One can analyze thousands of data points in the application analytics ocean, but keeping an eye on a few specific metrics can reveal a lot about your lending operations and some possible efficiencies you could improve on. Below I highlight five application metrics that I suggest tracking regularly to maintain an outstanding applicant experience and sound lending operations.
1) Look to Book Ratio
This storytelling ratio is used in many industries, not just the financial sector. Airlines, hotels, and even restaurants study this ratio to understand how to attract and keep customers from the first day they find their company. A considerable amount of information is loaded into this ratio, describing the journey from the minute the application arrived to the minute the application blossomed into an actual loan.
The look to book ratio in applications analytics is calculated by taking the amount (count or balance) of applications that are funded (“booked”) by the total amount of applications that came through your door (“looked”).
Two takeaways to consider if your look to book ratios are not as strong as you would like them to be. First, check your processing times (see #3 below) and second, monitor competitor rates and promotions occurring at the same time as the applications arriving at your door.
2) Approve to Book Ratio
Like the ratio above, the approve to book ratio calculates ratios based on funded loans. This ratio not only calculates those loans that you said "yes" to, but the ones you were successfully able to close as well. Depending on your operational efficiencies, some applications take more effort and longer to decision for a variety of different reasons, and it’s crucial to keep a pulse on these applications. How many applications sat in your pipeline where you took the time and energy to approve, yet the borrower decided not to close with you? Slicing and dicing these by stratifications like product lines or loan officers can offer further discussions regarding the benefits each product is bringing to the consumer.
3) Processing times
How quickly one can decision an application is key, and auto-approval programs gain even more efficiency and save time when set up according to your risk appetite and customized underwriting guidelines. A manual decision usually takes a bit longer and it starts from the time the application is submitted to the time the underwriter clicks “approve.” Popular metrics that I recommend are Minutes (or Days) to Decision and Days (or Weeks) to Process.
4) Volume and Time of Day by Channel
Digital lending makes the lending process more seamless and painless nowadays, and allows the consumer to assume control of the interaction based on their workloads and calendars. How many of your applicants are applying online for a home or car loan at 10pm after the kids are in bed? Convenience is king while maintaining a consistent, superior digital customer experience. Understanding the volume coming in from your various channels of business, including approval and denial ratios, is vital to the success of your lending platform and initiatives. Furthermore, staffing your loan originators and underwriting appropriately based the application inflow and time of day/month can help your organization gain more efficiencies.
5) Funded, Approval and Denial Ratios
Analyzing your funded, approved and denied ratios by various stratifications is key. Following your approval leaders by product type is crucial, in addition to keeping a pulse on these ratios among the credit tiers and underwriters. Even more, if you play in the indirect lending sandbox, stratifying by dealership and how those ratios trend over time is powerful as well. Taking a sample of your denied loans that may embody stronger than average credit attributes is a good spot check to maintain confidence in your underwriting guidelines. The converse is also true - examining a sample of your approved loans with weaker attributes provides further insight on the reasoning for the approvals. One step further, incorporating fair lending stratifications like age, race and gender can identify any gaps or anomalies that need to be addressed internally, alongside funded, approved and denial ratios.
Want to step up your application analytics? Reach out to learn more - we are ready and excited to help you navigate the waters, wherever you may be in your journey.