The speed of service is often a determining factor for any customer purchasing products or services, and the consumer lending sector is no different in this regard. While every customer wants the best deal, loan applicants are more likely to pursue and renew a relationship with a lender who makes the loan origination process simpler and quicker. For this reason, lenders need a modern loan origination system (LOS) 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. It’s at this point, at the beginning of a borrower’s journey, that 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 greatest time and effort during the loan origination process for two reasons. First 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 also need to provide a 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, reduces the time necessary to process applications while providing near-immediate decisions to as many customers as possible.
- Configurability 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, helps lenders expand their portfolios without increasing risk.
- Security features like multi-factor authentication and encryption protect sensitive data so that 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 as well. 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 about how long it will take to achieve a return on investment (ROI) with any new digital originations package.
Benefits of Digital Originations
Some of the main benefits digital originations present include added flexibility in how lenders offer products and services to their customers. Additionally, the transparency of a digital originations process aids regulatory compliance. The digitization of the originations 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.
Some other key benefits of digital origination platforms include:
- Adapting 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.
- Allowing lending products to be sold online, either individually or in combination with other products and services.
- Assessing risk and making decisions automatically.
- Enabling integration of LOS with other new and already existing systems in a cost-effective manner.
- Offering greater flexibility through rule-based pricing that optimizes products and services for each customer.
- Onboarding applicants in minutes to enable quicker decisioning.
- Providing an omnichannel solution that allows lenders to use email, text, online chats, and other channels of communication to improve customer service and drive new business.
- Using artificial intelligence (AI) with machine learning (ML) algorithms that enable lenders to make the best offer while also making relevant suggestions to boost sales of add-on products.
With the best digital originations 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 quickly adjust their lending criteria to comply with any changes in regulations.
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 while sometimes also providing incorrect information. Should such inaccuracies not be caught, it could lead to negative consequences for the lender.
Digital originations rely on online applications that can prefill already available data to streamline the process. This additionally improves customer experience by making the application process easier, quicker, and more transparent while also 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. Having a completed and clearly filled-out application that can be looked back upon 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 make for a better user experience while also opening up new lending opportunities.
By combining automation and certain data services, lenders can also enhance their portfolios. For example, trended credit data may show an applicant’s financial situation to be better than what their traditional credit score shows, 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.
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, more accessible, and quicker. A frictionless, streamlined process is where banks, credit unions, and other lenders show why applicants should choose them over their competitors. By making the process more efficient, lenders are more likely to develop ongoing relationships with their customers.
Utilizing technology such as software apps for smartphones or other mobile devices allows 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 take advantage of applicant data to personalize the customer’s experience. Through the use of 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 required significant time to update, meaning longer periods of downtime, which negated 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 to be more effective and efficient than legacy systems.
Additionally, modern digital originations software uses artificial intelligence and machine learning algorithms to give lenders greater flexibility while also significantly improving accuracy. They also allow lenders to collaborate with credit agencies through the use of 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. This expands a lender’s portfolio and plants the seeds to create a repeat customer, 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 a LOS to support a new digital origination solution, which is why defi has developed two originations 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 originations systems give lenders a means to deliver the best lending products and services to their customers, now and into the future.
defi SOLUTIONS offers solutions for a lender’s complete loan or lease lifecycle. Partnering with captives, banks, credit unions, and finance companies, defi’s market-leading solution helps lenders exceed borrower expectations. From digital engagement through the complete lending process, defi sets new standards for flexibility, configurability, and scalability in digital originations, along with managed loan servicing. defi SOLUTIONS has the backing of Warburg Pincus, Bain Capital Ventures, and Fiserv. For more information on digital origination solutions and how defi can help, please visit www.defisolutions.com.