Technology: Does it help or hinder society? From a personal perspective, there’s nothing to debate. Daily, we enjoy the benefits of increasingly innovative tech. The ever-decreasing cost of machine learning and artificial intelligence technologies allows credit card fraud to be identified with ease—and for your bank to alert you within seconds. Need to order a last-minute birthday gift? You don’t even have to step away from the pasta sauce you’re stirring, just tell Alexa what you need, and when and where you want it delivered. Your children have more technology in their pockets than entire corporations had a generation ago.
By leveraging modern technology, financial institutions have made daily interactions with their customers frictionless and effortless, from monitoring investment accounts online to depositing checks via mobile phone and transferring funds from a tablet. But there are still high-volume banking activities where greater efficiencies can be achieved. In particular, new lending technology enabled by two key capabilities, cloud and automation, is reshaping loan origination, bringing ever-greater efficiency to the process. Let’s explore how.
The Lending Technologies Reshaping Loan Origination
Financial institutions were early adopters of technology-based banking process improvement ideas that amplify customer service standards while simultaneously reducing operating costs. The 2017 PWC Global FinTech Report expects this trend to continue. According to the report, a majority of global banks, insurers, and investment managers plan to increase partnerships with financial technology companies in the coming years—and expect an average 20% ROI from these projects.
The lending technologies expected to generate the most impact are:
- Cloud technology: Cloud services allow lenders to implement the latest loan origination software (LOS) without the need for additional on-premise investments in IT infrastructure and operational overhead. The LOS is hosted in the cloud provider’s data center and made accessible to lenders via a web interface.
- Automation: Enabled by easily-created and modified decision rules, automation facilitates faster and more accurate processing of loan applications. Manual tasks are replaced with automated decision rule technologies that efficiently and precisely evaluate data obtained from the loan application.
Cloud delivers the latest loan software capabilities to your desktop. Automation brings a new level of efficiency to the process. Lenders evaluating loan origination software should take advantage of these highly-valuable lending technologies in order to remain competitive in the current fast-paced lending climate.
Cloud Technology Delivers the Latest in Lending Functionality
A cloud strategy reduces the expenses of on-premise infrastructure, including capital expenses (CapEx) for IT equipment and space as well as operating expenses (OpEx) for electricity and systems administration. With most of those expenses borne by the cloud provider, the economic benefits of utilizing cloud services are notable for lenders of any size, including indirect and direct lenders, credit unions, and banks.
In fact, according to the RightScale State of the Cloud Report, 58% of technical professionals surveyed said that cost savings via existing cloud use was the top focus for 2018 while 51% said they were focused on moving additional workloads to the cloud.
Other distinct capabilities and benefits for lenders who adopt a cloud-based approach to loan origination are:
- Quick deployment: Since there is no need to fund, purchase, and deploy hardware, a web-based LOS solution can be quickly deployed. In comparison to legacy systems, implementation is often days to weeks, not months.This is a considerable advantage for new lenders planning a rapid market entry.
- Ubiquitous availability: A web-based user interface (UI) allows access from virtually anywhere. It is ideal for widely distributed organizations and employees who work remotely. Mobile availability allows lenders to easily monitor loan origination progress.
- Cloud-based integration: Cloud integration provides immediate access to relevant data sources for credit, employment, identity, and income verification without the burden of costly, protracted programming. This reduces the need for manual verification and results in faster application processing.
- Scalability: LOS systems based on the cloud are designed to meet your current loan origination needs, as well as scale easily in the future to accommodate processing, data, and geographic growth as your business expands.
- Continuous software updates: Software updates on the cloud are fast and frequent, allowing lenders to immediately take advantage of bug fixes and functional improvements made in response to customer requests.
Cloud services put the latest LOS functionality in the hands of lenders of all sizes at a lower cost than legacy, on-premise software. With quick implementation and software updates as well as integrated access to lending-specific data sources for faster loan decisioning, the cloud is the best choice for lenders looking to improve loan origination productivity.
Automation Technology Enables Faster Loan Decisions
Regardless of the size of the lender—small, direct lenders; local credit unions; large banks—a fast loan origination process is a competitive advantage. Most lenders’ current systems and processes include time-consuming manual steps that can be replaced with automated decisions.
Automation technology accelerates lending processes and facilitates consistency in decisions. More importantly, it allows human expertise to be applied where it is of greatest benefit. In many instances, reserving professional judgment for evaluating an application that may closely, but not exactly meet qualification thresholds is the most profitable way to leverage a loan expert’s time and experience.
Automated decision rules hold the greatest potential for reshaping loan origination. They replace the tedium of countless manual decisions and tasks, accelerate 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 enable a lender to eliminate manual steps, replacing them with data-driven processes. Criteria used to qualify an applicant, such as age, FICO score, income, employer, year of car, etc., can be automatically evaluated using predetermined decision rules to approve the appropriate level of funding, interest rate, and length of the loan.
If the applicant has outstanding scores on key criteria, automated decision rules fast-track an approval. If critical thresholds are not met, then the application is a automatic “no deal,” and takes no time away from the lender’s day. Alternatively, automated decision rules could also recommend that questionable applications be reviewed by a loan professional in order to determine loan eligibility based on current delinquency trends and data.
Automation Allows Business Users to Create the Rules
Decision rules based on automated criteria are easily created and modified by business users. Technical programming expertise is not required. They also provide greater flexibility regarding the degree of automation: 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 include auditability (you have a 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 profit.
Today’s Lenders: Reshaping Loan Origination with Cloud and Automation
In order to stay competitive in a challenging climate, lenders must seriously consider implementing cloud-based loan origination software and automated rules decisioning. Lower costs, quick implementation, and near-universal availability are key benefits of cloud services. And automation, enabled by pre-determined decision rules, eliminates manual steps and allows lenders to modify processes quickly as markets change.
As part of any lending technology evaluation, pay particular attention to the vendor’s efforts to continually evaluate and incorporate innovative technology into their offerings. Just as the ever-increasing pace of technological innovation has enhanced myriad aspects of daily life, so too is technology reshaping loan origination, enabling faster funding decisions for applicants while simultaneously reducing processing costs, as well as improving efficiency and profitability for lenders.
defi SOLUTIONS provides a flexible, innovative loan origination software platform that gives small to large lending institutions the tools they need to compete efficiently. defi’s industry-leading, browser-based loan origination system (LOS) is completely configurable, quick to implement, and provides actionable insights based on actual performance. Our team welcomes the opportunity to learn more about your lending needs. Contact our experts online, or schedule a demo to see how we’ve incorporated the latest technologies into our LOS to help you reduce risk while increasing your profits and overall portfolio performance.