Banks, their lending cohorts, and other lending institutions are and will always be part of the pillars of any country’s economy. Nonetheless, lending institutions need to measure up to deliver the demands of a new-age borrower who prefers digital solutions.
The target customer’s needs are ever-changing. They want less response time and faster deliverance when they approach a bank or lender for a loan.
However, to meet the needs of quick loan disbursal, eventually, the quality of loans cannot suffer. Precisely, this is the reason most institutions have to consider the benefit of the technologically advanced loan origination solutions offered by tech companies in this niche.
A good loan portfolio will be detrimental to the overall robustness of a lender’s business. If the quality of the loan portfolio is not good, it will attract the wrath of the banking regulator.
The reserve capital that needs to be maintained as per the stringent Basel III recommendations is strict for banks. So lending institutions and mortgage companies, including banks, have an additional responsibility to serve the demands of a borrower who expects a faster turnaround time than in the past. Alongside, they also need to maintain the quality as per the regulations and accepted norms.
The automation of loan origination systems using artificial intelligence can reduce human intervention in the process. This is done with speedy service timelines at a fraction of the cost. The benefit of technology also means that standard problems of duplication of work are reduced.
A typical loan cycle from paper to execution has different stages that primarily involve
- 1. Customer Management
- 2. Credit Analysis
- 3. Loan Approval/ Disapproval
- 4. Risk Management
An automated loan origination solution takes care of most or all the cycles, including sub-cycles. Let us examine how the tech is leveling up the loan origination process for lenders across the two important and initial stages:-
Customer Management
Loan origination software can integrate data from the CRM systems of the organization. Staff in different departments need not key the available information. It is auto-populated in all the required forms and templates. This feature speeds up the work of collecting the required documentation and integrates it with existing information on the file for a customer. As software is backtested, and updated regularly, it removes the chances of errors.
The whole process of document and data collection can be digitized, offering the borrower the much-needed respite from physically visiting a bank during their working hours.
Some of the staff handling the loan process may need access only to part of the customer information, unlike other departments that may need complete access. The automation will restrict unauthorized personnel, who are employees, from seeing the customer’s information that is irrelevant to their duties or responsibilities. From a data protection point of view, this security feature is more important than open access files.
Credit Analysis
A good, automated loan origination software with its enhanced features will take the borrower’s permission, to access relevant data that determine their credit worthiness. After data extraction, the obtained information is analyzed within a few minutes and presented in front of the risk-management team. This data appears in the form of infographics and assesses all the underlying risks.
Few advanced software can also tweak this data for its sensitivity and display the degree of enhanced risk in case any parameters change. For example, if the borrower has additional responsibility for a new baby, his expenses will increase. Will that impact the loan in any manner?
The real benefit of such automation in credit analysis allows the lending institutions to spend quality time understanding the assessment, rather than spending time solving the spreadsheets. The lenders reject loan applications that will turn into sub-standard assets in the future based on such readings.
In the traditional method, despite computers, data interpretation often took the backseat over financial modeling. Such practices increase the risk not just for the organization but have a dominion effect on the entire economy leading to a financial apocalypse. Automated loan origination software helps in mitigating such risks by helping the analyst spend more time on the assessment of the results and projections.
Risk assessment needs a lot of projections like financial ratios, sensitivity analysis, future growth estimates in controlled environments, etc. Drawing up these charts, and ratios from raw data is time-consuming. Automated software processes the raw data in minutes.
It considers all the information required to be used as per internationally accepted best standards of risk management. For example, the data populated by the software will consider even the Loan Given Default or LGD model.
An LGD will let the lender know the possible default if such applications are accepted. The automation can be tweaked to allow a loan to be approved only in all-checks complaint cases. Thus any human intervention in the process of decision-making is marked. All the personnel involved are accountable for bad loans if they are processed by overriding the system.
Conclusion
One of the most important features of any automation is data integrity. With high standards of encryption, sensitive data is protected from third-party interceptions. In traditional CRM methods, the same information has to be keyed in by different departments. This leads to duplication of work and compromise of data.
But automation takes care of the cumbersomeness, as well as the security that was not possible in sub-optimal systems. Now one department need not email the other requesting access to relevant in-principle data. It is all in one place and can be accessed, on a need and business requirement basis. All they need to install is customized loan origination software that caters to all their business needs. And they are sorted to lead their lending business from the front.
Automations results in quick disbursal of healthy loans that are approved in line with the risk metrics, helping banks concentrate on product innovation and customer relationship management. Every bank will vie to be a pioneer in offering the best loan solutions for their customers.
