Decisions that change the landscape of businesses forever are hard to take but necessary nonetheless. Assessing the right time for adopting the change is highly business-centric. Some companies like testing new and uncharted waters. While others have all the required arsenal to change within a few weeks or even days if the business demands. Likewise, changing an entity’s loan origination solution to digital is a well-thought process and must be taken after proper due diligence. However, in order to stay relevant and beat the competition, lenders need to consider automating LOS as early as possible.
Increasing need for automation
A paradigm shift in consumer expectations
We live in the information age, and consumers are aware of the possibilities of technology upgradation for any service industry. They know that automation has eased the process in many industries. People can order cabs, groceries, medicines, and even electronic gadgets from the comfort of their houses with less turnaround time.
Apparently, wishing for ease in loan processing is natural for consumers, and they will move towards facilitators who have updated their systems for ease of business. If filling out personal details can be avoided, and the customer’s data is captured using third-party API integration, the borrowers will opt for products that offer these features.
Thus by far, companies that have realized the need for digital LOS are gaining traction and consumer patronage for their lending products. With an efficient delivery model that lowers the costs remarkably, there was never a better time to automate the loan origination cycle.
Benefits of digital lending for consumers
Ease of application
Traditional loans warranted numerous visits to the bank to fill out and apply for the loan and wait for one’s turn to meet the loan officer. A borrower had to await the credit decision, which typically took a few weeks for cross-verification of the customer’s financial information to establish their creditworthiness and ability to repay the loan.
Speedy credit decisions
Automating the loan origination software involves an easy application of a loan that is accessible from multiple channels and can be carried out at any time of the day. The data submitted is verified for authenticity through API integration. Multiple slots of address need not be manually filled as the application captures the data from the financial information details already submitted.
Approval of the loan is also automated, as the coding carries out the pre-checks by the computer within a few minutes. Loan decision is intimated through messages and emails. After the paperwork is carried through e-verification and digital signatures, the loan funds are disbursed. This whole cycle usually takes less than 24 hours or one business day. The deftness and speed of the software have left many consumers craving this efficiency for their loan requirements.
Benefits of digital LOS for banks
With speed and efficiency being the norms of automation, digital lending platforms process more applications than banking staff can manually process. Staff need to rest every day, and labour laws govern ethical work timings. Whereas a machine has only a few hours of maintenance downtime periodically.
With paperless loans and reduced manpower, the costs involved in processing a loan are drastically reduced without compromising on the quality of the loan products
A loan is approved only when the applicant meets all the considerable eligible criteria set by the bank based on their credit score, income sources, and the regulatory requirements of the financial system. These considerations must be verified to prevent fraud and approval of loans that are not in principle. In traditional lending, the time taken by the credit analysis and underwriting team was long because of the time-consuming process of manually verifying the data before approving the loan application. However, with AI-based software, all the verification is completed online and the results are accurate, reducing default risk.
Big data advantages
Banks have access to huge data banks that can be streamlined for business-centric solutions that help in robust growth. Data and consumer insights help companies design and innovate better products, deliver unparalleled service and improve customer experience. Innovations that were either not thought about or facing scepticism are backtested to understand if the beta versions are accepted by the consumers and the market as a whole. Eliminating products that are not relevant becomes easy through early-stage analytics.
Fintech companies are coming up with suites of lending solutions that are customized as per customer category. For small business owners, fintech companies offer value-added services like accounting and tax compliance consultation. The fintech companies understand that cash flow management is necessary for repayment of the loan. They fill in the role of advisor to the small businesses who avail of loans. Fintechs can elevate their employees’ roles for better customer engagement only because of the digitization of their loan origination process. Through automation, the employees have time to improve the quality of their service and truly reach out to their consumers.
There is an influx of P2P platforms where small loans are availed, and the funds are disbursed immediately. The rise in these P2P platforms is the means to crowdsourcing the lending requirement to risk-taking investors who invest in these products. With alternative sources of lending solutions and the rising demands of an AI-savvy consumer, it is the right time to improve the loan origination solution of banks.
Lending is a very risky business and forms the crux of the financial system of a country and the entire globe, as everything is interlinked by trade and commerce. This is the primary reason why loan applications are scrutinized thoroughly. However, the time taken to complete verification is drastically reduced through the automation of the process while mitigating the risks associated with insufficient or fraudulent applications. These features make a digital loan origination platform a must-have in the arsenal of any lending business of banks and credit unions for scaling business growth.