Internet Use in Financial Lending: Potential Cost-sinking Measures Under-exploited

A greater use of the internet in the lending process allows to considerably cut processing times and costs. It is therefore absolutely essential for banks wishing to remain competitive in the tough business of financial lending.

These are the findings of the study "Online Banking in Financial Lending - Developments and Prospects for the Online Credit Market" carried out by the Mannheim Centre for European Economic Research (ZEW).

Up to now, the internet has played a fairly insignificant role in the lending processes of German banks. Particularly for business customers, there are almost no online offers available. ZEW looked at three different types of credit, a personal loan, a mortgage and a business loan from a number of savings banks, cooperative banks, private banks and mortgage banks, in order to find out whether the internet still offers possibilities that banks have not seized yet in the lending process.

The study shows that the conventional process of awarding credit is, on the one hand, characterised by long processing times. On the other hand, particularly in the case of small loans, credit institutions seem to have difficulties making profits. Increased use of the internet could lead to a number of improvements. When it comes to personal loans, almost the entire lending process can take place online. With regard to the real estate and corporate customer business, however, this is only useful in certain sub-areas. Having said this, the internet still offers scope for rationalisation in these two fields, allowing for considerable savings to be made. However, financial advisers will continue to play an important advisory role in business lending in the future.

The ZEW investigation considered the individual steps involved in the lending process of each of these three loan types broken down by long-standing and new customers.  In addition, the study provides information as to whether the integration of external service providers is useful. In regards to business loans, ZEW also investigated which credit products are particularly well-suited to being made available online and which products require the complementary help of a financial advisor. The analysis also took account of external determinants, such as Basel II or customers' increasing awareness of costs.

The Study may be purchased at a cost of EUR 480 (incl. 7 % VAT), and can be sent by e-mail or accessed via Onlinekredit-Studie online.

Contact

Dr. Matthias Meitner, E-mail: meitner@zew.de

Dr. Peter Westerheide, Phone:+49(0)621/1235-142, E-mail: westerheide@zew.de