Does “Robo-advice” Include Lending?
By now, financial services consumers have gotten used to the idea of a robot handling their money. In fact, according to Accenture, seven out of 10 consumers even welcome “robo-advice” for their banking, insurance, and retirement services.(1) So clearly, consumers are at least open to the notion of a robot handling their assets – but what about their liabilities? Are consumers ready for a loan processed entirely by a robot?
Robo-Lending in the Consumer Space
Consumers are already using robots that process loan requests across the entire loan process, which includes the application phase, as well as the underwriting, decision-making, closing, post-closing, and servicing phases. Companies like QCash Financial and CUNexus provide loan solutions specifically to the credit union industry that are fully automated and require only one click from the borrower. Fully automated solutions also exist within one of the most complex consumer loan products: home loans. Fintech solutions such as Habito and Trussle are currently developing home loan processes that are devoid of human touch (also known as frictionless).
Robo-Lending in the Business Space
While the use of robots in the consumer loan process is becoming more and more commonplace, there’s still considerable ground to make up in the business lending space. For example, in 2015, small business alternative lenders only originated $5 billion in loans, or 4.3% of market share. According to a Business Insider Intelligence report, that market share is anticipated to grow to 20.7% by 2020.(2)
Some of what is holding back robo-lending in the business space is that there has yet to be a solution that is truly frictionless. There are some solutions that are very close to full automation. For example, I have witnessed multiple demos of Mirador’s small business lending fintech solution. While they have automated pieces of the process, there is still hands-on human involvement to ensure accuracy in importing figures from financial documents. Even Akouba, who promote their endorsement from the American Bankers Association (ABA), has not fully automated the business loan process.
In fact, of all the business lending solutions demos I have witnessed, it is ProfitStars’ own Commercial Lending Suite that is the closest to a fully automated, frictionless process.
Will “Loan Entirely by Robot” Ever Happen?
The reality is that in the future, probably three to five years from now, loans of all types will most likely be processed end-to-end by a robot. What it will take is artificial intelligence and machine-learning progressing at a rate that will enable the technology to prove it can be as accurate as traditional processes.
The real question is whether or not consumers will still want the human touch involved in their loan applications. Look no further than how robo-advisors in the investment industry decided to add back humans into their “automated” investment management services. (3) Lending will most likely involve humans at some level, making it a “loan mostly by robot.”
- Source: Accenture, News release, January 11th, 2017
- Source: Bank Director, “The Perfect Complement: Community Banks and Alternative Lenders”, February 8th, 2017
- Source: Bloomberg, “Humans Are Coming for the Robot’s Jobs at Betterment”, January 31st, 2017
Jonathan Patrick is a Senior Product Development Manager for Symitar where he focuses on lending functionality within Episys. Prior to joining Jack Henry & Associates, Jonathan was Senior Vice President/Chief Lending Officer at UT Federal Credit Union in Knoxville, TN where he and the credit union won multiple awards for innovation. Earlier in his career, he was a commercial lender with a regional bank where he was party to over $500 million in commercial loans. Jonathan has a startup background as an advisor, founder and investor.