Adding Transparency To The Commercial Loan Closing Process


There is a correlation between the speed of commercial loan closing and bank profitability, and there are many reasons why banks that close loans faster can generate more profits.  While banks should be focusing on closing loans faster, there are other techniques that banks can deploy to enhance customer experience while keeping loan closing speeds unchanged.  Banks can leverage operational transparency to improve both perceived and objective service performance.

Average Time-to-Close

A recent poll by Sageworks shows the following distribution of closing time for commercial loans by community banks.

Community Bank Loan Closing Times

Because banks’ value proposition is better service, banks are well-advised to take steps to reduce the time to close loans.  Faster closing times should lead to greater profitability and higher customer experience.  However, operational changes may be expensive and time-consuming.  Because service is both perceived and objective, operational transparency can help banks can increase service even if closing times are not decreased.   Operational transparency can be much cheaper and faster to implement than decreasing loan closing speeds.

Operational Transparency

Krispy Kreme understood that the perceived taste of the donut and the entire customer experience is enhanced when people see freshly glazed donuts move along on conveyor belts behind glass panes.  Other businesses from fast-food chains such as Subway and Chipotle to financial service providers celebrate the creative process as much as the final service or product.

Research conducted by Ryan Buell at Harvard Business School demonstrates that in various services industries (including banking) that allowing customers to observe the operational process (process transparency) and allowing employees to observe customers (customer transparency) not only improves customer perceptions but It also increases service quality and efficiency. 

Customers who experienced process transparency perceived greater employee effort and were more appreciative of the employees and valued the service more.  Studies show that process transparency can increase customer-reported quality by 22%.  Further, customer transparency can reduce throughput times (processing speeds) by 19%.  The research suggests that customers value the service experience as much as they value the final product – for better or worse.  In banking especially, the commercial loan closing process can be enhanced with both process transparency – where the borrower knows precisely where the loan stands in the closing process and who is responsible for the work; and with customer transparency – where employees know exactly who the customer is and their situational need for the end product.

Keep The Customers In The Process

Unfortunately, in commercial banking, most customers are physically and informationally removed from the closing process in an attempt to reduce heterogeneity with the aim of increasing processing speed.  This leads to slightly faster throughput, but much less customer satisfaction.  The common complaint we hear from borrowers is that they do not know where they stand in the closing process until the loan is approved or a closing date set (lack of process transparency).  This constant frustration is not necessary.   

Further, in most banking environments, credit, and processing functions are distanced from the beneficiary (the borrower) in an attempt to prevent undue influence on credit decision making.  This removes employee motivation to help customers, and instead, the borrower’s needs become sets of numbers and documents instead of a service to help the borrower achieve personal and business goals.  Customer transparency allows employees to focus on the individual instead of an aggregate set of widgets to process, thus increasing the level of care and service.

The research concludes that higher process and customer transparency leads to higher customer satisfaction independent of actual improvements in objective performance.  Banks that allow customers to observe the service delivery process can gain customer satisfaction without decreasing closing speeds.  The transparency itself leads to customer appreciation and enhances the perception of service value.

Action Items

Banks need to increase process transparency by better communicating the closing process to the borrower.  This task cannot be achieved simply by better communication between the borrower and the lender.  Instead, banks need to adopt self-service portals where borrowers can see the entire commercial loan processing cycle, see where the loan stands in the cycle and which employees are responsible for the next step.  Borrowers must be notified by email or text when the loan moves from cycle to cycle.

Banks also need to increase customer transparency by allowing employees to see the customer as an individual with needs and objectives.  Allowing employees to see the customer as a person rather than a loan name and number causes employees to feel more appreciated and feel that their work is more impactful to a personal or business outcome, thus increasing job satisfaction and willingness to exert more significant effort.