How can technology assist banks in optimizing their loan origination systems and accelerating growth?

Technology now occupies a central position in banking due to digitization. Engagement with bank brands is significantly influenced by digital engineering. The quality of the customer experience, the type of customers a bank attracts, and the number of customer retention is all influenced by its technology.

For financial and banking sectors the stakes are always different and will be high. At the same time the success involves aiming for diverse and ever-changing goals. However, banks must now use contemporary technology and processes in order to be a part of a bigger economic ecosystem. They can no longer isolate their activities or rely on antiquated systems. But how many banks have chosen this route, and are they comfortable depending on cutting-edge techniques and new technology?

To innovate, banks must work together, and technology is the key to success. In order to better serve their customers, who are becoming increasingly acclimated to mobile banking, banks should choose the proper development strategies.

Check out this informative blog post: Challenges With Data Migration And Cloud Data Migration In The Financial Sector.

Let’s discover more about loan origination software, which is a crucial tool for FIs to build up their digitization game in order to enhance both their clients’ experience and their lending procedures.

What is a Loan origination system (LOS)?

By definition, it is software or set of tools used by financial institutions to process and manage loan applications, it is is used to automate and streamline the loan origination process. Banks, mortgage lenders, and other financial institutions utilise LOSs to quickly process loan applications, evaluate creditworthiness, and decide whether to give money.

Online application and submission, credit evaluation, document management, collaboration, and communication are a few of the main characteristics of LOS. LOS frequently allows borrowers to apply for loans online and submit all necessary papers electronically. This might hasten the processing of loan applications, evaluate the borrower’s creditworthiness more quickly, and grant approval before granting the loan.

Managing and preserving loan paperwork, such as loan applications, credit reports, and other supporting papers, can also be facilitated by a loan origination system. LOSs enable collaboration and communication among all parties engaged in the loan origination process, including lenders, borrowers, and other stakeholders, in a single central location.

The reason why banks need to establish a loan origination system

Many manual operations associated with loan processing, such as checking application information, figuring out loan conditions, and preparing documentation, can be automated by a LOS. This can enable banks to handle more loans in less time by saving them time and resources. An LOS can assist banks in making sure that loan applications are handled accurately and consistently. This can lessen the possibility of errors or blunders that could result in monetary losses or harm the bank’s reputation.

Fair Credit Reporting Act (FCRA) and Equal Credit Opportunity Act compliance: An LOS can assist banks in making sure they are in compliance with pertinent laws and regulations (ECOA). A well-designed LOS can give clients a smoother and more effective loan application procedure, enhancing their entire experience.

Overall, a loan origination system can offer banks and FIs a variety of advantages, such as increased productivity, higher accuracy, better client satisfaction, improved risk management, and regulatory compliance

What problems do historical loan origination systems have?

Legacy loan origination systems are computer systems that were created and put into use in the past but are still in use today. Financial institutions and other organisations that use these systems may face a variety of difficulties and problems. Legacy loan origination systems frequently have problems with the following things:

It can be challenging to maintain and improve legacy systems since they are frequently created utilising antiquated technologies and inefficient construction techniques. This may result in security flaws, subpar operation, and incompatibility with contemporary systems. Legacy systems frequently have rigid, labour- and error-intensive manual processes. Due to this, it may be challenging to efficiently originate and process loans, which may cause delays and annoyance for clients.

The ability of a company to deliver new products and services may be restricted by legacy systems’ potential limitations, which are more like functionality that may never be fully realised. Due to the potential need for specialist knowledge and resources, maintaining and upgrading outdated systems may be more expensive and choosing certified developers is a biggest task. Furthermore, older systems may struggle to communicate with other systems, which can limit an organization’s ability to share data and improve operations.

Overall, legacy loan origination systems can be a hindrance to the efficiency and effectiveness of an organization’s loan origination process. As such, many organizations are looking to modernize and upgrade their systems to overcome these challenges.

What role does new technology play in helping banks create cutting-edge loan origination systems?

By using automation, banks can streamline the loan origination process and reduce the time it takes to review and approve loans. Automation can be used to handle tasks such as verifying customer information, calculating loan terms, and generating documents. Another excellent alternative that banks may use is digital documentation, which helps to reduce the requirement for paper-based documentation and improves the efficiency of the loan origination process. It is simpler for banks to obtain and review loan applications because digital documentation can be stored and accessible electronically.

Integration with other systems: To give clients a more seamless and complete service, modern LOSs can be integrated with other systems and technologies, including as customer relationship management (CRM) systems and digital wallets.

A bank’s loan origination system can be upgraded using a variety of development tools. To enhance their loan origination systems in accordance with their needs, companies frequently use programming languages, databases, integrated development environments (IDEs), source control systems, test automation tools, and many more. The main effort left for FIs after choosing the appropriate tools, apps, and solution is to find the best consultants, certified developers, or application developers who may be the biggest assets as you go through the process of improving your solution.

A specific success story

The client is a well-known US community bank that has been helping Californians and small companies for almost a century. The FinTech firm specialises on cutting-edge payday lending solutions. Through their online platform, which handles more than 7 million transactions for 0.5 million consumers, loans are originated.

Business Requirements

• The client’s old workflow processes were ineffective, time-consuming, and expensive given the large volume of transactions.
• Work receipts were manually submitted and processed for further decision-making, which resulted in a system that was extremely inefficient and that allocated too many resources to repetitive and automatable operations.
• The bank needed to update their loan origination system in order to do away with the current manual procedure and streamline everything to almost complete automation.

Due Diligence / Planning Preparation

• Given the sheer number of transactions, the client’s existing workflow processes were inefficient, time consuming and expensive, so there is a need to enhance the existing legacy loan origination system to digital loan origination software and implemented Digital-ready application.
• With more than a decade of experience in the fields of application engineering and data analytics, our certified developers has closely worked with the client to have a better understanding and fix the pitfalls.
• Identified and prioritized that there is a need of a responsive user interface that eliminates the existing manual procedure and streamlined almost the whole business process to near automation.

Solution

• A proper business workflow, including decision processes for the loan approval process, is established with the aid of the Indium’s application modernization services, according to understanding.
• Implemented Decision system interaction touch points using APIs
• Data flow analysis from APIs, client attributes and third-party data to a converged central data repository.
• Automated the work receipt upload mechanism by creating a comprehensive user interface that captures data fields to contribute to decision inputs.
• Without affecting the current functioning, the system was upgraded using scalable architecture (Java, AngularJS, and Spring Boot).
• Functional and performance testing was done at the micro service level.

Business Impact

• 70% less manual work was required in the receipt process, directly enhancing the robustness of the origination process and the responsiveness to loan applicants.
• The architecture that has been put in place is very scalable and adaptable to different data sources. The data repository serves as an effective source of information for workflows and optimization techniques.

Technology

Based on our client’s specifications, we built the LOS using AngularJS, HTML 5, CSS 3, Bootstrap, Spring Boot, MySQL, Google Material Design, JIRA, and GIT Hub. This is not the end; we have multiple technologies and are not limited to just one; we can implement or build any environment based on your pitfalls and business requirements, using various technologies and tools.

Conclusion

Due to the increased focus on omni-channel banking experiences, the BFSI business is growing rather swiftly. Growing technological use and the acceptance of mobile banking have changed the norms governing the industry. Instantaneous, flawless enjoyment is currently the industry’s driving force. Strong, high-performance apps with top-tier application developers are now necessary if you want to be adaptable and sustain market leadership.

Interested to learn more? Contact us today.