Skip to content

10 Steps to Build a Digital Loan Origination Process

group-asia-young-creative-people-smart-casual-wear-discussing-business-brainstorming (1)-1

Loan origination is all the actions your company takes before disbursing the loan, and it's an essential part of your digital lending platform. For many banks, it is at this point where they invest the most time and effort is expended. 

WHAT IS LOAN ORIGINATION?

Banks will not survive in a socially disconnected society without a smart and intuitive digital loan origination system. The loan origination cycle you choose directly impacts your borrowers, their evaluation, filtering, and terms, and, as a result, how well your bank operates.

Borrowers in today's digital lending world want their money when they want it, where they want it, and how they want it. Simultaneously, establishing the best possible digital lending processes for your borrowers from the start can be a daunting challenge, especially since banks must also be wary of bad debt and questionable loan applicants.

STEP 1: CHOOSING YOUR LOAN ORIGINATION SYSTEM 

FinTech companies, particularly those providing loan origination systems and lending automation solutions, has lowered the lending industry's entry barrier.So, before your bank starts evaluating new solution for your lending operation, have a look at what technology can bring for you.

Most banks, for example, still take up to nine working days to review a loan application, assess risks, make a crediting decision, and then either issue funds or deny the application. That's stone age to any modern borrower who's used to grabbing an Uber in minutes. Simultaneously, switching to an automated system, such as KMS Solutions's Digital Lending platform, will allow you to finish the whole origination process (including payout) in minutes.

We collect relevant data and analyze it in seconds using proprietary deep neural networks and machine learning algorithms. This dramatically reduces the time it takes to complete the origination process, eliminates human mistake, and lowers expenses by automating repetitive processes.

The essential steps to choosing the finest loan origination and lending automation software for your organization, based on our experience in North America and around the world, involve a careful review of the following:

  • Define your short- and long-term company demands, as well as the goals you want to achieve with this new digital system.
  • Think about the advantages of an all-in-one system with a modular design.
  • Examine cloud-based vs. on-premises software to determine which is best for your company.
  • Ensure that all elements have extensive, integrated functionality.
  • Look for machine learning and proprietary credit scoring to help with smart automation.
  • Consider how easy it is for your customers to use your product.
  • Check to see if the platform has country-specific editions and how easy it is to customize business logic.
  • Ensure that the time to market is short, and that it is simple to deploy and learn.
  • Examine the providers' track records with firms that are similar to yours.

 

One important reason to choose the right loan origination system is that switching from the wrong one will require a lot of time and resources.

STEP 2: LOAN ORIGINATION PROCESS REVIEW

After you've done your research and chosen a loan origination system, you'll see that you have a very good notion of the origination process you can use it for based on its capabilities. Now it's time to put it all down on paper and examine your business requirements, borrower preferences, dangers, and unique selling propositions. Not to mention your local competitors' and the foreign market's top performers' origination processes. Because, in today's global world, if a technology is available to one organization, it can almost certainly be reproduced and built upon by others, regardless of where you work.

While the business model and reasoning are critical, it's critical to speak with a local regulations expert to go through the ins and outs of the state's standards and avoid tripping over a regulatory land mine.

Once the procedure is in place from a compliance standpoint, go over it with your team and go over the system you chose again. Because a hands-on originator will be able to give you with easy-to-miss details and you will come to more well-rounded judgments, you want input from people at different stages of your lending process involved in the discussion.

STEP 3: LOAN ORIGINATION SOLUTION CONFIGURATION

The time-to-market and customization possibilities will vary depending on the loan origination solution you choose. An advanced FinTech could be ready to use right out of the box and deployed in days, but you could also get lost in a complicated system that would take you and your team months to implement in your loan origination process.

You won't have to do anything other than monitor the quality and completeness of the customization and determine when to deploy with the proper software supplier. If you're a small- to mid-sized merchant, alternative lender, or simply want to offer in-house finance, your lending automation requirements are likely to be rather standard.

If that's the case, KMS Solutions's fully operational end-to-end solution may be installed for your company the same day you sign the contract. It may take a bit longer if you want to personalize the solution, but we have the most robust solution with the fastest time-to-market. You get a scalable and adaptable platform that our team can customize to meet your specific business requirements. The time-to-market will vary by bundle, so you can pick the one that best suits your needs:

  • Loan origination, servicing, underwriting, collection, and other modules are all adjustable separately.
  • A packaged solution for end-to-end automation that is ready to use.
  • An enterprise solution to fulfill the demands of a large-scale institution while addressing your specific needs.

STEP 4: THE ROLE OF PREQUALIFICATION IN THE DIGITAL LENDING PROCESS

Prequalification is the first point of interaction for lenders with potential borrowers. Once your digital loan origination solution is up and running and you've gotten a lead, you'll either need to ask for the personal information you'll need for AML and KYC compliance, or you'll need to analyze the information the lead provided through a form on your website.

So that the prequalification process runs well, the loan origination software must have flexible loan application form options to collect and process the data that will truly assist in making an informed credit decision. The following are some of the data points you may need to collect:

  • Name in the law (including maiden or middle names if applicable)
  • Email address and phone number
  • Birthdate and location
  • Age, gender, and marital status
  • Nationality
  • Occupation
  • Name of employer and/or position held
  • In an official document with a photo, an official personal identification number or other unique identifier is contained.
  • Types of bank accounts and sources of income

With an e-signature service integration, all of this, including the signature, may be obtained without ever visiting a bank.

STEP 5: ONLINE APPLICATION AND APPLICATION PROCESSING

To make the transition to an e-lending crediting model, you might want to keep both doors open for your customers at first: let them fill out a paper form (you can have your employees type the information directly into the solution) and also give them the option to apply online without having to come to the company or branch.

Based on KMS Solutions's vast experience with this method, it's the best way to avoid stress for conventional clients while still meeting the expectations of customers who prefer to do things online. The only thing that matters is that you collect the information you'll need to send to processing and underwriting.

You won't have any issue processing much more loans than previously if you use the correct loan origination solution. The issue is that not all loan origination systems employ intelligent borrower evaluation methodologies for comprehensive risk management and borrower evaluation. This is why the service provider you choose is so crucial.

STEP 6: UNDERWRITING

After you've taken care of data collecting and application processing, you can move on to the fun part. And by fun, we mean the most difficult task confronting lenders in the digital lending world: assessing borrower data and making the best credit decision possible. Lenders must carefully examine entirely digital, automated underwriting ways for measuring risks quickly and correctly as traditional borrower evaluation approaches become outmoded.

Underwriting usually entails numerous stages of data analysis, risk grading, and evaluations on the part of the borrower. You can use numerous scoring models on each application to improve credit decisioning accuracy. This is built-in capabilities with an advanced FinTech, therefore there are no additional costs. In a nutshell, you give the system your own set of decision rules and adjust the scorecard settings to evaluate the data points correctly.

For both classic and alternative evaluation methodologies and data sources, KMS Solutions provides you with a system driven by deep neural networks with self-learning scoring models. The system learns to employ prediction, classification, clustering, and association in application processing by working with client data. For security reasons, the system not only uses the data provided by the client, but also draws information from the databases with which it is synchronized (like the credit bureaus). 

Even though the credit decisioning that comes built-in with the digital lending platform presents an excellent usage of these advanced technologies on its own, the team didn’t stop there. 

A potential borrower's test and risk assessment can be completed in as little as 6 minutes. As a result, the lender receives a risk score, allowing them to make an informed loan decision based on a thorough examination of the user's psychological profile and behavior rather than risk losing business or taking unnecessary risks.

Alternative credit scoring is only one example of how it can be used to improve decisioning accuracy. The vast majority of our clients are happy with the built-in scoring models and decision rules, but if your company requires custom underwriting, we can quickly adapt the platform to meet your technological needs.

STEP 7: INTELLIGENT CREDIT DECISIONING 

Apart from convenience, the ability to aggregate, process, analyze, and gain insights from data is a key benefit of lending business automation. Because self-learning algorithms are required to sort through the tangles of data points and make sense of it, big data and AI go hand in hand.

Credit decisioning has become much more granular and accurate as a result of the rise of big data. So the issue isn't a shortage of data for analysis. The difficult aspect is developing a solution capable of extracting all of the required insights from this data in a matter of seconds.

For your organization, the Digital Lending platform uses artificial intelligence to do risk and borrower evaluations. You can personalize the credit scorecard and watch as your criteria are applied in a borrower's evaluation in a matter of seconds. Its patented algorithms analyze the most successful apps and alter the evaluation methods to provide you even better choice accuracy.

STEP 8: QUALITY CONTROL 

The new industrial revolution is in full swing, and businesses that embrace automation will thrive in the future. The good news is that you don't need dozens of local locations with rent and workers on the payroll to start a lending business in the digital age. Lending technology, in its current state, is capable of automating the vast majority of loan operations, freeing up human resources and drastically enhancing speed and performance.

Even if you don't feel comfortable handing credit decisions and risk evaluation to machines at first, you might start by doing it semi-automatically, then switching to checking only the refused applications, and finally making ad-hoc checks as needed once the errors have vanished.

The lender's goal at this step of the loan process is to use as minimal human resources as possible, because human resources are unmatched in situations when millions of data points must be processed quickly.

It's vital to remember that at the quality control stage, you assume responsibility for each borrower in the eyes of the authorities. So there should be individuals that review the applications on a regular basis, but it's critical that the process is at least semi-automated, because time to funding is crucial.

STEP 9: DISBURSEMENT OF FUNDS

We've already obtained the borrower's data, completed all origination processes, and had the application authorized by an underwriter in this hypothetical digital lending business flow. Disbursement is the simple part once you've gotten this far.

Any good digital lending automation system will interface with payment software and deliver money to the borrower automatically once all of your checks are finished and the loan is cleared for disbursement. Debt collection is the same way.

A solid loan can virtually survive on its own after that, with the borrower paying scheduled automatic repayments, fees, and interest, as well as collecting all the data that will later help you establish you completed your due diligence.

STEP 10 - TRACKING AND REPORTING

Loan origination is complete after the money have left the lender's hands. It is critical, however, that all data and borrower information be prepared, securely kept, and fed into a synchronized reporting system. This will aid in regulatory compliance, operational cost reduction, inefficiency detection, and the elimination of human mistake. The tracking and reporting modules should be properly integrated with the loan origination program to do this.

FINAL REMARKS

A good borrower is unlikely to return if you don't hit the target during loan origination, but the poor ones will come in droves. Time and resources are required for credit scoring, automation, review, and integrations. However, with today's technology, the software does all of the heavy labor.

Learn more about our Digital Lending platform