Credit risk management technology boosts approval rates


The defi Team Banking, defi INSIGHT, Originations

Digital origination speeds up the loan approval process

The speed of service is often a determining factor for any customer purchasing products or services, and the consumer lending sector is no different. While every customer wants the best deal, loan applicants are more likely to pursue and renew a relationship with a lender who simplifies the loan origination process. For this reason, lenders need a digital origination system that speeds up loan approvals while not raising their risk exposure.

Since the origination process is where approvals happen, it should be and most often is the first portion of the end-to-end lending process to be digitized. By going digital, originations are made easier, with quicker decisioning that’s also more accurate. At the beginning of a borrower’s journey, a lender can most easily turn a loan approval into a happy and returning customer.

Why Digital Origination of Loans Is So Important

Lenders generally expend the most time and effort during the loan origination process for two reasons: to grow their loan portfolios and then keep their exposure to risk low. That’s also why this process is so vital to any modern digital lending platform, though, in turn, it creates a daunting challenge for lenders. While they need to weed out questionable applicants to keep delinquent payments and collections incidents low, lenders must also provide quick and seamless service to their customers.

To support both lenders and borrowers, a digital origination platform should include:

  • Automating data entry and risk calculations, along with rules-based decisioning, that reduces the time necessary to process applications while providing near-immediate decisions to as many customers as possible.  
  • Configurability that allows lenders to address specific workflow needs regarding decision rules and modify these when necessary without requiring specialized programming skills.
  • Exceptions to rules that flag applications to allow assessment using additional criteria, like alternative credit data, to retain loyal customers and create more lending opportunities.
  • Integration with data sources, such as those that provide trended or alternative credit data, that helps lenders expand their portfolios without increasing risk.
  • Security features like multi-factor authentication and encryption protect sensitive data so only authorized users can access it. Additionally, frequent updates and patches ensure the highest level of security and compliance with privacy regulations.

A lender should be able to calculate how long it will take to get the system up and running. A cloud-based platform that’s ready to use out of the box can be implemented more quickly than one built from scratch. Additionally, a lender should know how long it will take to achieve a return on investment (ROI) with any new digital originations package.

Benefits of Digital Origination

Some of the main benefits of digital origination include added flexibility in how lenders offer products and services to their customers. Additionally, the transparency of a digital origination process aids regulatory compliance. The digitization of the origination process allows lenders to look at applicants in greater detail, creating more lending opportunities without increasing risk. Additionally, the shorter the time it takes for a decision on a loan, the better experience an applicant will have.

8 Benefits of Digital Origination Platforms
➕ Adapt to the level of digitization needed, from a complete end-to-end solution to a compartmentalized digital system that offers only what a lender needs.
➕ Allow lending products to be sold online, individually or in combination with other products and services.
➕ Assess risk and make decisions automatically.
➕ Enable integration of loan origination software (LOS) with other new and already existing systems cost-effectively.
➕ Offer greater flexibility through rule-based pricing that optimizes products and services for each customer.
➕ Onboard applicants in minutes to enable quicker decisioning
➕ Provide an omnichannel solution that allows lenders to use email, text, online chats, and other communication channels to improve customer service and drive new business.
➕ Leverage artificial intelligence (AI) and machine learning (ML) algorithms, enabling lenders to make the best offer while also making suggestions to boost sales of add-on products.

With the best digital origination software, lenders can scale their operations up or down quickly and easily, which allows them to adjust to changing market conditions. Digitizing originations also enables lenders to promptly adjust their lending criteria to comply with any changes in regulations.

Regulatory Compliance

Applying for a loan can be cumbersome for consumers, with many lenders still using lengthy paper applications that require applicants to provide redundant information throughout the process of applying for a loan. This often results in applicants not filling out every part of the application and sometimes providing incorrect information. Should such inaccuracies not be caught, it could lead to negative consequences for the lender.

Digital origination relies on online applications that can prefill already available data to streamline the process. This improves customer experience by making the application process easier, quicker, and more transparent while ensuring compliance. Such online applications won’t advance to the next page unless an applicant answers all questions and fills out all required data fields. A completed and clearly filled-out application helps guarantee compliance with lending regulations.

Access to Credit

By making the process digital, originations become easier, and credit becomes more accessible to consumers. Online applications allow applicants to utilize multiple channels should they have questions or need other support to improve user experience while opening up new lending opportunities.

Lenders can also enhance their portfolios by combining automation and certain data services. For example, trended credit data may show an applicant’s financial situation to be better than their traditional credit score, enabling approval of an applicant at better terms. For those with limited credit histories, alternative credit data like regular rental or utility payments may assist applicants in getting a loan approval that would otherwise be declined.

Customer Experience

Loan originations involve consumers filling out applications, reviewing documents, and disbursements of loans. Whether the process is manual or digital, originations are where lenders can best buy customer loyalty. By putting paper processes online, lenders can make their loan originations more accurate, accessible, and quicker. A frictionless, streamlined process is where banks, credit unions, and other lenders show why applicants should choose them over their competitors. Lenders are more likely to develop ongoing relationships with their customers by making the process more efficient.

Utilizing technology such as mobile apps enables lenders to engage with consumers where they are. This means a loan applicant could fill out a loan application anywhere with an internet connection. Such digital engagements also allow lenders to use applicant data to personalize the customer’s experience. Through predictive analytics software integrated into the platform, lenders can even offer borrowers products and services relevant to their specific situation.

Problems With Legacy Origination Systems

Over the past few decades, lenders have moved from manual processing of loan originations to legacy software systems for documenting, verifying, and underwriting. However, legacy on-premise servers and software require significant time to update, meaning longer downtime, negating many of the benefits digital transformation offers. In contrast, a digital LOS quickly and automatically updates so that there’s less downtime. To deal with such issues, leaner processes were adopted, which included the use of cloud-based platforms. Since their inception, digital origination systems have proved more effective and efficient than legacy systems.

Modern digital origination software may also use artificial intelligence and machine learning algorithms to give lenders greater flexibility while significantly improving accuracy. They also allow lenders to collaborate with credit agencies through alternative credit data like rent payments, public records, or utility accounts. This will enable lenders to provide loans to applicants without a sufficient traditional credit history, expanding the loan portfolio, planting the seeds to create a repeat customer, and leading to more market share, increased client base, and greater revenue.

Partnering With defi SOLUTIONS for Digital Origination

Lenders needn’t make tradeoffs when choosing an LOS to support a new digital origination solution, so defi has developed two origination systems. Configurable, flexible, reliable, and scalable solutions, our systems bring together the best attributes available in the current LOS market. With their ease of use, they are flexible enough to run as a single platform in any segment of the consumer lending market. With their speed and versatility, our origination systems give lenders a means to deliver the best lending products and services to their customers, now and into the future.

Getting Started

defi SOLUTIONS is redefining loan origination with software solutions and services that enable lenders to automate, streamline, and deliver on their complete end-to-end lending lifecycle. Borrowers want a quick turnaround on their loan applications, and lenders want quick decisions that satisfy borrowers and hold up under scrutiny. With defi ORIGINATIONS, lenders can increase revenue and productivity through automation, configuration, and integrations and incorporate data and services that meet unique needs. For more information on digital origination, contact our team today and learn how our cloud-based loan origination products can transform your business.

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