Loan Origination System: A Lender’s Secret Recipe to Deliver Value

Before delving into the benefits of a robust loan origination system, let’s discuss baking!

Imagine you decide to bake a cake for a client and prepare the perfect batter with the ideal consistency. However, when it’s time to place it in the oven, you realize the old oven doesn’t reach the necessary temperature for baking the cake properly. Despite trying alternative methods, the final cake turns out too dry, leaving the customer dissatisfied.

What went wrong? The issue lay in lacking the appropriate equipment!

Similarly, banks possess the potential to provide exceptional customer experiences. However, their outdated systems often hinder this progress.

The global lending landscape is rapidly evolving, compelling banks and credit unions to reassess how they approach the challenges and opportunities within it. Various trends in today’s post-pandemic market influence how financial institutions can seize new lending prospects. To do so, banks must invest in the correct loan origination system to carve out a competitive advantage in the market.

The Challenges of Digital Lending and the Case for Loan Origination Systems

As everything transitions to digital, the question arises: Is traditional banking obsolete? Fintech companies are increasingly dominating the spotlight, making it tough for banks and credit unions to maintain their market standing. McKinsey’s research reveals that 40% of consumers now rely on fintech platforms for their daily financial needs. Alongside competitive pressures, another significant challenge highlighted by Cornerstone Research is revenue decline, posing a serious threat to banks. The diminishing net interest margins, which are major revenue generators, have further burdened banks and credit unions. To regain their foothold in the industry, financial institutions must equip themselves with a comprehensive loan origination system capable of addressing these current challenges.

End-to-end Management of Lending Process with a Loan Origination System

Providing loans should be straightforward, but traditional lending systems often complicate matters! With consumers increasingly favoring digital channels, having a digital loan origination system is essential for lenders to thrive in today’s environment.

A loan origination system is crafted to oversee the entire lending process, from inception to payout. Financial institutions can utilize a comprehensive loan origination system to streamline customer onboarding once a borrower has applied for a loan. This system aids in various facets of the loan application procedure, such as assessing credit history, determining loan pricing, conducting digital KYC, and facilitating disbursement.

Catering to All Types of Loans with a Loan Origination System

There are various motivations behind borrowing money, whether it’s for purchasing a home or car, expanding a business, or funding higher education. Financial institutions (FIs) must employ the appropriate solution to introduce agility and flexibility into their lending processes, accommodating various types of loans, including SME, commercial, retail, or SBA loans.

In the absence of a loan origination system, lenders rely on emails, spreadsheets, phone calls, and other manual methods. Just like a simple mistake in baking necessitates starting over, human error and oversight can prove costly in terms of both expenses and productivity for banks. So, how can a loan origination system assist? A modern loan origination system can provide:

  • Reduction in processing turnaround time
  • Enhanced accuracy of data input
  • Real-time report generation
  • Heightened customer satisfaction
  • Improved tracking and monitoring of loans
  • Enhanced quality and compliance

Behind the Scenes of the Loan Origination Process

In the loan origination process, there are five key stages:

  1. Application Submission: This stage involves gathering applicant information and assisting them with the loan application.
  2. Processing: It includes collecting and verifying the applicant’s information.
  3. Underwriting: This step involves assessing the risk of the loan and deciding whether to approve it.
  4. Disbursement: The final details are reviewed, and the loan is disbursed.
  5. Servicing: This stage encompasses activities such as sending reminders and ensuring timely repayment of the loan.

The 7 Essential Capabilities of an Ideal Loan Origination System:

Process requirements vary for each institution. Banks require adaptable solutions capable of supporting evolving business and process dynamics. When choosing a loan origination system, consider these essential features to ensure suitability for your organization:

1. End-to-end automation of the lending process

Begin by evaluating whether the loan origination system can fully automate the lending process, seamlessly managing workflow from lead acquisition to disbursement and subsequent servicing.

2. Single unified interface

A loan origination system should consolidate all lending process functionalities into a single interface. This integration minimizes manual errors and operational delays, ensuring customers receive a consistent and standardized experience from the organization.

For instance, consider visiting a McDonald’s drive-through and ordering a burger and fries. If you receive the burger at the window but are asked to come inside for the fries, it creates a disjointed experience and potential bottlenecks. Similarly, in a loan origination system, a unified process orchestration fosters consistency and efficiency throughout the lending process.

3. Digitization of manual and paper-heavy processes:

A loan origination system should efficiently capture information in digital format, enhancing control, retrievability, traceability, and archival capabilities. This digital transformation can significantly reduce cycle time and minimize manual errors.

4. Seamless integration with core banking systems:

The lender organization should seamlessly integrate with core banking and legacy systems without requiring custom coding. Automation of various processes, such as credit score validation, lead management, and blacklist checks, should be achievable.

5. Automation and customization of credit policy:

Credit and deviation policies often begin as guidelines and evolve into standards through repetitive occurrences. Automating these processes using a business rules management-based engine can streamline repetitive scenarios and empower the workforce to focus on higher-value transactions.

6. Proactive management of compliance:

A loan origination system should enable financial institutions to proactively manage compliance requirements, orchestrating processes to enhance traceability and auditability.

7. Accelerated deployments:

Time to market is crucial, requiring flexibility to adapt to rapidly changing market needs. The loan origination system should offer flexibility to tailor the solution to your context and environment, rather than being constrained by the vendor’s standard feature set. A framework-based approach can expedite implementation and ensure faster time-to-market.

The Right Loan Origination System Can Make All the Difference

The proper loan origination system can significantly impact consumer satisfaction by expediting loan processing. Just as achieving the perfect cake requires the right equipment (technology) and skilled hands (partnership), ensuring swift loan processing demands a combination of advanced technology and strategic collaborations. With Newgen, financial institutions (FIs) can access cutting-edge technology and collaborative advantages. Newgen’s loan origination software effectively integrates operational functions, harmonizes front and back-office operations, and optimizes the lending process.