TILA compliance

HOW TO IMPROVE LENDING AND OPERATIONAL EFFICIENCY IN THE BANKING SECTOR

The defi Team defi INSIGHT

operational efficiency in banking sector

Declining auto sales and fewer loan opportunities are increasing competition among lenders. In these challenging market conditions, improving lending and operational efficiency in the banking sector is a must. Digital Banking Report’s 2018 Retail Banking Trends and Predictions confirms the continued focus on operational efficiency and cost reduction. “Find ways to reduce operating costs” was one of the top three strategic priorities mentioned by respondents.

Against the backdrop of this increasingly competitive market, what if you could process more loan applications using current staffing? Automatically approve well-qualified applicants in seconds? More accurately identify applicants with lowest risk characteristics? You can, with the help of some of the latest advances in lending technology. By taking advantage of new technologies fintech companies are helping improve lending and operational efficiency in the banking sector. That’s true for all lenders, but especially for those still using legacy systems. Let’s take a high-level look at how it’s done.

Improved Lending Efficiency in the Banking Sector

Without the ability to manage the loan origination process efficiently, other steps in the loan lifecycle suffer. Inability to respond in a timely manner leads to lost sales. Poorly informed lending decisions affect profits. Unnecessary manual underwriting steps can introduce errors or result in inconsistent lending decisions. You can avoid these and other procedural roadblocks through five key capabilities that modern lending solutions (should) offer:

  1. Web access: Initiate loan applications anywhere there is a web connection—home, dealer, bank. The web allows lenders to easily extend their reach to new territories or grow business in established areas. Web-based loan origination also guarantees secure encrypted communication of information between applicants and the bank.   
  2. Digital documents: Far too many loan originations still require shipment of paper documents. Digitization technology quickly and securely sends documents to the bank via the internet. It eliminates shipping costs and makes it impossible to misplace documents that are critical to making well-informed lending decisions.
  3. Third-party data source integration: Automatically access industry-leading credit, identity, or alternative data sources to obtain a more detailed applicant profile as part of the qualification process. Out-of-the-box integration with these data sources eliminates the need for costly, custom integration and allows lenders to access the data fields they need.
  4. Decision rules: Create rules and set decisioning parameters based on your credit policies and programs. Establish criteria that applications must meet to qualify for a loan. Eliminate manual steps that delay approvals. You may find that rules are one of the strongest means for improving (and continually refining) the efficiency of your origination process.
  5. Mobile: Allows anyone involved with underwriting or funding decisions to remotely monitor loan status and specifics such as sales price, interest rate, terms, loan-to-value (LTV), and probability of close. In the event of a potential delay, representatives can quickly intervene to progress the deal.  

Individually or collectively, each of these capabilities increases lending efficiency. But the benefits don’t stop there. The manner in which a modern lending solution is implemented and managed helps improve operational efficiency as well.   

Improved Operational Efficiency in the Banking Sector

New lending solutions take advantage of the cloud’s ability to quickly deploy and scale a solution. That’s a stark contrast to legacy lending systems, which require IT staff just to operate and maintain and are far more difficult to update and build out. The speed of cloud-based deployment brings three distinct operational benefits from a software management perspective. First, it allows lenders to take advantage of the latest functionality without a lengthy implementation process. That’s faster time to value. Second, vendors provide frequent software updates with improved or additional lending functionality requested by the user community. Third, the solution easily scales to meet changing loan processing demands (by week, month, or season). And when you expand your business operations, whether by individual office growth or geographic expansion, the system scales just as easily.

At the same time, cloud deployment plays a major role in reducing operating expenses. An organization using cloud-based systems no longer needs to plan, purchase, install, and manage IT hardware to support a lending system. Reduced need for on-premises hardware also lowers space and energy costs. Instead, the cloud service provider hosting the loan origination system owns and manages the IT that runs it all. Compared with an organization’s management costs for in-house IT, cloud service providers work on a scale that yields a proven economic advantage.

Fine-Tuning for Greater Operational Efficiency

We want to mention one additional way to improve operational efficiency for the banking sector. It’s relevant because of the dynamic nature of the today’s lending climate and the ongoing need to modify systems and processes in response to market and regulatory changes. Legacy lending systems require specialized technical skills to make modifications. In contrast, modern lending systems facilitate modifications via browser-based configuration tools designed for business users. These tools allow authorized users to quickly and securely make modifications such as:

  • Change drop-downs, screens, data fields, and user access to correspond to individual user roles and responsibilities.
  • Configure a set of loan rules and processes to automate underwriting tasks
  • Establish integration with more than 30 data sources and data fields

And from a compliance perspective, the system will keep a record of who made modifications and when they were made. In the event of an audit, you can easily provide a record of the changes. Configuration tools let those who best know the needs of their business make any needed changes and improve efficiency quickly.

You Can’t Be Efficient Without These

Through aggressive adoption of technology, beginning with ATMs decades ago, banks continue to simplify common transactions such as managing account balances, depositing checks by phone, and facilitating payments using electronic funds transfers. However, there still are banking processes such as loan origination that can benefit from efficiencies enabled by the latest technologies.

Bankers can accelerate their journey toward greater lending efficiency by using cloud-based lending solutions. The cloud is a proven means of reducing operational expenses. Web, digital documents, decision rules, data integration, mobile and the ability for business users to configure the system are key technologies that a modern lending solution should offer. With these capabilities, lenders can:

  • Eliminate long-term system development and implementation projects
  • Process a larger number of applications using current staffing
  • Automatically approve well-qualified applicants in seconds
  • More accurately identify applicants with risk characteristics  
  • Significantly reduce IT infrastructure management costs

Take some time to assess the efficiency of your current loan origination system. What areas are prime for efficiency improvements? If you’re using a legacy system, moving to a cloud-based lending solution will be significantly faster and far more cost-effective than the experience you had in implementing a legacy system years ago. You’ll quickly improve lending and operational efficiency and do so far more cost-effectively.

Getting Started

defi SOLUTIONS’ cloud-based platform was developed for lenders by lenders who have a deep understanding of the industry. The defi SOLUTIONS loan origination system (LOS) platform delivers innovative capabilities in a cloud-based solution to enable banking lenders to improve lending and operational efficiency. The flexible defi platform lets lenders configure the system to fit their processes and goals and easily modify it in response to market demands. We’d welcome the opportunity to learn more about your specific lending needs. Contact us to start the discussion, or register for a demo.  

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