Lending supports trade and commerce and is the biggest pillar of any country’s financial system. Banks have the fiduciary responsibility of ensuring the loans meet the standards set by the internal risk metrics systems and the regulator to avoid nurturing low-quality loans that will hamper the health of the bank’s balance sheet in the future.
Meeting the guidelines set by the bank’s financial disciplinary and compliance functions to adhere to the banking regulator is a difficult task when one has to manage the dichotomy of increasing lending business growth. This is the precise reason that slows down the loan cycle as the credit decision takes weeks to complete. All the parameters are checked after making physical inquiries to establish if the applicant has submitted genuine information and can pay the loan installments in time till the tenure of the loan.
After years of reeling under the pressure of cascading applications that were painstakingly reviewed by banking staff before ensuring the credit decision was meeting the terms for an in-principle loan, banks have started providing digital lending solutions that are automated and efficient.
Benefits of digital lending solutions
Digital loan origination software is changing the landscape of the lending business for banks and fintech alike with holistic benefits that reward all the stakeholders. Let us check a few benefits that make LOS a desirable tool for every lending institution:
- Develop the loan cycle
A traditional loan cycle is a tedious and time-consuming process involving many man-hours of staff for each application. Despite the sluggish approach, there is always the risk that generates by human errors. Digital loan applications overcome the anomalies of traditional lending. The system is designed based on robotic processing automation or RPA using artificial intelligence that converts repetitive, rule-based, and arduous workflow into a programmed method. Without any human errors or intervention, the entire loan cycle is completed within a few hours of applying.
- Auto capture of ID details
When the ID proofs and details are submitted for an application the information is auto-captured and prefilled in the form. The information is also cross-verified with third parties for authenticity using APIs.
- Quick processing
The loan application is processed quickly as the credit decision and underwriting functions are also automated. With higher accuracy levels post background verification, the risks of fraudulent applications are eliminated. Only genuine applicants whose eligibility criteria meet the standards set by the bank’s internal risk policies are accepted. The entire process of approval and disbursal takes only a few working hours after an application has been uploaded.
- Scope to scale
With LOS, banks can explore wider opportunities and offer value-added services to their consumers. Business can be scaled as more applications are processed in record time with an automated robotic system that takes care of the speed, accuracy, and quality of the lending product.
Here are four features of a good digital lending platform:
- Smooth process
A seamless customer onboarding that enables access to loan application processes from anywhere and extracts the data from the information submitted by the borrower is critical for a good LOS tool. Ensure with the vendors the turnaround process and automation features are coupled with easy-to-use interfaces. Unless the process of customer acquisition is smooth for the borrower, they will be poached by other platforms that will offer them what they need.
- Options to scale
A digital system should be equipped to handle large numbers of applications and process them with the same efficiency. If the system slows down with an increase in the workload, then it will lead to more complications than the hitherto traditional system. The success of a LOS system is not sustainable if it displays any limitation that cannot handle growth or success that is multi-fold from the existing numbers.
- Flexibility
Banks have spread their businesses across geographical locations. It is very important to choose a system that can customize as per local laws and cultural requirements when processing loan applications. Installing different applications for different countries is not a desirable option as it can lead to comparisons between products of the same bank operating in different locations
A digital LOS that also has a microservice and configurable framework that can incorporate future changes without any hurdles is an ideal feature a bank should look for before installing their digital application. A bank should be able to adjust its platform without impacting the risk metrics or making major policy changes.
A bank has to understand from its vendors how the change management is affected and rules are changed in the platform.
- Risk assessment
The risk of loan product is not limited to the core applicant’s financial status and a borrower’s earnestness to pay a loan. It can be impacted by other external risks like market, currency, and systemic risks that adversely affect the economy of the country. A bank is aware that if there is an imminent recession then jobs and income-earning capacity is directly influenced. This knowledge of predictive analytics empowers banks to take necessary steps to provide extra provisioning for future contingencies.
Real-time evaluation of the client and the atmosphere that he is part of is necessary for defining risk assessment. Ensure that the platform of LOS can forecast a borrower’s cash flow data with the right ratio of factors that discount the financial income.
Summing-up:
A digital loan origination platform that is feature rich but cannot handle change or scalable options is going to defeat the purpose of spending capital expenditure for automating the lending business.
A business cannot grow by only servicing existing customers. With digital loans banks can finally serve remote areas or business segments that lacked banking facilities earlier. Small business owners and remote locations that could not access quality credit to expand their services can approach a bank for a loan with a LOS to serve them better.
A bank that can grow its business in newer pastures and service existing customers as well with quality service will need a platform that can accommodate the features mentioned above.
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