3 LOAN PROCESS IMPROVEMENT IDEAS TO OPTIMIZE LENDING

Lenders have increasingly adopted mobile and web technologies to make life easier for their customers. These technologies now allow customers to make payments instantaneously, check statements, and otherwise conduct business from anywhere with internet access.

Banks, credit unions, and other lenders have also benefited. While financial technology (fintech) has made it easier and quicker for consumers to apply for a loan, it’s also improved lenders’ efficiency and ability to comply with new regulations. Lenders of all sizes are looking for technology-based loan process improvement ideas to give them an edge. 

According to a 2024 survey of senior executives at U.S. financial institutions, three-quarters of respondents said they had increased their technology budgets. They said that their organization had recently invested in payments (53%), digital retail account opening (46%), digital business account opening (37%) and data analysis (32%) technology.

In an increasingly fast-paced and highly competitive market, technology plays a decisive role in a lender’s ability to provide exceptional service and stay profitable. Lenders who fail to use innovative, disruptive technology will be left behind. New lending platforms employing cloud services, data integration, automation, and analytics are helping banks make this crucial technological leap forward.

3 Loan Process Improvement Ideas
1. Replace Paper With Digital Documents
2. Integrate Data with Loan Origination and Decision-Making
3. Analyze Lending Processes and Portfolio Performance

How Cloud, Data, Automation, and Analytics Are Fundamental 

Lenders need to understand how digital transformation can help them improve their processes. Utilizing cloud computing, data integration, automation, and analytic capabilities helps lenders improve processes and optimize lending practices. Here’s how:

• Cloud computing: Makes it easy to implement, configure, and continually update their lending system to take advantage of the latest loan origination software (LOS) in order to make functional improvements.
• Data integration: Allows immediate access to current consumer and economic data, like credit, employment, income, and identity. This enables lenders to base decision-making on a more detailed applicant picture.
• Automation: By creating, applying, and modifying decision-making rules as needed, banks and credit unions reduce manual processes. This empowers them to review applications more consistently and efficiently.
• Analytics: Applying statistical tools and algorithms helps to identify sub-optimal lending processes and assess portfolio segments for elements that influence profitability.

The 3 Loan Process Improvement Ideas for Bank Lending Optimization

For banks, credit unions, and other lenders, there are three basic loan process improvement ideas in banking on which they can capitalize. These new fintech capabilities help optimize the lending process for borrowers and lenders.

1. Completely replace paper with digital documents
2. Integrate data with loan origination and decisioning
3. Analyze performance of lending processes and portfolio profitability

#1: Replace Paper With Digital Documents

Although lenders are beginning to accept digital transformation, the industry has a way to go. Auto loan applications can be a paper-heavy, protracted process.

A survey by MarketWatch found that nearly 40% of buyers applied online for their car loans. Close to 38% of respondents said it was “extremely important” to have an online application option, followed by 32% who said it was “very important.”

The paper-based loan process is inherently more complicated, time-consuming, and more costly. Incomplete paperwork will send an application back, whereas a cloud-based digital application won’t let the applicant move forward until all fields are filled. With online digital applications, paperwork will neither get lost nor be subject to other delivery delays, not to mention the cost of copies and sending out documents. All these things cause applicants to become frustrated, making it more likely for lenders to miss opportunities.

Cloud-based lending software offers applicants simple-to-follow steps, guiding them through the process. It also allows lenders to capture applicants’ information more accurately, verifying data as it’s entered and notifying users when an error occurs. The automated loan application process ensures all relevant information and documentation is captured and sent to the lender.

The benefits of digital documents are significant as well, especially for lenders with high-volume loan applications. They include:

1. Transfer of documents takes minutes instead of hours or days.
2. The ability to accurately process more applications.
3. Processing costs for sending paperwork are eliminated.
4. Cloud-based documents can’t be lost or stolen, as they’re secure and accessible online for either applicant or lender.
5. Compliance requirements are more easily met without storing vast amounts of paperwork.

#2: Integrate Data with Loan Origination and Decision-Making

For many lenders, the loan origination process still includes vestiges of established practices decades ago. It includes labor-intensive steps within the verification process, often involving logging into multiple siloed data systems and having a human visually verify applicant data. All these manual steps just delay the loan decision.

Many lenders are hindered by not just the process but also outdated technology. Legacy lending systems’ technical limitations reduce the lender’s ability to replace manual steps with automated decisions. They also make it extremely difficult to integrate alternative data sources, making it harder for lenders to make the most informed, accurate decisions.

Cloud-based loan origination systems offer pre-integrated access to data sources. This data can then be automatically accessed without manually logging into the system to verify applicant information. Automated decision rules assist with verification, helping to better assess creditworthiness.

Digital transformation gives lenders integrated access to a broader range of consumer and economic data than ever before. Combined with decision rules, it eliminates many manual steps in the lending process. As such, lenders can realize the following benefits:

1. Greater efficiency and accuracy when processing loan applications.
2. Faster decisions regarding loan applications.
3. Better quality decisions that support a lender’s business goals.
4. Human expertise focused on high-value tasks and decisions.

#3 Analyze Lending Processes and Portfolio Performance

Lenders may gather vast volumes of process and portfolio data, but legacy lending systems make it difficult to apply modern analytic tools. These tools include statistical models and machine learning algorithms that help identify bottlenecks, trends, ratios, and lost sales.

Modern lending systems employ analytics to gain insight into process efficiency throughout all phases of the loan lifecycle. They also garner a greater understanding of other factors affecting portfolio performance. Specifically, tailored analytics can meet lenders’ business needs. They allow lenders to easily:

• Identify steps within the process that are needlessly complex or time-consuming.
• Recognize steps where automated processes could replace manual processes.
• Monitor productivity trends through the use of historical metrics.
• Analyze origination trends by geography or dealer as well as by approval, capture, and booking ratios.
• Determine what economic factors or consumer traits contribute to defaults.
• Compare portfolio segments to identify risk and opportunity, along with the underlying factors of both.

Lenders who judiciously and consistently apply the power of analytics to their lending processes and portfolios see the following improvements:

1. Streamlined processes that reduce times and improve quality of decision-making.
2. Greater efficiency and lower processing costs for loan origination, especially when processes are fine-tuned to accommodate market changes or new regulations.
3. Better correlation of risk and effort to yield savings in processing time and costs.
4. Early identification of risk potential and intervention in subprime loans.

The same technological advances that make modern banking effortless can now be applied to lending. Digital transformation in loan applications and other processes is improving the consumer experience. Banks can improve their reputations by reducing the complexity of the process and the time it takes to make decisions. Considering the large volume of auto loans banks manage, such technological advances can translate into greater profitability.

Modern loan origination software overcomes the limitations inherent in most legacy systems. Digital documents reduce the time and cost of processing loan applications. The integration of data sources and the application of decision rules result in better quality decisions. By applying analytics, lenders can continually identify unprofitable or time-consuming areas in their processes and practices. For lenders, choosing one or all these ideas to improve their process may result in greater efficiency and lower costs. All of this can then have a positive impact on profitability.

defi’s Loan Origination Solutions

Lenders can successfully leverage technology by deploying an industry-leading loan origination platform. defi SOLUTIONS loan origination solutions offer these advanced capabilities and more.

Key Features of defi Loan Origination Systems
✔ Scalable cloud-based platform	✔ Built-in APIs and quick integrations with third-parties
✔ Automated underwriting, decisioning, deal structuring, and funding	✔ Data analytics capabilities
✔ No-code configuration for workflows, rules, policies, features, and admin functions	✔ Fully integrated mobile apps
✔ Customer-facing portals and other customer service tech	✔ Support for advanced features like AI and machine learning
✔ Support of complex pricing matrices	✔ Quick implementation of business decisions