Loans by Internet

thePoint
April 7, 2005

First National in Shenandoah, Iowa, is reaching out to touch someone, reports Bank News, Kansas City. Someone who's not a customer, is sitting at home or the office surfing the Internet, contemplating buying a new car. If the surfer is attracted to the bank's website, with one stop he or she can price a car by year, make, and model, apply for a loan, and be approved in most cases within seconds.

This slick process is thanks to a program launched by First National late last year, using technology supplied by Enhanced Technology Financial Services Inc. Although Shenandoah is a vibrant community of 5,500 in the southwest corner of Iowa, growth is hard to come by for First National, according to Kurt Henstorf, president and CEO. "We have two strong community banks here,” says Henstorf. “For everything we do they have answers, and for everything they do we think we have answers." Liquidity isn't really an issue, he adds, with First National's correspondent and bankers' bank partners and the Federal Home Loan Bank. "But our loan-deposit ratio isn't as high as we'd like to have it,” he admits.

So First National, which also serves customers in southeast Nebraska and northwest Missouri, is always trying to come up with programs "that will give us an edge and grow the bank both on the deposit side and, in this case, the loan portfolio," Henstorf explains. "We have a lot of competitors out there, so what we wanted to do was come up with a scheme where we could generate some profitable loan growth."

First National has had Internet banking for some time, and thought was given to expanding that program. "We didn't necessarily want to be broad-based on the Internet, selling to markets that are outside our normal lending territories," says Henstorf. "But we came up with this program through some contacts and found it to be something we thought might be helpful."

When a potential loan customer lands on First National's website, a tag line under a graphic representing a spinning car says "Click Here" if you're interested in a new car. A drop-down menu then displays buttons to "Build and Price the Car of Your Dreams," "Review Our Current Loan Interest Rates," and "Apply for a Loan." If the prospect fills out an application that meets First National's pre-established parameters, the loan can be approved in a few seconds.

"In some cases," Henstorf says, "we'll want to take a look at the application and review the credit standing before we give a thumbs up to the credit. Then we'll book the loan immediately after that. People can just drop in, sign the documents, pick up a check, and off they go." The information keyed in at the bank's website is secure, so customers don't need to worry that it's going to be broadcast over the Internet.

In setting up the program, Henstorf and his associates spent two or three weeks working through exactly how they wanted it structured, and testing what kind of borrower was going to get automatic approval. "The credit has to be good," says Henstorf. "The system will verify Social Security numbers, addresses, the whole thing. The ones that get approved have to be within our parameters for income-to-debt ratios and the collateral has to be appropriate.” The system will evaluate the collateral online and confirm whether it's adequate and whether the borrower is within First National’s lending territory.

"There are many variables available with the software," Henstorf continues, "so we set the parameters that we're comfortable with. We're a conservative bank, but one of the things we need to evaluate as we go along is whether or not we need to change some of the parameters that we've set."

At this point First National is focusing on car loans, but the capability for other types of credit is there, including boats and RVs. Home-equity loans are a possibility, "but we wanted to start where we didn't have such a high level of risk," says Henstorf. "I think the potential is there to do both home equity loans and mortgage loans."

Some 30% to 40% of First National's customers bank online, which is high compared to national averages, according to Henstorf. "You might expect areas of the Midwest to be behind the coasts, but we're not," he says. When asked if it is unusual for a bank First National's size to be so technologically sophisticated, Henstorf says, "I certainly hope so. I think you have to be. I don't think you can sit on your heels or others will pass you by. We're $27 million—still a tiny bank by standards anywhere in the country."

To illustrate how important up-to-date technology is to his customers, Henstorf points out that if files don't get transferred to the online site by the end of the day, the phone starts ringing immediately. "People expect those files to be up to date and to be correct and if they aren't they let us know," Henstorf says.

Technology also plays a role in other programs First National has used to distinguish itself from its competitors. "We're doing some merchant processing that we think is very competitive now and providing some rates and programs that are good for our commercial customers," says Henstorf. "We've built some programs within our core-processing system to help service commercial accounts in a very hands-off way. It's very user-friendly for them. So whether our customer is a Main Street business, a manufacturing business, or a farmer, they'll be able to direct their credit a little more easily than having to come to the bank or make calls."

This article was originally published online by The Point for Credit Union Research ad Advice at http://thepoint.cuna.org and is reprinted with permission.