Loan origination is one of the most significant services in the financial services industry. It backs both commercial and consumer funding and as such is always under enormous pressure to churn multitudes of applications at a rapid scale.
Traditional banks have always had loan management systems in place. They slowly transitioned their manual processes of documentation, verification, and underwriting to custom legacy software. The fact that tech innovation was always a step ahead meant that their legacy loan management system was lagging in effectiveness and efficiency. Maintenance of on-premise servers and their heavy software meant that every update meant hours of downtime, hence not only loss of time, but also revenue.
The only way to troubleshoot this issue was to have a leaner process in place that would need lesser maintenance and could handle updates in a matter of a couple of hours or even less. Thus, the loan management system was moved to the cloud and it slowly evolved into the cloud-based loan origination system we know today.
Fintech had a substantial role to play in setting the ball rolling when it came to moving loan origination from legacy software to cloud-based, customizable software. By integrating disruptive technologies such as Artificial Intelligence (AI), Machine Learning (ML), it slowly started introducing flexibility in an otherwise rigid process, fraught with manual workflows and thus, errors.
Cloud-based loan origination systems also introduced a whole new level of efficiency by introducing transparency and collaboration into the system.
Cloud-based loan origination software introduces the much-needed mobility and flexibility that is required to submit loan applicants through their mobile devices. Legacy software supported by on-premise servers restricts access to information to a few authorized personnel. This means that applicants need to be physically present at the banks to complete paperwork, documentation and verification processes.
New-age loan origination system can not only just be accessed at mere fingertips through apps on smartphones, but they also promise a better user experience through a smarter interface that helps clients walk through the process without needing much handholding.
Smoother authentication and verification
Cloud-based loan management systems are agile by design as compared to their legacy counterparts. As such, rolling out constant and quick updates that require little to no downtime makes the system much more up to date. This is especially useful in solutions that use AI and ML to boost their efficiency levels in processes such as verification and credit scoring (underwriting). Cloud-based loan origination software allows lenders to:
• Automate the entire verification process • Verify applicant-provided documents via multiple sources (thereby reducing the risk of unknown) • Ensure the minimum document requirements have been fulfilled
Partial or complete automation of underwriting can help free up a lot of resources, which spells a revenue boost for lenders, reduce manual errors, and also help pass on the savings to the end consumer in the form of lower and more competitive interest rates. The latter is a major benefit that cloud-based loan origination software promise lenders, as this helps them to garner a larger market share and create a substantial presence in an otherwise competitive market.
Here are some features of automated underwriting that lenders can expect from a loan origination software:
• Easy identification of low-risk cases that can be accelerated • Reduced underwriting time • Automated underwriting process with a clear, error-free workflow
The updated and lean system at any given point
As pointed out before, staying updated and ahead of the dynamic changes in the tech industry is not one of the strong suits of legacy loan origination systems. Things like a spike in demand for loans could easily lead it to crash and become inaccessible to the clients it was already serving.
A growing market needs the kind of software that can be easily scaled as per needs. It should also be able to protect itself from threats and breaches by being constantly updated with the newest compliance requirements and protocols, as demanded by the regulatory authorities. This is a feature that cloud-based loan origination systems can provide to lenders of all sizes, serving various markets, with little to no downtime. Cloud based systems also allow easier deployment of modules to launch new product categories.
Higher transparency and controlled access
One of the USPs of cloud-based loan origination systems is that everything is stored at a different location in a secure and completely encrypted server system. This rids lenders of the worry of their on-premise server and legacy software getting hacked into and losing confidential customer information, which could not only lead to a loss in credibility but also in business, in the long term.
Cloud-based lending loan origination software (LOS) have strict security protocols in place which makes them largely, if not completely, safe against security breaches.
Lenders planning to move to cloud-based LOS can look for the following features while selecting their cloud-based LOS provider.
1. Identity and access management 2. Protocols against cyber threats 3. Privacy 4. Security operations 5. Regulatory compliance 6. Resiliency to cyber threats 7. Application developing capabilities
The high level of transparency both applicants and loan servicing personnel stay on top of respective cases by through real-time update of each application, from anywhere in the world. They do not need to be on the same network to access this information, as cloud computing allows both lenders and borrowers to access relevant information, irrespective of location.
Following are some of the benefits of this granular visibility:
• Easier collaborations among teams across geographies • Easier access to updated versions, (along with originals) of documents • Easier resource allocation using access control features
Reduced turnaround time for loan origination
Reduced turnaround time thanks to automation at multiple levels, such as quicker verification and underwriting using (ML-based predictive models), reduced downtimes given the continuous and timely software updates, helps lenders churn out more loan applications in lesser time with higher accuracy. This means higher revenues, increased client base, and larger market reach.
Given the highly competitive lenders market and the fintech industry brimming with cloud-based loan origination system providers, lenders; be its credit unions, micro-lenders peer-to-peer lenders, and even traditional banks, know that they need to be at the top of their game to give their end consumers the kind of loan origination service they expect, to make it big in the market.
It all boils down to choosing the right cloud-based loan origination system partners who can help customize and build a platform that matches the lender’s unique requirements, based on their target audience and support them throughout their lending journey. A shift from legacy system and proprietary software has now become more critical than ever.