To build high-performing loan origination systems, software vendors bring together credit lifecycle management know-how, the spirit of digital innovation, and talented teams who can imagine and create an exceptional borrowing experience for consumers, businesses and credit departments.
However, the digital revolution has turned remarkable advantages like speed, simplicity in design, and delightful experiences into capabilities expected by everyone.
Banks need to reimagine the whole lending experience, and think and operate beyond modern expectations to win in the crowded financial market.
The best loan origination software is the one that can deliver for customer needs and аt the same time, fuel your growth with robust end-to-end capabilities like origination, advanced portfolio management, financial statement analysis, underwriting, and executive reporting.
After all, the goal of a loan origination system is to help banks and other credit institutions achieve their strategic objectives:
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Contain credit risk & ensure compliance with policy and/or regulations
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Improve of the health of the overall credit portfolio
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Streamline the credit process to close gaps and reduce time to approval
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Grow and optimize the portfolio, avoiding overexposure, and more.
In this post, we have curated 7 lessons to help you pick a winning loan origination solution that will not only allow you to achieve top performance in all stages of the lending process but also improve customer experience and satisfaction.
What is a loan origination system (LOS)?
By definition, it is a software solution that digitizes, automates and manages all steps in the loan process – from application, through review, risk rating, approval, to disbursement, and relationship building.
In other words, LOS streamlines the whole loan origination process, integrating seamlessly with core and other systems (core banking system, SMS gateways, credit bureaus, AML, etc.).
You can recognize an advanced loan origination software by the following key elements:
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One database with unified view for all credit activities
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Powerful end-to-end credit risk management
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Best-in-class omni-channel experience
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One system for all loan types
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Advanced financial analysis
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Robust workflow and integrations
- Communication between departments
1. One database with unified view for all credit activities
For many banks, data still exists primarily on paper or in the excel sheets of different account officers and credit analysts. This directly hinders credit team efficiency and results.
Therefore, it is key that your LOS is an end-to-end solution which offers a centralized database that presents data to the designated officers of the bank in a way that will support effective credit decisions.
Often, such data comes from multiple sources:
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Customer data (demographics, banking history, market data, etc)
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Relationship (subsidiary, holdco, parent/child, spouse, etc)
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Collaterals (type, value, insurance, etc)
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Financial (Limit, balance sheet, P & L, Ratios, etc)
In addition to centralizing data, an end-to-end approach will also ensure that the credit policies of the bank are respected as part of the loan evaluation process.
2. Powerful end-to-end credit risk management
Risk in banking is inevitable, but it can be controlled and mitigated with the right software tools.
The world-class loan origination systems come equipped with proven end-to-end risk management capabilities, allowing banks to protect themselves from unreliable borrowers, make smarter credit decisions, and improve profitability.
Moreover, they enable lenders to balance credit risk with loan speed, volume, and quality, and thus outperform competitors.
When evaluating LOS options, look for strong risk management capabilities like:
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Workflow management
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Collaterals capturing
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Document management
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Memos & relationship management
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Credit policy enforcement
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Account aggregation
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Advanced financial statement spreading and analysis
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Wide range of risk rating models
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Portfolio manager, encompassing concentration analysis, exposure analysis, and volume analysis, etc.
3. Best-in-class omni-channel experience
It is more than clear that digitally-savvy Millennials and Gen Z’ers are increasingly preferring mobile methods of engagement.
To stay on top of evolving market trends, banks need to ensure that their LOS can seamlessly connect to any digital self-service channel for consumers or employees, preferably through an integrated, omni-channel digital banking platform.
Digital platforms enable consumers and businesses to fulfill the full application process entirely digitally, feeding data directly into your LOS at the right steps of the loan origination workflow.
A remarkable digital loan origination experience, be it self-service or assisted, is a combination of many factors such as:
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intuitive interfaces with reduced need for data entry
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smart data collection via OCR for fast and secure scanning and uploading documents
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efficient document management & eSigning of documents
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customer-centered mindset
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loan status information in real-time for both customers and bank staff along with automated notifications
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opportunity to integrate a video call with a bank officer during the loan application
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ID verification and authentication tools via fingerprint and facial recognition, and many more.
4. One system for all loan types
Often, banks rely on separate LOS to originate the different types of credit - consumer credit, mortgage, trade credit, SME and corporate credit.
Very few are the loan origination systems that provide workflows for multiple credit types.
By having one system for all loan types, the institution can benefit from significant cost savings in terms of total cost of ownership.
In addition, a centralized system allows for a 360-degree view of the customer relationship which aids up-sell/cross-sell opportunities and drives customer satisfaction and retention.
5. Advanced financial analysis
The most effective, and rewarding loan origination system is the data-driven one with financial analysis capabilities that let banks drive critical insights to form credit decisions.
A modern LOS lets you control credit risk through advanced financial statement spreading and analysis. Configurable financial ratios, peer group comparisons, projections and more can help you enable effective customer risk ratings, forecasts, and consolidations.
Key features that allow you to grasp the enormous potential of data include:
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financial statements spreading (ratio)
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peer group analysis
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financial covenants tracking and financial projections
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advanced credit memos
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effortless report creation without the need of database expertise
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automatic generation of periodic reports
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portfolio oversight to see the big picture and to outline and understand trends.
6. Robust workflow and integrations
Banks need a thoughtful integration strategy that scales lending operations, accelerates loan automation, and enhances financial care for customers.
As loan origination involves a vast number of steps and processes (like document management, underwriting process, risk rating, etc.), it is impossible to scale with manual operations.
On the other hand, the number of systems involved in the process makes it hard to automate using the old point-to-point integration approach.
APIs and workflow eliminate the manual steps, handle high volumes at scale without errors, and allow systems to work together seamlessly.
The result is increased automation and a much more efficient, effortless, and convenient process for lenders and borrowers.
Besides automation, APIs enable easy integration with a plethora of external partners (like credit bureaus, national registries and SMS gateways) to fuel growth and unlock new revenue opportunities.
Integrations are also about creating an ecosystem of digital products, designed for one vital goal – to create the perfect user experience.
Therefore, when choosing a loan origination software, investigate the API integration options and workflow features. If done right, they can bring a priceless wealth of benefits for both customers and lenders.
7. Communication between departments
A loan origination process in the branch and back office involves the efforts of multiple roles within the credit and risk departments.
A modern, efficient LOS should enable easy collaboration between relationship managers, credit analysts, credit committees and senior executives through clear workflows and task management.
Timely, transparent processes help teams make credit decisions faster, achieving the desired portfolio growth through a single platform.
Bonus Tip: Win customers with instant-approved, one-click, digital loans
Often, the winning banks are those that offer the fastest approval instead of the lowest interest rate.
In a speed-sensitive society, "time to apply" and "time to yes" should be within a few minutes, and "time to cash" - less than 24 hours or even minutes for the simple loans.
However, the main purpose is not just to impress customers with amazing speed and cutting-edge technology, but to express your devotion to resolving their financial situations as soon as possible.
To achieve this, forward-looking institutions create new digital loan offers delivered in context.
But how do you choose which loan products you can automate completely?
Look for simple products which are easy to configure and validate through parameters (fixed sum range, fixed conditions). These are the offerings you can experiment with digitizing and automating completely.
For example, a digital loan could be a home renovation loan targeting a wider audience, a consumer loan for the purchase of high-value items, etc.
Why trust Software Group to deliver your loan origination system?
With more than 10 years of experience driving digitalization for the financial industry, we've learned that digital transformation is not only about transforming technology. It is about transforming experiences, beliefs, expectations, culture, and ultimately - the human future.
To meet financial institutions’ needs for a proven, practical LOS that delivers real results, we offer CreditQuest, a world-class credit risk management system.
Trusted by leading banks across the globe, it delivers real results for commercial, SME, and retail lending, namely an 80% increase in turnaround time and a 70% increase in credit team productivity!
CreditQuest brings together credit origination, workflow, appraisal, document management, relationship management, customer rating, covenant tracking, credit decisions and portfolio management under a collaborative, streamlined solution that easily integrates with a core system and other relevant third party systems.
Interested to learn more? Contact us today.
