Representation of how the loan origination process is being reshaped by technology


The defi Team Banking, Compliance, defi INSIGHT, Fraud, Originations, Reporting & Analytics, Simplifying Processes

Representation of how the loan origination process is being reshaped by technology

Updated on 10/6/23

When any new technology becomes available, there are always advocates and detractors surrounding its use. While innovative lending technology offers many benefits, it can also disrupt how business is done. Such is the case with machine learning and artificial intelligence (AI), both of which can decrease the cost of identifying fraud and increase the speed of the loan origination process. With machine learning, it now takes mere seconds for a bank to alert a customer when a charge to their card doesn’t fit the user’s typical spending profile. Meanwhile, voice commands to AI assistants like Amazon’s Alexa or Apple’s Siri let consumers order last-minute birthday gifts or seek answers to questions, all via voice command.

Through leveraging modern technology, financial institutions can make daily interactions with their customers frictionless and effortless. It allows people to monitor investment accounts online or make deposits and transfer funds from anywhere in the world with a connected mobile device. Yet these technologies also benefit banks and other lenders, not just consumers. These technologies help financial institutions of all sizes handle high-volume banking activities more efficiently. New lending technology with cloud-based computing has automated much of the loan origination process for lenders, reshaping it for greater efficiency.

Technology Reshapes Loan Origination Process

Financial institutions adopted technology-based banking processes early, utilizing them to improve their customer service while also reducing operating costs. The COVID pandemic has made the financial technology (fintech) sector even more relevant. A trend by lenders is developing to use fintech software applications to collect loan applicants’ financial data quickly, including data on bank statements and utilities. The result of this benefits both lenders and borrowers, with the former gleaning a more accurate picture of applicants’ creditworthiness while the latter receives better terms and interest rates from lenders.

These two lending technologies are already generating significant impact:

  • Cloud technology: Cloud services allow lenders to implement the latest loan origination software (LOS) without needing additional on-premise investments in IT infrastructure and the operational overhead this entails. With the LOS hosted in a cloud provider’s data center, lenders access it via a web interface.
  • Automation: Utilizing decision rules that are easy to create and modify, automation facilitates faster and more accurate processing of loan applications. It replaces manual tasks with automated decision rule technologies that efficiently and precisely evaluate data directly from the loan application.

The cloud delivers the latest loan software capabilities to a lender’s desktop, providing automated updates to make new fintech tools available to lenders and their customers. Automation optimizes the loan origination process. An advanced LOS offers lenders advanced fintech tools that allow them to remain competitive.

Cloud Delivers the Latest in Lending Functionality

A strategy that includes cloud-based technology reduces the expense of on-premise infrastructure, including capital expenses (CapEx) for IT equipment and space, as well as operating expenses (OpEx) for electricity and systems administration. With most of those expenses borne by the cloud provider, utilizing cloud services provides economic benefits to lenders of any size, including indirect and direct lenders, credit unions, and banks.

The adoption of cloud computing during the pandemic didn’t slow, as it was seen as a necessary solution due to the difficulties inherent in monitoring on-premise IT infrastructure. In fact, a survey from O’Reilly showed adoption of cloud computing through all industries running at 90 percent. The study also found that 48 percent planned to migrate at least half of their applications to the cloud within a year, while 20 percent planned to migrate all of theirs. Other distinct capabilities and benefits for lenders who adopt a cloud-based approach to loan origination experience include:

5 Benefits of Cloud Deployment for the Loan Origination Process
Quick Deployment With no need to fund, purchase, and deploy hardware, a web-based LOS solution can be deployed quickly. In comparison to legacy on-premise systems, implementation often takes months rather than years. This offers a considerable advantage to new lenders planning a rapid market entry.
Ubiquitous Availability A web-based user interface (UI) allows access from virtually anywhere. It’s ideal for widely distributed organizations and remote employees. Mobile availability will enable lenders to monitor loan origination progress easily.
Cloud-based integration Cloud integration provides immediate access to relevant data sources for credit, employment, identity, and income verification without any costly, protracted programming. This reduces the need for manual verification and results in faster processing of loan applications.
Scalability Cloud-based LOS systems are designed to meet current loan origination needs and allow lenders to scale their operations easily to accommodate future growth.
Continuous Software Updates Software updates on the cloud are fast and frequent, allowing lenders to immediately take advantage of functional improvements made in response to customer requests, along with fixing software issues.

Cloud services put the latest LOS functionality in the hands of lenders of all sizes at a lower cost than legacy software. With quick implementation, software updates, and integrated access to lending-specific data sources for faster loan decisions, the cloud is the best choice for lenders looking to improve efficiency in the loan origination process.

Automation Enables Faster Loan Decisions

Regardless of a lender’s size, a quick loan origination process gives nationwide banks, local credit unions, or other lenders, both small and large, a competitive advantage. Most lenders’ current systems and processes include time-consuming manual steps that can be replaced with automated decisions.

Automated technology accelerates lending processes and facilitates consistency in decisions. But, more importantly, it allows human expertise to be applied where it offers the most significant benefits. In many instances, reserving professional judgment for evaluating an application that may closely but not exactly meet qualification thresholds is the most profitable way to leverage a loan expert’s time and experience.

Automated decision rules hold the greatest potential for reshaping the loan origination process. In most cases, they remove the need to make decisions and perform tasks manually, accelerate the loan origination process, and enable lenders to quickly and consistently determine which applications to fund.

Automated Decision Rules Support Data-Driven Processes

Automated decision rules enable a lender to eliminate manual steps, replacing them with data-driven automated processes. Criteria used to qualify an applicant, such as age, FICO score, income, employer, make and model of a vehicle, and so on, can now be automatically evaluated. By using predetermined decision rules to approve the appropriate level of funding, interest rate, and length of the loan, lenders can optimize their loan origination process.

If an applicant has outstanding scores on key criteria, automated decision rules can help fast-track an approval. Conversely, if critical thresholds are not met, then the application is an automatic decline, saving time and resources. Alternatively, automated decision rules can also recognize questionable applications that should be reviewed by a loan professional. This way, lenders can best use their resources to determine loan eligibility based on current delinquency trends and data.

Automation Allows Business Users to Create the Rules

Users can easily create and modify decision rules for the loan origination process based on pre-programmed criteria. Technical programming expertise isn’t required. These decision rules also provide greater flexibility regarding the degree of automation a lender uses. A system can be fully automated, a hybrid that utilizes both automatic and human reviews, or completely manual. The versatility of these easily programmable decision rules gives lenders the flexibility to decide automatically which applications to accept and decline while enabling manual reviews of those considered borderline. This allows lenders to use inputted criteria to account for current market dynamics, along with quarterly or yearly portfolio performance goals.

An added benefit of these automated decision rules includes auditability. It records what rules are in effect when a decision is made. This reduces the number of arbitrary decisions made on certain loan types. These types of decision rules and the streamlined workflow they drive allow lenders to:

  • Process applications more efficiently
  • Automatically reject applications that don’t meet established criteria
  • Focus efforts on applications that improve profit

Today’s Lenders Reshape the Loan Origination Process With Cloud and Automation

To stay competitive in a challenging lending environment, lenders must seriously consider implementing cloud-based loan origination software and automated rules decisioning. Cloud services offer several key benefits like lower costs, quick implementation, and near-universal availability. In addition, automation with pre-determined decision rules eliminates manual steps and allows lenders to modify processes quickly as market situations change.

As part of any evaluation of lending technology, lenders should pay particular attention to a cloud vendor’s efforts to continually evaluate and incorporate innovative technology into their offerings. Just as the ever-increasing pace of technological innovation has enhanced myriad aspects of daily life, so too has technology reshaped the lending industry. With it, the loan origination process can now return faster funding decisions for applicants. Meanwhile, for lenders, this technology reduces processing costs, along with improving lenders’ efficiency and profitability.

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 the loan origination process, Contact our team today and learn how our cloud-based loan origination products can transform your business.

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