Navigating the Path to Automated Decisioning
Philip Paul, CEO and Founder, Cotribute
In the dynamic landscape of financial services, credit unions face a constant push toward efficiency and innovation. With emerging technologies reshaping the industry, the journey toward automation and streamlined processes is not just a competitive advantage but a necessity. One crucial area where automation can yield significant benefits is in decision-making processes, particularly in account opening and loan applications.
Leveraging technology can enhance productivity and reduce operational overhead. Although the benefits are clear, the challenge lies in the implementation—‘how’ to adopt technologies such as automated decisioning without disrupting existing operations or alienating employees and members. With a phased approach delineating clear steps, credit unions can embark on the journey towards greater efficiency and effectively managing risks for automated decisioning.
Baseline: The "Pend" Paradigm
Before delving into the phased approach, it's crucial to understand the starting point – the "Pend" paradigm. This baseline operates on a mostly manual basis. The vast majority of applications are put into a queue for manual review where decisioning intelligence is not leveraged. This baseline process tends to be expensive due to the large amount of research and investigation involved.
Employees need to be extensively trained to detect fraud and qualify applicants based on various factors, and the inevitable human error can add additional costs for the credit union. Potential members might lose patience with the process if it takes too long and even abandon the application halfway through. While not inherently flawed, this manual approach fails to align with evolving member preferences for online service and the imperative to contain operating expenses.
Level 1: Supplementing Chex and Credit Bureaus with Wrap-Around Risk Factor Insights
The first step in the automation journey involves augmenting traditional data sources like Chex and Credit Bureaus with additional risk factor insights. These can provide additional insights that can be used as part of an individual manual review process to provide more details about the nature of the risk (synthetic vs. technological). This helps credit bureaus better understand the types of risks that they are encountering in account opening and in many cases, can suggest an appropriate intervention.
For example, phone risk factors might compel a credit union to solicit a copy of a phone carrier bill. ID risk factors might trigger the need for the prospective member to present a social security card. As a first step in the evolution toward total account decisioning automation, the addition of wraparound risk factors can help familiarize risk managers with the new insights that next-level risk factors can provide.
Level 2: Implementing Touchless Decisioning Rules
Building on the Level 1 foundational insights, Level 2 introduces touchless decisioning rules, enabling automated approvals or denials for straightforward cases. Even though manual review remains a component, automation streamlines the process, reducing time and resource investments. This phase emphasizes a conservative approach, gradually expanding automation as confidence in the decisioning engine grows.
Level 3: Establishing a Continuous Feedback Loop
Level 3 emphasizes the importance of continuous evaluation and refinement. By creating a feedback loop, credit unions can monitor the impact of decisioning changes on fraud incidence and operational efficiency. This iterative approach ensures that decisioning parameters remain calibrated to organizational risk tolerances, mitigating the risk of unintended consequences.
Level 4: Introducing Best-Practice Decisioning Criteria
In Level 4, credit unions adopt a ‘layered’ approach to risk management, balancing conversion goals with risk containment. By incorporating best-practice decisioning criteria, such as membership eligibility, fraud detection and customer due diligence, credit unions optimize decisioning processes in addition to safeguarding against undue risk exposure.
Level 5: Transitioning to Non-Documentary Identification
Level 5 represents a paradigm shift toward non-documentary identification, minimizing friction in the account opening process and enhancing efficiency and member experience. By leveraging technology for identity verification, credit unions can streamline operations and reduce abandonment rates, albeit with careful monitoring to mitigate the risk of identity fraud.
Level 6: Extending Touchless Decisioning to Loan Applications
The final stage in this pathway extends touchless decisioning to loan applications, marking a holistic transformation of decisioning processes across account opening and lending functions. With advancements in consumer-facing loan application systems, credit unions can leverage automation to expedite underwriting processes and enhance member satisfaction.
The journey toward automated decisioning represents a transformative opportunity for credit unions to enhance efficiency, reduce costs, and elevate member experiences. Adopting a phased approach enables credit unions to navigate this transition effectively, balancing the imperatives of risk management and operational agility. Embracing automation is not just about leveraging technology – it's about reimagining processes to better serve members and position credit unions for sustained growth in an increasingly competitive landscape.