The loan origination process is getting a face-lift: Technology at the center of it all




Technology, the 4th industrial revolution, came with numerous benefits, and constant creative innovation continues to flood the market. There’s no doubt you’ve already interacted with certain types of technologies.

For example, online shopping from the comfort of your couch and having the item delivered right at your doorstep. How about online banking? Don’t you find it convenient, sending money to a company or personal account straight from your phone? Of course, you do.

Speaking of the banking industry, financial institutions are leveraging new technologies to improve service delivery and to create new financial products. Even so, the loan origination process seems to benefit more from new technology more than other banking activities. Here’s how:

The technologies involved

Fintech companies introduced tech-based banking after the 2008 financial crisis. Consumers loved this new way of lending, but on the other hand, banks felt threatened by this new wave. In fact, many banks started implementing technology to match the competition.

This is backed by a 2017 PWC Global FinTech Report. In the report, a huge percentage of investment managers, insurers, and banks plan on partnering with fintech companies as time goes by. With this step, they expect at least a 20% Return on Investment (ROI).

At this point, the main question is, “Which technologies will have the most impact?”

  • Automation: This has to do with decision-rules that enable accurate and faster just right guaranteed loans application processing, which will greatly reduce the need for manual decision making, and is less precise and less efficient.
  • Cloud technology: Cloud technology offers lenders a chance to work with the latest LOS without having to install expensive equipment and later on. incur massive operation costs. A web interface provides the medium between the lender and the cloud.

With cloud computing offering the latest technology and automation improving efficiency, lenders have a chance to maintain a competitive advantage in a fast-changing industry.

Automation

Gone are the days when banks used manual steps to make decisions. Today, technology has brought about task automation powered by artificial intelligence and big data that make decisions based on a set of rules.

This allows financial institutions to process loans faster and more accurately, bringing in efficiency for better customer service, but there’s more:

  • Automation introduces data-driven processes: Data-driven processes eliminate manual procedures that would normally be used to determine qualifying criteria. These will then be used to determine the total loan amount, the interest rate, and the repayment period.

While automation may fast-track decision making, a loan professional may be called in to review an application. Decision rules may suggest so for questionable applications based on certain data and delinquency trends.

  • Enables faster decision making: Every lender yearns to complete a loan origination process as fast as possible. With automation, the process is fast and provides consistency in the decision-making process. Human expertise is only applied in instances where the decision rules are vague, like when an application comes close to meeting a certain threshold but doesn’t.

Besides, this is the most profitable way to use a human’s professional judgment. Having said that, the future of the entire loan origination process lies in decision-rules, considering their potential to replace manual processes and eventually allow lenders to make quick and consistent decisions on loan applications.

  • Business users can create decision rules: Automation gives business users the liberty to define and modify their own decision rules. This means they don’t require programming expertise. Also, it brings in flexibility because users can choose the level of automation – full automation, mixed (both human reviews and automation), or entirely manual, such as various cases where there are gray areas in qualification.
  • That’s not all because the decision-rules provide easy auditibility due to the ability to pinpoint the exact decision rules used. Also, they help lenders to:
  1. Reject loan applications that don’t meet pre-determined criteria.
  2. Be more efficient when processing applications.
  3. Focus on improving profit margins through other applications

Cloud technology

The biggest hurdle facing lenders and other startups when implementing technology is the cost of adoption. They have to factor in the cost of purchasing infrastructure and the necessary equipment. Then there are operating expenses such as systems administration and electricity.

However, thanks to the revolutionary cloud technology, the cloud provider covers a big part of these costs. Therefore, lenders, regardless of the size, can realize massive profits.

On a report from RightScale dubbed “State of the Cloud,” at least 58% of professionals said the cloud was their main focus for 2018 in terms of cost savings. Another 51% said they intend on migrating more workload to the cloud.

Here are other ways lenders can benefit from adopting cloud technology in the loan origination process.

  • Fast deployment – This is beneficial to new lenders looking to penetrate the market within a short period. Cloud systems don’t require months to set up as is the case for legacy systems. This shortens the time to market for new products, considering there’s no need to purchase and install equipment.
  • Scalability – Cloud technology allows lenders to use what they need at a specific point in their business. If the need to grow arises, all the lender needs to do is acquire more space on the cloud to handle the new business (data, geographic growth, and processing).
  • Availability – Cloud computing utilizes the internet, which means as long you have a stable connection, you can access any document, at any time, anywhere in the world. This offers next-level convenience for employees because it also allows them to work remotely.
  • Constant software updates – Legacy systems require hours of labor to implement software updates on individual machines. However, with the cloud, these updates are constant and fast, allowing lenders to benefit from new functionalities and bug fixes as proposed by the customers themselves.
  • Cloud integration – Cloud integration allows for synchronization of various data sources including credit, income, identity, and employment. This eliminates the need for extended programming that can be expensive. It also reduces manual verification, resulting in a faster loan origination process.

Cloud technology cuts down the cost of tech adoption dramatically, allowing lenders to implement this technology. With the numerous benefits of cloud computing as highlighted above, lenders can process loans faster all to the consumer’s benefit.

What next for lenders?

Technology is here to stay, and it’s in the lenders’ best interest to adopt it as fast as they can if they intend on staying competitive in the industry. Cloud services, for instance, offer global availability, quick installation, and the most important—cost reduction.

Continuously evaluating and incorporating new technologies is crucial for lenders, with the ever-changing technology in daily life.

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