Cloud computing has been around for more than a decade. It has changed the way that software is developed, delivered, consumed, and supported, and the financial world has recognized its benefits. Capgemini’s World Fintech Report 2018 summarizes the positive impact of cloud in fintech:
“It has proven to be one of the most significant enablers for FinTechs as it offers flexibility in pricing models, agility, scalability, and rapid provisioning…Unlike incumbent firms that struggle with legacy systems, FinTechs can nimbly ideate, develop, and test new solutions with cloud support, which makes iterative development and on-the-go customer feedback manageable. Lower cost is another advantage that FinTechs can leverage to pass on some savings to customers, further adding to the positive experience.” — Capgemini, World Fintech Report 2018
Cloud technology is also transforming the lending industry, to the benefit of both lenders and borrowers. From loan origination to loan servicing, cloud technology is making services available to a wider range of clients, simplifying applications, lowering processing costs, and improving productivity and profitability. If your loan management software is not cloud-based, you’re not getting all of the technology’s advantages. Here’s why your loan management software should be cloud-based.
Lower Capital Expense
Consider the capital expenses associated with your legacy loan management software. You’ve paid for server and storage hardware, physical space, and software licenses.
Depending on the size of your operation, your IT expenses may also include hardware for disaster recovery, failover, and redundancy. You’ve also licensed security software to protect against increasing data breach threats. If you stay the course with your legacy software you’ll continue to incur most of these hardware expenses when you upgrade your system.
With cloud-based loan management software, you eliminate the expense of selecting, procuring, and installing hardware. Space dedicated to IT hardware can be used for something else. A subscription service to cloud-based loan management software factors in costs for hardware and software. Economies of scale allow cloud providers to acquire, provision, and manage hardware, software, and infrastructure far more cost effectively than an on-premises data center.
Lower Operating Expense
IT hardware and infrastructure have ongoing operational expenses: electricity (and cooling, if you have significant IT hardware) and staff to install, maintain, and update hardware and software. With cloud, you won’t completely eliminate IT staff. However, their skills and time can be used for higher-value activities, because operating expenses are assumed by your cloud-based software provider.
Faster Implementation and Frequent Software Updates
Cloud-based loan management software is implemented quickly. No need to download software from the vendor, install and test on local servers, and then install on local desktops. Your loan management software vendor will dedicate hardware and software resources in the cloud and configure the software to meet your specific lending process requirements.
In comparison to legacy systems that take many months (and sometimes more than a year) to implement and configure, cloud-based loan software can be configured and implemented in a matter of weeks. The fully-configured software is then available instantly and securely via a web browser, a huge advantage for any of your employees working remotely or located in geographically distributed offices.
Cloud also allows vendors to easily fix reported bugs, make software updates, and add feature enhancements that improve process efficiency. As a result, customers enjoy faster software fixes and gain immediate benefit from frequent functional improvements made by the software vendor.
Scalability to Grow (or Shrink) When Needed
Think about the last time your business grew or expanded. You had to procure and install additional hardware. You may have needed to acquire additional physical space, as well as upgrade electrical and cooling. Ability to scale, to grow as your business grows, is one of the truly remarkable advantages of cloud. Additional hardware and software resources can be added to accommodate increased demand for loan processing or expansion into a new region.
If your lending cycles are seasonal, the cloud lets you allocate resources as needed, quickly. During times of high-volume loan originations, you can add capacity to meet demand. When loan volumes dip, you can scale back down just as easily. You pay only for the cloud resources you use.
Availability and Reliability
Perhaps you’ve had this unfortunate experience: In a time of high demand your loan management system crashes. It could be the result of power failure, hardware failure, process overload, or any number of rare, yet potentially crippling factors that impede your lending business.
Cloud service providers like Amazon Web Services have invested heavily in building data centers. In addition to server and storage hardware, data centers include backup generators, redundant hardware, failover clusters, and dedicated communication links to make the loan management software hosted on their platform reliable and available when you need it. You can expect SLAs of at least 99.99% monthly uptime availability from many of the cloud service providers.
Integration with Data Sources and Services
Cloud-based loan management software enables better quality lending decisions and improves underwriting productivity by using other cloud-based data sources and services when needed. As part of the underwriting process, credit, alternative, identity, risk, and valuation data sources are automatically accessed with data returned in a standard format. This information provides the underwriter a detailed and accurate applicant profile, and is particularly helpful in determining creditworthiness of applicants who have thin credit files but are nonetheless qualified borrowers.
A modern loan management system will also provide integration with application sources, as well as compliance, document, and texting services. With automation, these cloud-based services are easily accessed during specific steps in the underwriting, funding, or servicing process to ensure relevant regulations are followed, eliminate the cost of handling paper documents, and notify borrowers regarding loan status.
Caveat: Although cloud technology has greatly improved the ability for cloud-based solutions to interconnect with one another, make sure that your loan management software is already integrated with data sources and services you intend to use. If you have to pay for the integration, it will add to your costs and delay implementation.
Undisputed Benefits of Cloud-based Loan Management Software
Cloud technology is transforming the lending industry. The capabilities and benefits of cloud-based loan management software are undisputed: Lower capital and operational costs, quick implementation with frequent software updates, and access to a wide range of data sources and services to help you improve decision quality and process efficiency. Those are key and compelling reasons why your loan management software should be cloud-based.
defi SOLUTIONS provides a cloud-based, configurable loan origination system (LOS) that is pre-integrated with a wide range of credit data sources and services to help lenders make better quality decisions and reduce processing costs. The defi SOLUTIONS team welcomes the opportunity to discuss your lending needs. Contact our experts online, or schedule a demo to learn how cloud-based loan management software can transform your lending practice.