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The defi Team defi INSIGHT, defi LOS, Technology


home-grown lending

With auto sales having peaked in 2017, lenders need every advantage to stay profitable. The industry is also adjusting to millennials who are skeptical about vehicle ownership, and to recently-reported increases in delinquency rates. Lenders with aging technology are doubly challenged. Outdated lending software, inefficient loan origination processes, and the risk of auto loan application fraud all threaten profitability. Fortunately, cloud technology can help overcome many of these challenges while improving efficiency and reducing risk.

Cloud-based solutions continue to prove their economic, technical, and functional value through:

  • Lower capital and operating expenses;
  • Faster implementation and frequent software updates; and
  • Fintech functionality providing measurable competitive advantages.

These are three key reasons lenders are replacing legacy and home-grown lending software. The differences between the old (home-grown lending) and the new (cloud-based lending) solutions are significant. A comparison should be sufficient to convince any lender of the merits of replacing home-grown lending solutions and moving to the cloud.

Home-Grown Lending Software: Higher CapEx and OpEx

Home-grown lending software racks up capital and operational expenses associated with servers, storage, electricity, and physical space. Depending on the installation, special accommodations may have been made for cooling, network infrastructure, and physical security. Selection, purchasing, installation, upgrades, and ongoing maintenance of hardware and infrastructure add to the long-term capital and operational expenses.  

Many of these expenses are reduced or eliminated with a cloud-based lending solution. The cloud provider assumes responsibility for physical space, hardware, electricity, and physical security. Economies of scale and data center locations in geographies with low kilowatt hour costs give cloud providers an economic advantage in delivering these services. Expenses incurred by cloud service providers like AWS are passed on to software vendors, who host their solutions in their data centers. Ultimately those costs are reflected in the subscription costs for cloud software. However, compared with owning and operating these resources on-premises, the long-term savings of a cloud-based lending solution can be big.

Home-Grown Lending Software’s Technical Limitations

Although home-grown lending software may have met lending needs in the past, it’s doubtful it can do everything you need now. There are a few key reasons why home-grown lending software can’t keep up:

  • Time-consuming, costly software programming required to tailor the functionality to the specific needs of the lender;
  • Absence of in-house programming skills to keep the software up-to-date or make refinements in keeping with market changes; and
  • Outdated technology that prevents lenders from taking advantage of the latest software development or integration techniques.

Cloud-based lending solutions can eliminate all of these and many other technical limitations that prevent lenders from realizing greater efficiency and productivity. Note: Not all cloud-based solutions are alike. If your prospective cloud provider doesn’t use the cloud for version updates, that’s a sign that they’re not making the most of the technology. Similarly, if you need to get the system to work better for your workflow, your organization should be able to do so itself through configuration. Your provider shouldn’t need a SOW for that.

Although cloud-based lending solutions offer greater capabilities out of the box than any home-grown lending software, every lender has unique requirements. Cloud-based lending software solutions use configuration, not programming. This lets business users modify dozens of features quickly, including those associated with the user interface, scorecards, credit formulas, stipulations, verifications, decision rules, workflows, and calls to third-party cloud lending services. Cloud-based lending solutions bring the added advantage of easy integration with an ever-growing list of specialized lending software services.

Home-Grown Lending Software’s Functional Limitations

It’s impossible for any lender with home-grown lending software to develop and maintain the range of new functions made available by recent fintech advancements. Cloud, big data, analytics, and machine learning have contributed new capabilities that help lenders improve efficiency and reduce risk.

Being cloud-based, lenders can quickly and easily integrate these services into a cloud-based lending solution. Some of the more recent fintech advancements include:

  • Alternative Credit Data (ACD) – a wide range of data on consumer behaviors lets lenders identify new lending opportunities and make better-informed lending decisions;
  • Identity Verification Services – machine learning and analytics identify auto loan applications that are potentially fraudulent, and help reduce default risk;
  • Employment Verification Services – automatically detect employment verification fraud without the need to manually review loan applications;
  • Vehicle Valuation – analyzes vehicle inspection and sales data to make well-informed lending decisions and lessen loan origination risk; and
  • E-Contracting – eliminates the delays associated with paper transactions to process loans and securely deliver documents.

The value of consumer data, the increasing threat of fraud, and the constant need to bring greater efficiency to the lending process all demand that lenders embrace the capabilities of the latest fintech. With these and many other cloud-based services, lenders can select and quickly integrate what they need to compete in the current auto lending environment.

There’s No Place for Home-Grown Lending Software in Today’s Market

The capabilities and benefits offered by cloud-based lending solutions are better than home-grown lending software. Lower capital and operational costs, quick configuration, greater efficiency, and reduced risk are all good reasons to abandon home-grown lending software and move to the cloud.


Getting Started

defi SOLUTIONS provides a cloud-based, configurable loan origination system (LOS), pre-integrated with a wide range of fintech lending services. If you’re struggling with limitations of home-grown lending solutions, take the first step in realizing the benefits of cloud by contacting our team today or registering for a demo of defi LOS.


Get in touch with us today and get a demo!


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