Technology Optimizes the Loan Origination Process for Financial Institutions

Adapt digital platforms to increase revenue opportunities and expand customer engagement
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Borrowers can be an impatient bunch when it comes to initiating and waiting on loan applications. Time and user interface are key factors when seeking much-needed funds. Many financial institutions (FIs) have lagged their fintech competitors in the digitization of key banking business lines such as lending. Now FIs have a range of technology solutions as they play catch-up in the lending market to both consumers and businesses alike. Loan origination software is a key enablement for FIs to step up their digitization game not only to improve their lending operations, but also to enhance their customers’ experience.

Loan Origination Software Enhances Banking Modernization

As the pandemic subsides, digital lending modernization will become the new normal for FIs. They must adapt and develop their digital platforms accordingly to respond to customers who increasingly avoid in-person or phone contact and prefer to use mobile and online channels for loan services. Digital lending platforms align extremely well with IDC’s 3rd Platform model for business strategy and investment. Within this model, core technologies of cloud, big data/analytics, mobility, and social media enable FIs to manage relationships and conduct business transactions more successfully.

For example, cloud computing brings manageable costs, minimal set-up, and scalable growth for lending platforms. Big data and analytics use machine learning algorithms for credit decisioning as well as fraud management measure. Mobile device usage has grown into a ubiquitous way of doing business for both B2C and B2B segments. Finally, social media now serves as platforms for content marketing and digital advertising, which play key roles in attracting and onboarding new customers. In sum, 3rd platform technologies become table stakes for FIs that wish to compete in the digital lending market across global regions.

According to IDC’s Worldwide Banking IT Spending Guide, tech spending on loan origination was $7.3 billion, or 44%, of overall loan IT spending in 2021, growing to $9.7 billion in 2025. The IDC Industry Spending Guide also found that 3rd Platform technologies will be the largest area of technology investment by the banking industry in 2022. Cloud and mobility will account for at least 30% of spend intent. FIs will devote significant technology spending around digital lending in areas including credit decisioning, fraud management, process automation, and customer experience. FIs will find more revenue opportunities and expand customer engagement as they invest in technology solutions to modernize their loan origination process.

Consumer and Small Business Borrowers Expect Convenience and Immediacy

The ease of digital transactions for online commerce is now ingrained into the expectations that consumers and small businesses have when interfacing with lenders. While some loans are more complex, others such as personal and auto for consumers, and working capital for small business can be processed with technology solutions. Lenders can enhance the customer experience with a frictionless application process and fast-decision response time for borrowers. Streamlined lending processes drive customer loyalty and long-term relationships between banks and their customers.

Mobile apps are often channels of choice for consumers whose smartphones have become lifestyle commerce. FIs will gain more sustainable customer engagement as they invest in technology that enables borrowers to use their mobile devices for loan applications. Embedded lending within mobile apps is a growth opportunity for both tech developers and their tech buying clients.

The use of big data and analytics in handling loan applications also gives lenders the ability to personalize the borrower experience. Customers enjoy a more individualized experience with their FIs, and in return, will seek future banking services. Using loan application data and customer information, predictive analytics can indicate what services a customer may want or require next. For example, consumers that use BNPL installment lending for home furnishings, may also be interested in a home equity loan.

Financial Institutions Find a Lot to Like with LOS Options

Many steps in the loan origination process are highly labor intensive for financial institutions, as well as time consuming for loan applicants. These include data collection, borrower authentication and verification, credit decisioning, and regulatory compliance. FIs will find many benefits and gain competitive advantages when digitizing their loan origination process as outlined below:

Operational Cost Efficiencies

  • Cost savings given that loan processing is labor intensive and contains several manual steps
  • Enhanced quality and process improvement with more accurate data collection resulting in less errors that must later be corrected
  • More informed credit decisions leading to lower delinquent payments and reduced collections activity
  • Improved fraud detection and risk management through machine learning algorithms

Revenue Optimization

  • Increased loan throughput as production capacity is increased by digitizing repetitive tasks through robotic process automation
  • More concise loan pricing with better data collection on individual borrower profiles
  • Cross-selling opportunities for other financial services

Enhanced Customer Experience

  • Multi-channel interface so customers can choose online or mobile interface
  • Reduced application friction for consumers with less need for phone or email interaction
  • Faster loan decisions and funding that increase customer satisfaction and leads to longer-term relationships

Recommended Actions for Tech Buyers of Loan Origination Software

Understand the customer journey and the borrower’s path in seeking and obtaining a loan from beginning to end. Consumers are accustomed to streamlined processes for digital transactions and the user interface for lending applications is usually a differentiating factor.

Prioritize customer experience and sustainable engagement over transaction processing. Lending may be a borrower’s first experience with an FI and can open a range of cross selling opportunities that contribute to lifetime customer value.

Utilize technology applications such as: 1) cloud computing that brings agility, cost effectiveness, scalability, and optimal systems integration to a lender’s infrastructure; 2) big data and analytics that provide speed to decisioning and personalization to the customer; 3) mobility platforms that align well with how consumers prefer to conduct digital commerce.

Assess different technology procurement choices: build, buy, or partner. Size, resources, budget, existing tech systems, and required time-to-market for the lender organization will lead to the appropriate decision.

To learn more about the loan origination journey and the technology needed to modernize this process, Join us for the webinar, “Digitizing The Loan Origination Process With Technology“, live on March 9th at 11 AM/ET.

WW Consumer & Small Business Lending Digital Transformation Strategies, IDC