Loan Processing at Capital One, Case Study Example

Executive summary

In the modern world, the lending market has become very competitive and complex. It is noteworthy that the commercial banks are constantly looking for ways of improving their services as well as offering those services faster and efficiently in their quest to increase their profit margins.

For the case of capital one, there are a number of challenges that slow down the rate of loan processing, and that can jeopardize the ability of the bank to attain its set targets. Such factors include low employee productivity and in adequate staffing.

The challenges can be addressed the way. That is:

1. Improving the employee productivity
2. Increasing the number of associates
3. Automating the lending process

Operation management

In the modern world, the lending market has become very competitive and complex. The numbers of institutions offering the loan related services have drastically increased in the last three decades. Moreover, the markets are more complicated in that the lenders face stiffer regulatory guidelines, multiple risks, escalating currency values, changing business structures, and decline in number of customer employment, complex nature of products, and the customer relationship. Concerning the lending services, the consumers are looking for institutions where they can get the service faster and at a lower interest. It is notable that 20% of customers’ loan withdrawals are because of getting the service from another financial institution (Belasco 120). It is imperative that the loan processing performance impacts on the banks cost, efficiency, and profits. Some of the drivers of complexity include the increase of cooperate clients, the need to follow stiff guidelines set by the regulatory bodies, and the inefficient internal process. These complexities have bloated the costs associated with the loan. This is the reason why commercial banks are always looking for ways of improving their services in a manner that is faster and efficient, thus improve the profit margins (Lewis 182). In this paper, we review a case of loan processing at capital one, this write-up will identify variety issues, and how such issues can be resolved.

Looking at the case of capital one, there are a number of challenges that slow down the rate of loan processing. If left unaddressed, these challenges can jeopardize the ability of the bank to attain its preset targets. The marketing team was planning for significant direct marketing efforts. This marketing effort is to take the form of a major mail drop and is expected to increase the volume of the funded loan in six weeks. In particular, the bank is targeting to increase the number funded loans to 700; however, there are a number of challenges. One of the challenges is that the number of associates working in various processes is not enough to handle the tasks. Currently, the bank has only 25 associates who process only 14-funded loans per month. The increase in loan application will provide a serious challenge for the underwriters. To address the challenge, one can employ one of the many approaches. First, the associates need to improve their productivity, which is currently low. As illustrated in the article, it takes three hours to fund a loan. These include all activities from the interview to underwriting, and quality inspection up to closing. With 25 associates working for about 150 hours per week, each associate can produce approximately 50 applications per month. It is important to note that not all interactions will lead to funding of loan for genuine reasons, under consideration, 14 is very low and should be increased to at least 30. There are a number of ways, which one can use to increase the level of employee productivity. One of the best-known ways of increasing productivity is through the identification of the best performers as well as offering motivation incentives to the employees. To determine the productivity of each employee, the manger should employ appropriate tool to track his or her performances. It is important to ensure that the incentive programs foster teamwork. The current reward program at capital one where an employee is paid depending on the hours spent working does not encourage teamwork. Data from recent studies show that although incentives are powerful means of encouraging productivity, they work well when both the individuals and the whole team are rewarded. Therefore, the current reward program should be changed to ensure it encourages teamwork. As mentioned earlier, the bank should implement a lobby-tracking program to measure the employee contribution accurately.

Team spirit is very important to any organization (Perkins 201). In this regard, the true team spirit is achieved in a scenario whereby, team members understand and appreciate the role of their teammates. Therefore, the loan process manager should endeavor to build a meaningful connection between the associates in order to attain the organizational goal. In addition, the banks should also help to reduce stress in both personal and professional lives of their employee to improve the employee productivity (Krane 108). The aspects such as setting up the family care programs and encouraging them to take breaks regularly whilst paying for such vacation would help.

Secondly, the number of associates especially at stages such as underwriting and quality assurance needs to be slightly increased, this will reduce the loan processing time. Looking at a number of staff in various loan processes and the work-involved one would observe that some stages such as underwriting are under staffed, while some stages such as closing appears to be adequately staffed. However, since the loan processing is a teamwork affair, improving efficiency of one part of the process while leaving others will not bring meaningful results. For example, currently, there are eight underwritings. Underwriting is the most complex job in the loan approval process (Lewis 63). This is because each underwriter is required to perform different forms of activity depending on the stage of the application. Each of this activity requires different skills. Furthermore, increasing the number of staff will not only increase the speed of processing application, but will also increase the number of interactions with potential customers. For instance, at interview step, it will mean that the bank will increase the number of customers interviewed per day. Adding the number of associates means that the cost of processing loan will increase significantly. Therefore, it is the responsibility of the manager to ensure that the extract associate leads to the increase in the number of loans funded especially by insisting on the increased efficiency and productivity of each employee (Lidstone 120).

Most importantly, the bank should consider automating its process. Currently, there are many customers-facing challenges in the program that can be used to automate the lending process. As we see from the article, most of the time is spent doing work such as entering the data into system, reviewing the information, and seeking the missing information. As stated in the article, an underwriter could have an inventory of 20-50 applications to work on at any particular time. Majority of the applications are awaiting additional information from the customers. The time that the underwriters spend on the follow up calls range from 68.9 to 133.9 minutes per day. This wastage of time is not necessary; it could be spent in underwriting or reviewing more application.

Automating the banking lending process can improve the performance and profits in the following manner,

1. Automation reduces or removes the need for paper work. Paperwork in the lending process requires the bank officer to spend a great deal of time entering financial information of the customer, or business seeking for loan. In addition, paper work process may require the borrowers to submit reports regularly, which may again need to be reviewed, and entered in the system each time.
2. Automation reduces the cost and time of loan processing. As mentioned above, automation reduces the need of paper work that is time consuming. Moreover, with automation, loan approval time is reduced. By using the manual system, a great deal of time is wasted when computing the customer’s eligibility. This is made worse in a case where a customer fails to submit all the necessary information during the application. In such cases, the underwriters are forced to make follow-ups calls hence wasting more time. By adopting the automated process, all the necessary calculations are effected with online software. In terms of cost automation, the costs of processing loans are reduced. Moreover, software can carry out work that is done by several associates, thus reducing the cost to the bank in terms of salaries.
3. With automatic lending process, the errors are reduced. The chances of making an error are greatly reduced in a case where systems have been automated. Both the customers and the bank benefit from accurate information (Lidstone 30). With accurate information, the bank is able to carry out analysis and precisely determine the customer, or the business credit worthiness.
4. Finally, automation improves the quality of services that the bank offers. In this case, then bank can process loan faster and at lower cost, thus, the bank has time to develop closer relationship. Such closer relationships with customers create what is known as royal customers. Once the customers are happy with the service, they will most likely be willing to transact other businesses with the bank. Therefore, automating the lending process will help the bank to maintain its customers as well as to attract new ones.

Conclusion

It is evident that the commercial banks are constantly looking for ways of improving their services with respect to variety and satisfaction. All these strategies aim at increasing the bank’s profit margins. It is noteworthy that the bank lending services can be improved by ensuring that the banks are adequately staffed, and that the management boosts the productivity of every employee. Most importantly, the bank should automate it process in order to realize a number of benefits. Some of the benefits of automating lending service include eliminating the need for paper work, reduction of the cost and time of loan processing. In addition, automation reduces errors as well as improving the quality of services.

Works Cited

Belasco, Watson. “The Managers Guide to implementing  Change.  New York, NY: Plume, 2013.

Krane, Jim. ” Enabling Retail Banks to Improve Customer Service, Security and Compliance.“ Associated Press, 2008.

Lewis, Bernard. ” Increased Online Market Presence Using Advanced Technology Platforms Such As Web 2.0 and Social Networks”. Harvard Business Review, 2009.

Lidstone  Digby. ” Emerging Trends in Retail Banking Channels: Improving Client Service and Channel Operating” CostsAssociated Press: March 30, 2013.

Perkins  John . “iimproving Performance by Reducing Complexity”. New York, NY: Plume, 2013.