Information technology (IT) has transformed all aspects of the lending sector, streamlining processes to benefit both lenders and borrowers. Banks, credit unions, and other lending institutions can now offer their customers additional services while making their operations more efficient. With each additional lending solution, spending per customer decreases while services for borrowers expand and become more user-friendly.
These technologies range from cloud-based loan origination software (LOS) to predictive data analytics and allow lenders to offer a better experience to borrowers than their competitors. Investing in modern lending systems involves more than just purchasing advanced software and other technology, however. It’s important to choose the right partner, a vendor who can help lenders prioritize their IT spending.
With so many options available, it’s important for lenders to carefully evaluate which one best suits their loan portfolio and customer base before committing to any one lending solution. Spending should concentrate on those technologies that can best improve functionality while also expanding a lender’s capabilities.
For lenders looking to streamline their processes, these three technologies should be carefully considered:
- Migration to a cloud-based LOS.
- Utilizing data analytics software or services with embedded machine learning algorithms.
- Engaging a reputable software-as-a-service (SaaS) provider with experience in the lending industry to expand capabilities.
Every lender should make such IT expenditures a part of their budget, and these three technological investments are sure to provide lenders with the capabilities they need to stay competitive. Now let’s look at how investing in each of these areas can improve upon a lender’s service to their customers.
Migrate to a Cloud-Based Loan Origination Solution
For lenders not yet using a cloud-based LOS, this should be the first priority. With this lending solution, spending is outweighed by the plethora of benefits. These include:
- Greater efficiency in data management: Maintaining data relating to loan origination in the cloud allows lenders to better organize and analyze this data. Cloud services are far more efficient than any on-premise lending solution. Spending for this greater efficiency also lowers both operational and data storage costs.
- Faster processes: Cloud-based systems can automate workflow and decision rules, along with emails, phone calls, and text messaging, to heighten a lender’s efficiency. Automation also reduces the amount of time loan officers need to spend making each decision.
- Greater scalability: Cloud lending solutions easily scale up or down to meet changing workloads. This allows a lender to adjust to the current economic climate with the right lending solution, spending only to the extent services are needed.
- Automatic updates: Cloud software updates automatically whenever a new software version or feature is available, reducing maintenance overhead. It also ensures a lender will have the most advanced tools available to maintain a technological edge over the competition.
- Simplified user experience: A cloud LOS allows menus and user interfaces to be easily configured to meet a lender’s specific needs. This lets a lender select options and make changes that best align with its customers’ needs without hiring developers or paying a vendor for professional services to modify the system.
- Better security and backups: Data security is essential to anyone in the financial services industry for both compliance purposes and to protect customer data. For example, a cloud-based LOS hosted by Amazon Web Services (AWS) offers the latest in user authentication processes, encryption technology, backups, and failover technology to ensure critical systems remain operational.
Cloud services are also a very cost-effective lending solution. Spending on a cloud-based LOS is a good investment for any lender, which will result in both lower capital and operational expenses.
Prioritize Detailed Data Analytics
After implementing a cloud-based LOS, a lender should invest in data analytics software that utilizes machine learning technology as a lending solution. Spending on such an IT investment allows a lender to interpret large volumes of data that can provide valuable insights into risk and portfolio performance.
Previously loan officers with years of experience were needed to assess risk properly, but with cutting-edge analytics software, evaluating loan performance becomes much faster and more accurate. Data analytics allows lenders to quickly see how their credit policies affect portfolio performance.
With an investment in data analytics, lenders can:
- Analyze loan data to determine how past credit policies are affecting specific segments within their loan portfolio.
- Modify credit policies to reduce risk or increase lending opportunities in response to changes in the market.
- Find patterns within loan data that indicate the likelihood of specific loans becoming delinquent, allowing lenders to proactively offer options to avoid loan defaults.
- Use predictive models to estimate future risk when credit policies are modified.
Lenders get the greatest value from data analytics that can integrate with their cloud-based LOS via the same application programming interface (API). Not every LOS will allow such easy integration with lenders’ data analytics capabilities. Lenders investing in a cloud-based system should carefully consider the added benefit that data analytics offers and include it in their IT budget.
Invest in SaaS Lending Options
A wide range of SaaS lending applications integrate easily with cloud-based LOS solutions. Adding SaaS capabilities will enhance the system’s performance, improving lending efficiency by automating access to valuations, trended credit data, verifications, and fraud analytics. Lenders can even choose the options within a SaaS lending solution, spending only on those elements that meet their specific needs.
SaaS can offer solutions for repetitive and time-consuming tasks like:
- Determining if dealer collateral valuations are accurate or if they’ve “padded” a loan application.
- Structuring loans based on recent credit payments that provide a far more detailed and accurate assessment of a borrower’s ability to pay back a loan.
- Automatically verifying an applicant’s income and/or employment before offering a deal to any subprime lender.
- Detecting potential identity theft on loan applications, which usually results in defaults.
It’s even more advantageous when these SaaS applications are already integrated with cloud-based LOS solutions. Lenders will then be able to achieve value for their investment almost immediately, as there’s no need to spend time and money on a protracted, custom integration.
Optimizing Your IT Lending Solution Spending
Before investing in a cloud-based lending solution, spending the time researching the best way to improve efficiency in lending operations and lower risk within loan portfolios is a smart move. IT budgets should additionally focus on positioning a lender for the future by evaluating the best cloud-based LOS system, data analytics, and SaaS lending options.
With so much change going on in the industry, it’s an exciting time to be a lender. This rapid advancement of technology shows that it’s the right time to invest in innovative solutions to help lenders stay competitive for decades to come.
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 originations, servicing, and managed servicing. defi SOLUTIONS has the backing of Warburg Pincus, Bain Capital Ventures, and Fiserv. For more information on lending solutions, spending, or our cutting-edge LOS, please visit www.defisolutions.com.