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How the new lending technology is reshaping the loan origination process?

Updated On : October 2018

IWith the advent of reliable internet networks, the loan origination processes are now moving from manual operations to the cloud which is also referred to as Digitalised Origination. Financial institutions have managed to make daily interactions with customers smooth and effortless and also achieve greater efficiency with high-volume banking activities. Today, new lending technology enabled by cloud and automation is reshaping the loan origination process.

Let's explore the benefits of both these technologies.

Cloud

Some of the key benefits of cloud services are lower costs, quick implementation, and near-universal availability. It allows lenders to use the latest loan origination software (LOS) without having to invest in IT infrastructure and space as well as operational overhead like electricity and systems administration.

  • Quick deployment As the need for buying and deploying hardware is not there, a web based LOS can be easily and swiftly deployed in a matter of days to weeks instead of months as in the case of legacy systems. This saving of time can be a major advantage for new lenders planning a rapid market entry.
  • Ubiquitous availability A web-based user interface (UI) is the most convenient for widely distributed organizations and for employees who work from home as it allows access from virtually anywhere. Mobile availability also lets lenders easily keep track of loan origination progress.
  • Legacy integration Cloud based integration gives immediate access to all relevant data sources for identity, employment, credit, and income verification without having to go through costly, protracted programming. This eliminates the process of manual verification and speeds up the processing of applications.
  • Scalability Cloud based LOS systems are designed to meet all current loan origination needs, and also scale easily whenever required in the future to accommodate processing, data, and geographic growth as an expanding business may require.
  • Continuous software updates Software is continuously and swiftly updated on the cloud, allowing lenders to immediately take advantage of bug fixes and functional enhancements made in response to customer requests.

Automation

Automation is enabled by pre-determined decision rules and facilitates faster and more accurate processing of loan applications. It eliminates the standard manual steps allowing lenders to quickly amend the processes as markets change, thus bringing in a new level of efficiency.

  • Enables Faster Loan Decisions A fast loan origination process is a competitive advantage for any lender. Automation technology speeds up the lending processes and facilitates consistency in decisions. It also leaves human expertise to be applied where it is of best use like evaluating an application that closely, but not exactly meets qualification thresholds. Automated decisions replace the countless manual decisions and tasks, hasten the loan origination process, and enable lenders to quickly and consistently determine which applications to fund.
  • Automated Decision Rules Support Data-Driven Processes Automated decision rules allow a lender to do away with manual steps and use data-driven processes. Pre-determined decision rules can be used to evaluate the qualifying criteria for the appropriate level of funding, interest rate, and time period for the loan. In case of a very good score on key criteria, automated decision rules fast-track an approval or if criteria levels are not met, then the application is stalled. Sometimes, automated decision rules may recommend that questionable applications are sent for review by a loan professional.
  • Allows Business Users to Create the Rules Decision rules based on automated criteria do not need any technical expertise and can easily be created and modified by business users. They also provide greater flexibility of automation like being fully automated, mixed (using both automatic and human reviews of criteria), or completely manual review of criteria as in the case of borderline thresholds for qualification. The versatility of decision rules enables lenders the flexibility to auto-decision applications using criteria that account for current market dynamics and quarterly or yearly portfolio performance goals.

Added benefits of decision rules are auditability, i.e. having a trail record of what rules were in effect, and a reduction of arbitrary decisions that may characterize certain loan types. These types of decision rules and the streamlined workflow they drive allow lenders to

  • Process applications more efficiently
  • Automatically reject applications that don't meet established criteria
  • Focus efforts on applications that improve profitability.

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