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4 min read

Uncovering the Hidden Efficiencies in Loan and Deposit Operations

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Addressing common loan and deposit operations process inefficiencies can help financial institutions deliver optimized value to customers and stockholders.

In recent years, many financial institutions have been focused on improving their digital delivery capabilities, often at the expense of their operational groups. Traditionally viewed as non-revenue contributing “back office” functions with little customer facing or delivery responsibilities, loan and deposit operations units have been largely forgotten when financial institutions have sought efficiency gains and customer delivery improvements.

Now, a shift is under way in FIs’ operational units as the conversation turns to transforming legacy banks into “smarter banks.”

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Smarter banks focus obsessively on how they deliver value and a winning experience for customers. To stay relevant, banks and credit unions need to continually evaluate their people (organization, staffing, roles), processes, technology and enterprise/departmental strategic objectives to ensure they are achieving optimal performance. A key area where they can do this is in the loan and deposit operations units.

But how do financial institutions determine if these operations groups are optimizing processes and staffing to drive profitability and gain market share? Peer comparison metrics can be a valuable tool for evaluating staffing levels relative to production and portfolio volumes. They can help institutions identify opportunities to incorporate product penetration and delivery metrics into strategic planning efforts. Without this information, financial institutions are literally flying blind in assessing staffing levels vis-à-vis their deposit account and loan volumes.

Another powerful way to optimize operations units is to identify where manual processes or procedural “workarounds” exist. Sometimes these are simple processes or procedures that have been done for years and no one has ever asked, “Why do we do this?” Others were built as a “path of least resistance” rather than discussing a technological, automated approach.

Common examples:

Problem: Not fully leveraging the core accounting system’s capabilities regarding daily NSF/OD item processing. Many financial institutions still heavily involve deposit operations in this process despite core system automation capabilities, resulting in manual, costly, duplicative processes to perform a function that can and should be done by assigned account owners.

Solution: Automate and fully decentralize daily NSF/OD item processing, requiring assigned branches/account officers to directly enter their daily NSF/OD exception item decisions directly into the core accounting system with user level-defined permissions/approval limits.

Problem: Loan boarding QC, often performed manually and subject to human error and significant data integrity issues.

Solution: Automated core reporting tools, with logic tests to identify incorrect coding or out of range/missing values, can greatly minimize the manual inspection necessary to identify loan boarding errors.

Problem: Risk controls related to daylight overdrafts resulting from ACH, wire transfer and remote deposit activity.

Solution: Product onboarding’s initial exposure approval, annual exposure limit review affirmation and daily transaction approvals can all be addressed with process automation, including using approval workflows via existing loan origination integration.

Numerous other opportunities exist to critically examine the various processes the operations group supports, including:

  • Onboarding/QC review
  • Maintenance requests
  • Miscellaneous deposit account/loan research
  • Dispute processing
  • Internal and external inquiries
  • Daily exception processing (NSF/ODs, returned deposited items, non-posted items, document exceptions)
  • Document imaging
  • Regulatory compliance validation/tracking

Technology: The ‘Must Have’ List Is Growing

Loan and deposit operations processes often utilize myriad systems to manage daily work. These systems are key components of performance optimization, which relies on technology to address operational inefficiencies or data integrity challenges by automating current manual processes or leveraging under- or non-utilized system capabilities.

Not very long ago, artificial intelligence (AI) was a dreamy technology on the horizon, out of reach for most financial institutions’ budgets. Now, it is proving to be a game changer in the banking world. AI provides a variety of capabilities that can position banks and credit unions a step ahead of their competition:  

  • Streamlined service, including mobile banking that provides customers with 24/7 self-service capabilities
  • Enhanced security, fraud detection and prevention
  • Significantly improved anti-money laundering and know-your-customer identify verification abilities
  • Risk management and lending decisions
  • Facilitate other technologies such as big data analytics, robotic process automation (RPA) and voice interfaces

Many financial institutions are leveraging robotic process automation (RPA) capabilities to improve customer experience and remain competitive. By quickly completing repetitive, labor-intensive tasks without human intervention, RPA can save labor and operational costs and minimize errors. One of Cornerstone’s community bank clients uses RPA to reverse temporary daily POS limit increases, which its related bank system does not permit, eliminating a formerly manual daily process. A very favorable cost/benefit business case means RPA can be leveraged by financial institutions of all sizes.

There are a multitude of options to address common loan and deposit operations process inefficiencies to help an institution be a “smarter bank” and deliver value and optimal performance to customers and stockholders. Some manual processes may seem trivial in terms of their current effort, but the adage of a “death by a thousand cuts” is apt here. Isn’t it time for banks to give their operations units a transfusion?

Learn more about how re-engineering processes in your institution’s loan and deposit operations units can enhance your organizational alignment, optimize your technology investments, and identify a variety of efficiency improvements.

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