late payment penalties form a debt that is too high for them to repay.
It’s no big surprise that borrowers who set up automatic payments have a 50% lower rate of delinquency. With automatic payments, there’s far less risk of a borrower missing a payment through pure absent-mindedness.
What about those borrowers who don’t have auto-pay set up?
First, they’ll receive reminders about upcoming or recently overdue payment using phone calls, text messages, and emails. If reminders don’t work, the loan servicing agent tries to make contact with the customer to collect the payment. But this is easier said than done. Only 40% of auto loan payment collections are successful.
Why Does Auto Loan Payment Collection Have a High Rate of Failure?
While servicing agents have everything they need to collect payment readily to hand, the same can’t be said of the borrower. Borrowers are typically out and about, easily distracted, and occupied with half a dozen other tasks at the same time as talking to a loan agent. Completing an auto loan payment requires a great deal of time and effort for the borrower.
Successfully collecting payment requires multiple touchpoints and actions:
Viewing proof of an overdue payment
Verifying the borrower’s identity
Discussing the remaining balance amount
Demonstrating the borrower’s income and expenditure expectations
Calculating a realistic repayment schedule
Ensuring regulatory compliance
Securing the borrower’s agreement to the new repayment terms
Collecting the borrower’s signature
Receiving secure payment
The customer might need to use their email, phone, printer, scanner, text messages, a separate app, and possibly even snail mail in order to do all these things. All this is at a time when tasks in other areas of their lives are carried out faster, with one touch, over mobile. It’s understandable that 67% of customers report being frustrated by the process of making auto loan payments.
How to Improve Successful Loan Collection Rates
There is a way to use technology to improve auto loan collection. Using a collaborative platform with simplified, interactive tools for real-time coaching and instant consent has been shown to improve collection by 25%, speed up the process by 80%, and bring about a 65% improvement in customer response.
1 Real-time coaching
Using a collaborative platform like Lightico allows the loan agent to discuss the payment process in real time and guide the borrower through the complex process of auto loan payment. The ability to share images and documents means that the loan agent can show the outstanding balance and current repayment schedule. It also allows the borrower to quickly verify their identity, and share their income and expenditure to prove their ability or inability to meet the current repayment schedule.
Real-time, in-platform collaboration enables agent and customer to discuss and agree on a new, realistic balance repayment schedule. With a repayments calculator, the agent can demonstrate typical weekly or monthly repayments, show the breakdown of interest, and illustrate the total amount to be paid, without interrupting the flow of communication.
2 Simplified forms
Long, complicated PDF forms are a huge obstacle to the borrower. They need to be downloaded, completed, and then scanned in or uploaded again, requiring numerous touchpoints. It’s easy for errors to creep into a form that has many detailed fields.
Loan agents meet with more success with an interactive, fillable, simplified mobile form that can be completed instantly, from any device. This way, customers can complete income and expenditure forms while still connected with the agent. The loan agent can immediately respond by adding details about the amount and frequency of payments. Both sides can see the information and make corrections instantly. Direct debit agreements can also be filled in and signed securely without leaving the platform.
3 Instant consent
Forms, and ACH (direct debit ) instructions can be easily captured, and when applicable these documents can be legally signed with a finger swipe. There’s no need for the customer to download, print, sign, scan, and upload a document. They simply swipe to sign then and there.
The Customer Who Cannot Pay
The above process is very effective for borrowers who just need help completing a payment, or require an easier repayment schedule. However, many customers, especially subprime borrowers, took out an auto loan during better economic times, but then found they couldn’t keep up with repayments. With these customers, the problem isn’t that they forgot to pay or need an easier repayment schedule – they simply cannot make the payment right now.
The Many Obstacles to Loan Deferment
It’s rare to find a borrower who wants to default on their auto loan. On top of the risk of losing their car to repossession, defaulting on a loan has a big, negative impact on their credit rating. So most borrowers are delighted to choose the alternative of deferring payment. Deferment can involve refinancing the loan at a lower interest rate, extending the term to allow for lower monthly payments, or agreeing to skip a certain number of payments and attach them to the end of the term instead.
The trouble is that deferring loan payments involves just as much paperwork and just as many touchpoints as collecting an auto loan payment. The loan agent needs to:
Confirm the borrower’s identity
Show the borrower the outstanding balance
See proof of the borrower’s inability to pay – i.e. income and expenditure – and reasons for asking for a deferment
Draw up a new loan agreement or forbearance agreement that details how many payments can be deferred, the new payment schedule, any changes to the loan terms, and any penalty fees
Share the new agreement with the borrower and confirm that they accept it
Receive signed consent to the new loan terms
How to Decrease the Amount of Work Put Into a Loan Deferment?
Once again, tech delivers the solution. The same platform that speeds up and streamlines auto loan payment collection also improves loan deferment. With a collaborative, interactive platform, the borrower is able to share proof of income and expenditure and documents that support their extenuating financial circumstances, such as having lost their job or a sudden death in the family.
In response, the loan agent can discuss the best loan deferment solution with the borrower. They can view and consider different repayment schedules, the impact of deferred payments, and various terms extensions together, in real time. The loan agent can also use visuals to illustrate the borrower’s options.
By simplifying the necessary forms and using auto-fill options, updated details can be completed faster, and with fewer errors. With the agent present throughout, the borrower can immediately ask for and receive an explanation about any confusing fields or questions.
Finally, swipeable finger signatures mean that the loan agent can gather legal consent instantly, without requiring the borrower to download, sign, and upload the form again. By removing roadblocks to deferment and easing customer frustration, loan agents can reduce default rates and increase deferment uptake.
Tech Can Help Reduce Auto Loan Delinquency
The worrying rise in auto loan default rates is made worse by a long, complex process for both auto loan payment collection and auto loan deferment. Borrowers who are accustomed to smooth, fast, mobile task completion are deterred seeking deferment and fall into loan delinquency by accident, out of inactivity. By simplifying forms, reducing touchpoints, and enabling real time loan agent collaboration, technology like Lightico removes the obstacles to successful loan payment and loan deferment to help reduce the rate of auto loan delinquency.
2018 was a difficult year for loan originators. According to one study, cycle times increased while refinance volume decreased. As a result, loan origination costs rose to $8,957 per loan. With the competition over new borrowers intensifying, its critical to for lenders to mind and manage the right KPIs.
Streamline the Loan Pipeline By Watching For the Right KPIs
This KPI measures pipeline efficiency by dividing total funded loans by the number of applications submitted during a defined period. This metric provides important insights into workflow efficiency, the quality of applications submitted, level of customer service, interest rate competitiveness and the suitability of a potential customer’s profile.
2 Decision to Close Time Cycle
The decision to close time cycle provides information about the number of days required to close and fund a loan after the underwriting decision has been made. This KPI provides insights about how efficiently a lending team is coordinating origination efforts with loan officers.
The average loan cycle time can vary but is typically up to 1 week. While lenders are investing in automated quoting system, close time often depends on customer interactions. Long cycle times can be the result of redundant touch points and unclear communication between loan support, loan officers and borrowers.
3 Abandoned Loan Rate
One recent survey found that application abandonment rates have shot up by 35% over the past two years. Abandoned loan rate measures the percentage of loan applications that are abandoned by a borrower after they have been approved by the lender. There are several common reasons for a high abandoned loan rate, including a lack of transparency between lender and prospective borrower during the approval process, failures in completing necessary forms, collecting documents, signatures, and inefficiencies within the application review and approval processes.
4 Average Origination Value
The average origination value measures the total revenue earned for each loan over a given time. This KPI combines origination and underwriting fees, as well as any other fees that are added to revenue. If this KPI is low, this could be indicative of a low average value of loans originated or origination fees that are below accepted industry standards.
5 Application Approval Rate
In October 2018, small business loan approval rates from banks reached a record high. One reason for this is the implementation of increasingly precise KPIs like application approval rate. This metric is calculated by dividing the amount of approved applications by the amount of submitted applications.
A low application approval rate means that a lender is investing too much time and money on unqualified borrower applications. Loan pipelines with a substandard application approval rate can be expedited by streamlining the document gathering and review processes.
*KPIs continue below quiz
How Ready is Your Loan Application Process
6 Net Charge-Off Rate
The net charge-off rate is the the difference between gross charge-offs and any subsequent recoveries of delinquent debt. This KPI effectively represents that amount of debt a lender believes it will never collect compared to average receivables. Debt that is unlikely to be recovered is often written off and classified as gross charge-offs. To calculate the net charge-off value, any money that is eventually recovered on a debt is subsequently subtracted from the gross charge-offs.
7 Customer Acquisition Cost
This key financial measurement is the ratio of a borrower’s lifetime value to a borrower’s acquisition cost. These costs include but aren’t limited to research, marketing and advertising. Ideally, the customer acquisition cost should be greater than one since a borrower isn’t profitable if the cost to acquire is greater than the profit they will bring to a lender. This KPI is used by lenders to help determine how much of its resources can be profitably spent on a particular customer
8 Average Number of Conditions Per Loan
This KPI is especially relevant for lenders seeking to enhance their CX. According to the International Monetary Fund (IMF), the average number of conditions per loan is 26.8. And this study by the IMF also found that the number of conditions on loan applications is increasing. The loan application process is hindered by a proliferation of conditions, adversely affecting a lender’s ability to provide a fast and seamless customer experience.
As such, lenders who develop a deep understanding of their loan pipeline and their teams’ performance are much more likely to streamline customer-facing processes. And the right KPIs can guide decision-makers on where to focus their efforts to enhance the customer journey.
What gets measured gets improved. Lenders who harness the insights provided by the above KPIs will more effectively manage process flows and operations. The result: increased sales, conversion rates and customer satisfaction levels.