Online lending is the next big thing. Lenders are scrambling to take part in this trend with varied success. Here are some "rules of the road" for the Information Superhighway for lenders considering taking the plunge as suggested by Lee Howlett, president of Integrated Loan Services (ILS).

Focus on a Niche

The first thing a lender has to do when considering online lending is to pick a niche. "You have to focus on a specific market because the Internet offers so many opportunities that you can over-spend on trying to be all things to all people once you get involved in it," says Howlett. "At that rate, you'll never get the project off the ground or it will never be finished. Some potential niches could be: first mortgages, consumer lending, auto loans or sub-prime mortgage lending."

Define Your Target Audience

While this may seem obvious, Howlett says that he is surprised at the number of lenders who fail to do this, both on the Internet and in traditional lending. "You must define your target audience because that will dictate whether you are a business-to-business or consumer-oriented enterprise. Each uses a different set of channels," he says.

Brand Yourself

Your target audience will dictate the extent to which you have to brand yourself. "If you are doing direct-to-consumer lending, you'd need more than just a web presence," cautions Howlett. "You'd need to build a brand presence that is a unique identity that will drive people to your site in search of what you do. In our experience, banks are not very good at that. They know the concept of branding, but most don't do much to differentiate themselves from their competitors. In the Internet world, that's not good enough. The web is about finding something and driving people to your site for a good reason. If you can't (or don't) communicate that reason, nothing will drive consumers to your site."

Change Your Work-Flow

Before you put up your web site, you'll need to change the way you do business. "It's not enough to post an application to take a loan on a web site," says Howlett.

"You'll need to automate underwriting, credit decisions, appraisals and title searches. You need to look at your whole value chain and decide how it can be altered to provide the faster service requirements of the customer. You can't just put a new face on your traditional work-flow model because the expectations of the web-based customer are different than your 'brick and mortar' customers. If you simply take an application and use your traditional mode, you won't meet the expectations of the web user, which are different than those of the branch customer. There's a sophistication and an immediacy demanded by such customers. Efficiency is expected in terms of cost and technology encourages them to look for it. Use your technology to make the delivery piece of the process easier. For example, use it to allow access to the status of the loan files, to enable e-mail communications with the loan processor, to deliver copies of documents for review on the web and to facilitate the use of digital signatures. All t his requires you to change the way you do business way before you unveil your URL to the world."

Make Sure All Back Office Staff are Web-Literate

When you implement new technology platforms, you will have to re-train or improve staff skills. "You must do this with more than just a day-long training course," says Howlett. "You must encourage your staff to make use of the web in their own daily lives. Give them e-mail and encourage them to search the web during lunch. The more familiar they are with the technology, the more customer-sensitive they will be."

Outsource What You Don't Do Well

Anyone can put up a site, but you have to deliver to make it a viable business strategy. For many lenders that means calling in an outside vendor that specializes in backroom operations. "They do this because the investment in technology and people is huge for something like this," says Howlett. "Lenders that outsource don't have to make this investment, plus they benefit from the fact that the outside vendor has done this before."

Find the Right Vendor

Look for a vendor that embraces innovation, because no one can define what the Internet's going to deliver in the future. "Search out vendors that are comfortable enough with change," suggests Howlett. "These will have no problem adapting to the needs of lenders as they re-invent products, ask for faster delivery and demand greater efficiencies. Such vendors understand that without these constant changes, a lender can easily fall behind the competition." Also, he reminds lenders to choose a vendor that can bring to you the best of what's being done in the industry. "Make sure your vendors have up-to-date technology," he advises. "You don't want to trust your backroom operations to a vendor that's put a 'web face' on legacy systems, or one that is limited in their capabilities because of outdated software or hardware. Don't be afraid to require your vendors to be partners. They should be willing to invest in custom applications to meet your needs in return for your commitment to work with them. There should be a willingness to experiment with new products and to pilot services beyond the normal scope of a lender's geographic reach or product line."