The big loan management software trends for 2020 focus on achieving two major goals: Reducing risk and identifying new lending opportunities. The ability to use data to support both goals needs will determine lending success in the new year and beyond.
New Data Sources Reduce Risk and Boosts Opportunity
The internet, cloud technology, mobile applications, and digitization of business transactions are generating more valuable data about consumer spending habits. Although bureau scores have served lenders well for decades, newer, easily accessible sources of data allow lenders to make lending decisions based on a more detailed, current, and accurate picture of a consumer’s ability to pay.
- Alternative credit data reveal additional dimensions of consumer behavior with information about checking and savings account balances, utility and cell phone payments, change of address, education, rental payment records, and bankruptcies.
- Trended credit data provides insight into recent credit-card payments and evidence of improving, declining, or stable ability to pay.
- Employment and income verification services confirm or refute the information in the loan application.
These cloud-based data sources are easily integrated with modern loan origination solutions, no programming required. More importantly, these additional data sources let lenders:
- Reduce the risk of lending decisions; and
- Identify new lending opportunities that may have otherwise been ignored.
Lenders already using workflow and decision rules to automate the underwriting process can now incorporate these data sources to create a more detailed picture of an applicant’s financial standing.
AI Helps Mitigate Risk and Find New Opportunities in Servicing
Lenders also benefit from investments in servicing. Lenders are using artificial intelligence (AI) to extract greater insight from their portfolio, gain advanced notice of potential delinquencies, and identify opportunities for additional products or services.
AI applied to loan servicing can uncover valuable insights regarding collection efforts. Based on continuous analysis of portfolio performance and a wealth of additional borrower profile data, predictive models can correlate borrower attributes and payment behaviors to identify accounts that are likely to default. As an automated process, AI is continually looking at portfolio performance and collections activities. Predictive models identify payment patterns that indicate a borrower is struggling to make the monthly payment, like:
- Late payments in successive months;
- Paying two installments at once; and
- Payments arriving later and later each month.
AI can analyze hundreds of variables and payment trends to develop predictive models that are fine-tuned to the unique market segments of the lender.
With advanced notice of potential problems, automated workflows can guide representatives through a process designed to avoid delinquencies that lead to defaults, for example:
- Contact preferences—phone, email, text, post;
- Optimum day and times for phone contact; and
- Suggested payment options or strategies to avoid delinquency.
An automated approach to proactive risk mitigation brings consistency to the process. Well-defined workflows with specific rules, advised by insight gained from AI, ensure that all steps and actions taken comply with regulations enforced by the Consumer Financial Protection Bureau (CFPB).
Detailed data obtained or generated throughout the course of the lending cycle also give lenders an advantage in offering additional or complementary products for qualified borrowers. As loans and leases reach maturity, lenders can use borrower characteristics, updates from non-traditional data sources, and analysis of portfolio risk to propose offers tailored to unique borrower needs—all with the goal of improving retention rates.
Explore the Capabilities of Modern Loan Management Software
Technology is advancing rapidly, with many new capabilities delivering immediate, quantifiable benefits for lenders and their borrowers. If you haven’t recently, devote some time to learn more about these trends through our dozens of loan management software blogs.
defi SOLUTIONS provides configurable loan origination systems, loan management and servicing, analytics and reporting. If you’re struggling with the limitations of your current lending technology, contact our team today or register for a demo.
Get in touch with us today and get a demo!