5 Mistakes Banks and Credit Unions Must Avoid When Moving to Electronic Signatures

 

In a recent blog post, I listed five things a bank or credit union must do before adopting electronic signatures. 

But knowing those five things is not enough. Avoiding common mistakes other financial institutions make is just as important – if not more so.

As I said in the last post, there are compelling cases to be made for moving to e-signatures. But it’s also more complicated than some would have banks and credit unions believe. 

My advice is simple: Make sure you know what you’re getting into. Pay attention to the details and make the move for the right reasons. And make sure you don’t commit these costly errors:

 

An off-the-shelf e-signature solution may fit your technical needs, but there is a risk: The experience can be disjointed. The customer starts a transaction on your site, then is shuffled off it for certain elements of the transaction, then (probably) sent back to your site when finished. Such an uneven experience could cost you a customer – they’ll drop out if it doesn’t feel “right.” 

Consider that in today’s world, it is not unusual for your client to begin a transaction on their computer, want to take the next step on their tablet, and ultimately complete the task on their smartphone. Think of the DVR:  Years ago, nobody would have considered starting a show in the family room, pausing and continuing from the bedroom, and then finishing the show on your tablet. Today, it is expected.

The same holds true for online applications. In mobile, that risk grows – an uneven experience on a desktop browser easily becomes clunky and frustrating on a phone, and again, you lose customers before they complete the transaction.
 

That’s why it’s so important to decide on the consistency of your user experience at the very beginning. It needs to be an up-front, intentional decision, not one that is a consequence of other decisions you make in the development process. Waiting until later means rolling the dice on your ability to convert online customers. 

(I wrote about the challenges of updating your systems to handle new technologies like mobile and wearables in another recent blog post, by the way.) 

Consider two different scenarios in which an organization might consider adopting electronic signatures. In Scenario 1, an insurance company wants its customers to apply for policies online and, upon completion, sign off on a summary of the data they have submitted.

In Scenario 2, a credit union allows members to apply for and receive auto loans online. When the member completes the application, the loan is issued and the money is deposited into the member’s account.

These scenarios are very different, especially because Scenario 2 is more risky for the credit union. In Scenario 1, there is no money on the line yet, and the applicant likely will still need to get a medical exam and meet face to face with an insurance company representative. 

In Scenario 2, money has changed hands. If there’s a mistake, the credit union could lose money. 

That risk should help you decide how sophisticated your solution needs to be. For higher-risk transactions, the member will have to be guided through multiple steps. The solution will be more complex. Every regulatory requirement will have to be taken into account. You can’t do it halfway and say, “Oh, this is good enough.” 

But for lower-risk transactions, you can make it easy for the customer. You can install a simpler solution with fewer requirements – that may be “good enough.”

Knowing the difference will save you time and money.

The way the electronic signatures are handled can have a dramatic impact on an important part of any financial institution’s business: selling loans on the secondary market.

It’s all about details. Documents must be stored in a specific way and certain access controls must be in place, for instance. These are not difficult details to account for in the development process – but ignoring one or more of them can be catastrophic. For example, imagine a bank that issues an auto loan to a customer using e-signature, but its software doesn’t handle some of the key details in the transaction correctly. The bank sells the loan on the secondary market, and the customer fails to pay off the loan. 

If the bank failed to originate the loan properly, the buying institution may not have legal grounds to demand payment from the customer. Worse, the loan terms may not be valid. These are hassles your institution does not need. That’s why you must mind the details to make sure loans are fully marketable and liquid on the secondary market.

With electronic signatures, the focus often is on “How am I going to get the document signed online?” Institutions debate using a signing service, letting the customer sign with a finger, emailing them a copy to sign and send back, etc.

But once that decision is made, the issue becomes “How am I going to service this loan?” Not as many banks and credit unions think this through before launching a development project – even though the servicing stage can make a greater impact than the originating process. 

Document copies and versions, for example, need to be handled correctly. The original is known as the “authoritative copy,” and there are many rules and regulations that govern the creation of authoritative copies. Here are a few: 

It’s tempting to think that you have cleared all the hurdles when you have finished the complicated process of originating an electronic transaction. But, as you can see, that’s just the beginning. 

If you don’t know all the steps you’ll need to take in the servicing stage of the transaction, you’re not ready to start.  

As I wrote at the beginning of my previous post, some vendors will tell you this is a simple process. It can be, for certain low-risk transactions. But more often than not, you’ll want to be able to handle higher-risk transactions – and that’s not easy. 

That’s not to say that adopting e-signatures is overly complex, either. There are just a lot of details. If you – and your legal team, your board and your members – want to have full confidence in the process, you and your vendor have to tackle each detail and get it right. 

If you are considering eSignatures and want to discuss your situation, we’d be happy to speak with you to share our experience and determine whether or not we might be able to help. 

Does your credit union: