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CUs search for lending technology that meets multiple goals

Frustrated by a lengthy, cumbersome lending process, credit union employees and members have muttered the same phrase for years: "There has to be a better way." The latest technology trends are propelling credit unions toward that elusive "better way," with superior methods for paring business processes to the essentials, fighting fraud, serving small businesses, and streamlining services via the Web.

Driving some trends is the need to improve lending performance in a tight economy, while other trends respond to regulators' concerns about information security and identity fraud, says Christine Pratt, senior analyst, consumer credit, for TowerGroup, Needham, Mass.

"Many folks are talking about how to manage lending from a business process standpoint," Pratt says. For example, when the economy slows portfolio growth, credit unions seek better ways to manage lending risk, either at the front end by reducing fraud in applications and new accounts or at the back end by making collections more efficient.

At the same time, credit unions work to understand how information moves within the organization to control its flow and function. By providing a total view of the member, credit unions help guard the flow of information and reduce fraud. These enhanced processes also make it easier to serve a high volume of members and develop new services.

"There's a lot more emphasis on how secure your data are and how you know who is standing in front of you," Pratt maintains.

WEB-BASED SERVICES

Web-based services often suit these needs, Pratt says. Also known as application services, Web-based services allow users to access applications and services over the Internet. Vendors that offer these services often are known as application service providers (ASPs). Because they're designed for Web access, these services can help integrate disparate systems-from marketing customer information files software to loan-scoring applications-and are cost-effective for credit unions with different needs and budgets. Because Web-based services can be outsourced, they also may reduce the credit union's outlay and ease the burden on information services staff.

In this environment, Pratt says, it becomes apparent that effective lending technology decisions never are made in a vacuum. Instead, decision makers acknowledge the full range of lending needs and then search for technology that meets multiple goals.

Mortgage origination products provide an example of technology applications meeting multiple objectives. Prime Alliance Solutions, Seattle, offers mortgage business solutions for credit unions, using a Web-based services model. Prime Alliance is a credit union service organization owned by $4.5 billion asset BECU, formerly Boeing Employees Credit Union, Tukwila, Wash., and Dexma, a mortgage technology provider in Edina, Minn.

Dan Green, executive vice president, says Prime Alliance helps credit unions eliminate unnecessary steps in mortgage j origination by providing self-service online applications, automating loan scoring and other functions to deliver a faster response to members, and eliminating paper files. As a result, Prime Alliance clients have cut mortgage origination costs to an average of $900 in 2002, compared with a nationwide average of $1,800 in a Fannie Mae study.

Green agrees Web-based services afford multiple benefits for credit unions and their members. Credit unions benefit from Web-based ASP systems because the vendor assumes the burden of installing, maintaining, and updating the system. Small credit unions more easily can afford these systems because pricing depends on volume.

Other vendors recognize this trend: All vendors contacted for this article allow credit unions to purchase software to run on in-house systems while also making available an ASP arrangement.

Members also benefit from Internet services available 24 hours a day from any location. Green predicts the expanding availability of high-speed, broadband Internet connections will increase credit union members' use of self-service options.

As credit unions adapt to Web-based services, they'll continue to refine operations to eliminate paper and minimize staff demands. Green says Prime Alliance helps credit unions address the interplay of technology and process by analyzing operations and then using technology to devise short-term and long-term improvements. Green sums up in four words his most basic rule for simplifying lending processes: "Electrons good, paper bad."

LIFE AFTER THE BOOM

The mortgage refinance boom has made it easy for credit unions to attract lending volume while rates are low. But lenders also need technology tools that maintain volume when the boom ends.

"Once all this insanity leaves and rates increase a little bit, credit unions will be faced with finding new, innovative ways to attract members," says Jason Abramavicius, e-business development executive at CUNA Mutual Mortgage Corp., Madison, Wis. CUNA Mutual provides lending technology and operates a lending call center that serves about 230 credit unions nationwide. "They'll need tools that give them a competitive advantage."

One way to create that advantage is to treat the Web as a credit union branch, with processes that allow members to obtain instant lending decisions. Members also will demand live assistance during extended hours to match their Internet use.

Behind the scenes, credit unions will need to move information smoothly from online applications into backroom processing without re-entering data. Abramavicius predicts credit unions will upgrade core processing systems to eliminate manual data entry and move data smoothly to and from Web-based systems. With such improvements, credit unions will realize the full potential of Web-based services.

That type of internal streamlining is occurring at Desert Schools Federal Credit Union in Phoenix. Robin O'Rorke, vice president and chief lending officer, says the $1.9 billion asset credit union believes it's critical to understand the role of each distinct lending function so it can build capacity models. This allows Desert Schools Federal to reduce the number of people who "touch" the loan and to get the most from staff.

For example, the credit union knows each processor handles 50 loans a month, while each closer handles 150 loans. To maintain work flow, it must ensure balance between the supply of processors and closers. That means being proactive with staffing by adding temporary employees when mortgage applications increase.

INTEGRATED SERVICES

This same philosophy is spreading to other lending areas to increase credit union efficiency. O'Rorke says Desert Schools Federal seeks best-of-breed Web-based solutions for every lending area in the credit union.

"We look for systems that can best accomplish a specific function while integrating into a foundation with flexible architecture," O'Rorke says. Three-dimensional, layered risk-analytics software examines data from multiple sources, which enables the credit union to create business rules combining consistency and flexibility for each product line. This improves the accuracy of decisions while increasing the percentage of decisions that automated systems can handle.

A flexible architecture also creates the capacity to build business lending into Desert Schools Federal's future plans. The credit union has developed a small-business line featuring 17 products designed for "microbusinesses" seeking loans of up to $100,000.

"We hope to differentiate ourselves via a streamlined application and the ability to provide timely responses because most of these loans will have automated decisioning," O'Rorke says. Desert Schools Federal also will offer commercial and industrial loans of more than $100,000, relying on manual underwriting to cope with the complexity of larger business loans.

"We hope business lending and other initiatives aimed at increasing overall responsiveness and access will assist us in reaching our loan growth goals and improve upon our 14% growth rate for 2003," O'Rorke says.

ANALYZING RISKS, INTEGRATING DATA

Many vendors aim to help credit unions improve responsiveness and access with integrated solutions. Fidelity Information Services, Little Rock, Ark., a division of Fidelity National Financial (formerly ALLTEL Information Services), addresses those goals with a product called Advanced Lending Solutions-Servicing Manager (ALS-SM).

ALS-SM services any retail loan, including unsecured consumer loans, indirect lending through car dealers and other merchants, home equity lines of credit, and small-business loans. The ability to manage all retail loans with a single software package affords economies of scale and allows credit unions to expand member services, says Merry Campbell, retail lending product line manager.