History Does Have a Way of Repeating Itself
The 1920s were a period of great significant technological and scientific advancements. This technological progress led to the economic recovery of that time, and together with the huge boom in availability of electricity in most households and workplaces, led to the mass production of goods. Every major electric home appliance was developed during the 20s, leading to efficiencies at homes and businesses that utilized electric solutions. By 1929, almost all manufacturing was using electricity. This resulted in increased productivity in industrial production, which meant higher income for workers. This also meant goods became more affordable because they took less time and effort to manufacture.
Fast forward to 2021, and we see that digital-based companies are at the forefront of the post-pandemic economic recovery. Where electricity was the technology that drove much of the 1921 economic recovery, eCommerce and payments digital platforms are the technological driving forces of the post-COVID recovery. Digital sales and distribution of goods for companies are dramatically increasing the speed of payment and delivery of those goods to consumers.
Banking Innovation
The 1921 economic recovery was funded largely by bank loans as more and more consumers used credit to buy new homes, automobiles, and all the "latest technological" innovations. The banks in the 1920s had a very manual process to gather the information necessary to underwrite and approve loans. Most loans were simply made to those applicants who were known in the community, known to employees working at the bank, or known to be employed by businesses in the community. This limited loans to people that lived locally, where the loan data could be verified.
Today's financial institutions can have applicants from anywhere in the US. using digital platforms to capture loan applications for underwriting purposes. A "complete" loan application can be quickly underwritten by a loan officer or even automatically approved upon submission of the loan. Loans were a key component to fuel the 1920s recovery and prove to be a critical part of the current economic recovery.
The Need to Fuel Consumerism
Consumerism is a crucial component for economic recovery. Technology innovation increases the number of goods available to consumers during the recovery period. That innovation can come in the form of new products and services (appliances in the 1920s) or the ability to instantly buy/pay for purchases fueled by digital eCommerce and payments platforms today. In both eras, access to funds is a critical component for the purchase of big-ticket items.
Local loans with underwriting "verified" by being a known member of the local community enabled consumerism in towns across the United States back then. Goods from the proceeds of those loans resulted in local purchases. Today, the digital lending technology used during COVID has enabled loans to be made anywhere in the United States by geographically dispersed applicants, resulting in a high volume of underwritten and funded loans.
As history has taught us, loans are often the source of funds that consumers use to purchase goods during an economic recovery. Thus, they are also a critical element to drive consumerism, and will continue to play an essential role for consumers in the post-COVID recovery. As mortgage rates rise, consumers will likely shift to auto, home equity, credit card, and personal loans to meet their purchase needs.
The Importance of Automation
One lesson that consumers learned from COVID is they should perform their financial activities online, including loan applications. With the expected lending boom, there is a strong need for credit unions to employ automated processes within their digital lending application workflow, in order to maximize their opportunities. Delivering a fully-digital, fully-automated process from application to digital signature to funding is now table stakes for lenders in the post COVID world. Consumers today demand that level of convenience and efficiency. And credit unions will benefit from the speed and increased accuracy that automation brings, enabling them to more easily handle a higher volume of loan applications, to better capitalize on the expected lending boom.