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HOW TO IMPROVE OPERATIONAL EFFICIENCY IN THE BANKING SECTOR

The defi Team defi INSIGHT, Originations

Operational efficiency in the banking sector representation

Though there was a recent uptick, U.S. vehicle sales dipped at the end of 2023. Combined with the still-recovering auto components supply chain and a disruptive UAW strike, lenders are seeing a significant increase in competition for loans among auto lenders. To meet these challenges, lenders need to improve operational efficiency in banking. For this reason, reducing costs remains a strategic priority for consumer lenders.

In this increasingly competitive market, the ability to process more loan applications without hiring additional staff makes sense. Even better is the ability to automatically approve well-qualified applicants and accurately identify those presenting the lowest risks. With the help of recent advances in lending technology, these capabilities are now possible. By taking advantage of new technologies, financial technology (fintech) companies are helping improve operational efficiency in the banking sector. These fintech companies are helping banks replace their legacy systems with cutting-edge technology. 

Improved Operational Efficiency in the Banking Sector

When the loan origination process is inefficient, other steps in the loan lifecycle suffer. Not responding quickly enough leads to lost sales. Poorly informed lending decisions affect profits. Unnecessary manual steps in the underwriting process can introduce errors or result in inconsistent lending decisions. These and other procedural roadblocks can be avoided by adopting these five key capabilities provided by the best modern lending solutions:

Improve Operational Efficiency With These 5 Features of a Modern Lending Solution
1) Web Access Allows lenders’ customers to initiate loan applications anywhere there’s an internet connection. Through web access, lenders can easily extend their reach to new territories or grow their business in established areas. Web-based loan origination guarantees secure encrypted communications between applicants and the lender.
2) Digital Documents Enables applicants to quickly and securely send documents to the bank via the internet, eliminating shipping costs, and making it impossible to misplace documents that are critical to lenders when making lending decisions.
3) Third-Party Data Integration Allows lenders to access industry-leading credit, identity, or alternative data sources automatically, enabling them to obtain a more detailed profile of the applicant during the qualification process. Out-of-the-box integration with these data sources eliminates the need for costly, custom integration, allowing lenders to access the data fields they need.
4) Decision Rules Enables lenders to create their own rules and set their own parameters for decisions based on their preferred credit policies and programs, establishes the criteria an applicant must meet to qualify for a loan, and eliminates manual steps that delay approvals. Lenders often find that setting specific decision rules improves origination process efficiency.
5) Mobile Allows anyone involved with underwriting or funding decisions to remotely monitor loan status and specifics such as sales price, interest rate, terms, and loan-to-value (LTV) and establish the probability that the deal will close. In the event of a potential delay, representatives can quickly intervene to move the deal along.  

Each of these capabilities increases lending efficiency individually. Collectively they offer lenders powerful lending solutions. When implemented and managed correctly, these modern lending solutions will also improve operational efficiency.

Cloud Provides Operational Efficiency Benefits

New lending solutions take advantage of the cloud, allowing lenders to deploy and scale their operations quickly. This stands in stark contrast to many banks’ legacy lending systems, which require trained IT staff just to operate and maintain them. These legacy systems are also far more difficult to update and expand. Looking at it from a software management perspective, the speed of cloud-based deployment brings three distinct operational benefits:

  1. It allows lenders to take advantage of the latest technologies without a lengthy implementation process, offering faster time to value.
  1. Cloud vendors provide frequent software updates with improved or additional functions for the user community.
  1. The solution enables lenders to scale to meet changing loan processing demands quickly. This scalability allows lenders to easily expand business operations, whether an individual office’s growth or broad geographic expansion.

At the same time, cloud deployment plays a significant role in reducing operating expenses. An organization using cloud-based systems no longer needs to plan, purchase, install, and manage extensive IT hardware to support a lending system. Reduced need for on-premises hardware also lowers space and energy costs. Instead, the cloud service provider covers these operational expenses while also covering the cost of hosting the loan origination system and managing all the IT hardware. Compared with management costs for in-house IT, cloud service providers provide a proven economic advantage to lenders.

Fine-Tuning for Greater Operational Efficiency

There’s an additional way the banking sector can improve its operational efficiency. Today’s lending climate is constantly changing due to market and regulatory factors. For these reasons, being able to easily modify systems and processes in response provides lenders with an advantage over their competitors. While legacy lending systems require specialized technical skills to make modifications, modern lending systems facilitate modifications via browser-based configuration tools designed for business users rather than IT specialists. These tools allow authorized users to quickly and securely make modifications like:

  • Changing drop-downs, screens, data fields, and user access to correspond to individual user roles and responsibilities.
  • Configuring a set of loan rules and processes to automate underwriting tasks.
  • Establishing integration with more than 30 data sources and data fields.

It makes sense from a compliance perspective as well. As the system keeps a record of who’s making modifications and when they’re made, in the event of an audit, lenders can easily provide a record of any changes made. These configuration tools let those who best know the needs of the business make the needed changes, optimizing it quickly and easily.

You Can’t Be Efficient Without These

Banks began to aggressively adopt new technology, starting with ATMs decades ago. This allowed them to simplify common transactions, allowing their customers to manage account balances, make deposits by phone, and facilitate payments by utilizing electronic fund transfers. However, banking processes like loan origination could also benefit from the efficiency these new technologies bring.

Bankers and other lenders can now use cloud-based lending solutions to quickly optimize their operational efficiency. The cloud has already shown businesses in other sectors how this technology can reduce expenses. With web-based applications, digital documents, decision rules, data integration, mobile solutions, and the ability for business users to configure their systems, these key technologies are becoming a core solution to today’s lending industry. With these capabilities, lenders can:

  • Eliminate long-term system development and implementation projects.
  • Process larger numbers of applications without expanding staffing.
  • Automatically approve well-qualified applicants in near real-time.
  • More accurately identify applicants with certain risk characteristics. 
  • Significantly reduce IT infrastructure management costs.

Lenders should take some time to look at their current loan origination system to assess its efficiency. By identifying areas that can be made more efficient, lenders can continuously improve their operations. For lenders still using legacy systems, moving to a cloud-based lending solution will be far more cost-effective. It will allow a much quicker implementation than when the current lending system was first employed. And the sooner a modern cloud-based origination system is employed, the sooner a lender will achieve operational efficiency.  

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 operational efficiency in banking, contact our team today and learn how our cloud-based loan origination products can transform your business.

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