How to Choose the Right Lending Automation Software for your Business

Manual paperwork and off-line loan origination are fast becoming outdated. Loan Management on non-connected databases also hinder execution speed and expansion capability for businesses.

During the worldwide COVID-19 situation, the world swiftly moved towards a more digitized and paperless ecosystem.

For the fintech industry and lending organizations, it was not just about being contactless. It was about being more efficient in loan-origination, underwriting, and servicing and surviving in the market that is ripe with competitors.

With the arrival of fintech, lending is no longer limited to traditional banks alone. Peer-to-peer lenders and community banks, too, have joined the lending bandwagon with effective, scalable, and cloud-based lending automation software. These allow new-age lenders to provide quick loans, using better insights, at more accurate terms and interest rates, and by having all lending processes in one space, completely integrated.

So, if you have been considering a lending automation software for your business, here we share with you some things that you consider before you invest in one.

1. What are your specific business needs?

Are you planning to start small and grow your business as you start seeing a good market response?

Or would you like to start big and modulate your software based on market needs?

Or are you a business which ran its operations on a software which is unable to support your growth trajectory or regulatory requirements?

You need to drill down on your short and long term needs to find a software that addresses both. In any case, choosing a software that is both scalable and flexible makes more sense so that you don’t pay for capacity that you’re not utilizing and can also scale up when you see a surge in demand.

A gap-analysis is the best way to ascertain what features and functionalities you should consider when deciding on a lending software for your business. Here are some questions you need to ask your team to conduct a successful gap analysis:

  • Who is going to use the lending automation software?
  • What are biggest user pain points that the solution has to cater to?
  • Do you already have a lending solution in place?
  • If yes, can it be migrated to the new platform?
  • What are the particular features that are missing in your current solution adding which will help boost operational efficiency and revenues?
  • Do you have an in-house IT team that can help you implement and manage the new lending system?

Overall, it’s a good idea to work with a provider that has significant domain exposure and is willing to act as a strategic partner and not just another vendor providing a subscription service

2. Would you like your solution to be on-premises or cloud-based?

Cloud-based technology and digital transformations go hand-in-hand. The scalability and flexibility of cloud-based solutions make them a better choice for new businesses and startups.

On the other hand, traditional banks and lending organizations have been using legacy software with on-premises hosting. They often find it difficult to trade the control and security that comes with on-premises hosting for the promise of flexibility and scalability of cloud-based solutions.

However, this does not mean that cloud-based solutions are less secure. The intense competition in the lending software space has ensured increasingly secure software and controls in place which ensures that the business owners have access to customer data and control of the SaaS’s source code.

Choosing cloud-based solutions will give your business an edge in the form of reduced cost, global access, global integration, and to protect it all, industry-specific best practices when it comes to security.

Also, make sure that your cloud-based software has an automatic back-up feature along with a high-level of security to protect you from data threats and cybersecurity breaches.

Here are some more reasons why more lenders are opting for cloud-based solutions:

  • Easy accessibility from anywhere in the world
  • Premium features built-in using disruptive technologies such as AI and ML
  • Timely upgrades, regular maintenance, and continuous new product releases
  • Freedom from maintaining your own IT team to for its upkeep

Modern systems support both cloud and on premise based on customer requirement. However, cloud is more preferred for the single advantage of access for updates and bug fixing.

3. Would you prefer a complete end to end solution or a modular one to plug in the gaps of the existing one?

New-age lenders who are digitizing the complete lending process would go for the former, rather than putting together different tools for each stage of the lending process: origination, underwriting, servicing, and reporting. Existing business owners have put in a significant investment in existing systems and a complete overhaul is a big business decision.

Many business owners prefer complete digital transformation at one go without the headache of trying to fit in new solutions, one-by-one, to their existing legacy solutions as it is a humongous task of gap analysis and handling multiple partners for each of the recognized requirements.

The good news is that with modern systems both the options are now possible.
It is a call for the business owner to decide which path they take. Modern systems run on microservices architecture, api based and highly modular in structure. They can plug into the legacy system to enhance performance and fill in the gaps.

With solutions that help automate your entire lending cycle, lending organizations can not only access analytics and reporting but also allow seamless communication among employees and business owners. It also helps deliver a delightful service experience to your customers.

4. Would you have a separate solution of origination and servicing or a single one?

The biggest, time-consuming and challenging processes when it comes to lending are loan origination and loan servicing. Both require a lot of technical and manual labor and also result in quite a few errors.

Borrower evaluation has evolved over the years and it is also possible to extend loans to a first-time borrower by looking into something as abstract as their social media behavior.

By integrating these solutions, which though complex in nature provide a seamless, dashboard-based UI for lenders to feed in information and receive better insights to base their decisions on, lenders can make the origination and servicing processes easier and consistent. Here are some features you can look for in the lending automation software that could make the process of loan origination easier for you:

  • Automated borrower evaluation cycle and decision-making using AI and ML
  • Customer risk segmentation based on both alternative and traditional data
  • Ability to consider both traditional and digital data sources to conduct borrower evaluation
  • Easy management of lender rules, scoring models and credit policies, thereby making the lending process more customized

So even if you are investing in different loan origination and loan management/servicing system
, it is good to ensure that they seamlessly communicate with each other to ensure data enrichment for better business decision-making.

5. Do you have your business logic figured out?

Each lender, whether big or small, traditional or peer-to-peer, have their own business logic that drives them to take decisions of whether to lend or not and at what terms and rates. The smoothness with which this business logic flows through each step of the loan origination, underwriting and servicing process determines the effectiveness of a lending automation software.

Integrating your business logic after implementing the software will be counterproductive. Therefore, it's preferable to chalk-out your business logic and workflows and integrate it at the code level of the software. Or you could also choose a software that allows you to build your business logic into it without the need to code any of it. The software should be modular so that workflows can be orchestrated as per the business requirements.

6. What kind of tools are you getting as a part of the lending automation software?

Getting the right lending automation software isn’t only about digitizing the lending system and making it paperless and contactless. It is also about making your organization’s lending process more efficient, thereby increasing your revenues and decreasing your risks.

Lending is a risky business; ascertaining creditworthiness of applicants and forecasting the future based on calculations and manual underwriting processes to determine the rate of interest and terms of the loan is ridden with errors and inaccuracies. Hence the need of an automated system with minimum manual intervention.

The advent of artificial intelligence, machine learning, Big Data, data mining and analytics has given hope to the lending industry. These technologies, when built into a lending automation software, can help improve operational efficiency and churn out credit scores faster with better accuracy. Tools like credit decisioning functionality
are critical for lenders to help them reduce risk and improve revenue.

7. How comfortable will the new platform be for the stakeholders?

Whether it’s your employees or your customers, your lending software solution should provide them with a user-friendly interface that is easy to both adopt and adapt to. However, complex the lending function might be, the dashboard should be engaging, conversational, seamless, and should lead both customers and employees to take the steps as needed. A short learning curve and fine user-experience will help in reducing turnaround time for the entire lending process.

8. Is the software easy to learn and adopt?

When business owners buy lending software for their business, it is by and large meant for the employees who will be using it at various stages of lending. Therefore, installation, deployment, training, and adoption of the new software should be as seamless as possible.

Software that does not need continuous referencing to complicated user manuals and use cases and comes with an inbuilt step-by-step training can help employees learn on the job, faster, and with more accuracy.

Additionally, look for a software that provides flexible tech support, so your employees are not stuck at any stage due to confusions, bugs, or errors. It’s always a good idea to opt for a demo before making the purchase decision. One look, at how the software works, its functionalities and features, in-built tools, and user-experience will give you a good idea as to if it could be the right lending automation software for your business.

At the core of the best lending automation software out there does not just lie its features and functionalities. They are just the path to the end goal of making lending easier and more efficient for both lenders and borrowers and make the concept of fair lending a reality.

  • February 5, 2021