A closer look at loan application process


I have detailed the process of getting a loan in my earlier post. I hope you can see that applying for a loan requires considerable time and effort. In this post, I want to examine if there is a way to make the loan application process better?

Has Technology Enabled?

Technology has shaped so many aspects of our lives, from the way we travel to the way we pay. From the way we eat to the way we communicate. However, one area hasn’t been getting a lot of loves in terms of technological breakthrough. I am talking about the process of getting a loan. Despite loans are essential for economic prosperity, applying for one in this digital age still requires a lot of manual processes like filling forms, preparing documents and communicating with loan officers. The more banks you apply from, the more efforts you will need to put in.

While there may be tools to make the loan application a tad simpler, like the loan comparison websites or internet banking, these tools don’t simplify the physical processes beyond making loan information more accessible. Loan applicants still need to go through rounds of physical forms, documents, identity and employment verification and bank’s KYC interviews.

primary a major concern for loan applicants

Privacy or not?

Another problem faced by applicants is their privacy concerns. The recent surged in consumer awareness has made PDPA (Personal Data Protection Act) an increasing liability for banks. Even if banks take their customer privacy seriously, what about the external loan agencies they use?

Banks have always relied on external loan agencies to run marketing campaigns such as roadshows and telemarketing. These agencies are hard to check and regulate and few of them take customer privacy seriously. Also, since these loan agencies are incentivised by the number of contacts they can make, many agents are willing to share their customer’s contacts in return for more contacts from other agencies. Because to them, the math is simple, the more contact they make, the more customers’ conversion they’ll get.

I recently run a verbal survey on 50 new loan applicants. About three-quarters of them do not believe that marketing agencies will keep their contact information secure. In fact, eleven respondents revealed that other loan agencies started to call them shortly after they have submitted their loan application. Some even say that the sheer amount of texts and calls they received in a day is harassment.

Agency Focus or Customer Focus?

Agency marketing is a number game. For banks to expand on their loan portfolio, they have to run more marketing campaigns, give bigger budget to agencies, and do more outreach programmes.

For example, Hong Leong Bank (the fifth-largest bank by asset in Malaysia) in 2019 annual report says: “Marketing expenses recorded increased sales commission due to higher sales volume from mortgage and personal loans…” They also reported having paid about RM129 millions as “sales commission and credit card related fees” in 2019.

Maybank (the largest bank by asset in Malaysia) was not as forthcoming on the amount of commission paid to marketing agencies. Based on my analysis on their 2019 annual report, the figure is likely to be between RM180 millions to RM200 millions. (I will share more details in this analysis in a future post. So please stay tuned if you are interested in these figures.)

Let’s think about it for a second, instead of paying millions to marketing agencies that, 1) their customers hate, and 2) can be a liability to the bank’s brand name, what if banks use these budgets as rewards like giving annual rebate to prompt payers, discount on interest rate, new customer onboarding gifts, etc.? I believe that banks can raise their competitive bar to new heights with direct-to-customer rewards instead of commission to marketing agencies.

technology as enablers as next generation banking

Technology as Enablers!

Perhaps we should re-think how technology can shape these processes? In one hand, consumers need a simple and secure way to apply for loans, and in another, banks need a marketing channel that can give them not just quantity in loan application, but quality applicants as well.


Asian couple sitting on a couch looking at bills and statements in front of a laptop together.
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