One of the most straightforward ways technology can improve lending is simply by enabling a more efficient, consistent and integrated loan origination process.
The power of technology to transform lending is often overhyped, for example in the areas of UI/UX and underwriting. When it comes to managing the origination workflow, however, new technology tends to generate less excitement but can have very measurable results. This is also the area where innovations are most likely to have a direct, positive impact on the day to day work of practitioners.
If you are reading this, odds are that you are in the commercial lending business and have probably bought into the notion that software can make things easier when it comes to originating loans. But you likely have a few challenges ahead. Perhaps you need to convince people on your team that it’s worth moving to a new system, or maybe you are past that and now are tasked with actually finding and implementing (or building) a new system. This can daunting, even (or perhaps especially) if you know something about how these projects go.
Regardless, this post is intended to give you a framework and a few tips to break this challenge down into manageable parts and help you put in place a system that works for you and your lending operation.
Breaking down the challenge
The nature of the challenge will of course depend greatly on the kind of organization you help run, your existing systems, and what your objectives are. System upgrades can run the gamut from simple software updates to complete overhauls with extensive specification and customization requirements followed by major onboarding and integration efforts.
Nevertheless, there are a number of common factors to consider. These can be thought of as part of a matrix, with strategic and tactical components on one axis and functional components on the other. Strategy and tactics would cover the why and how: objectives, planning, and process. Functions would include the different components of a lending operation, such as application intake, underwriting, and closing.
Sample matrix of considerations for a loan origination system upgrade
Bullets in each cell are simply examples of what might be included
Strategy and tactics
It can be enormously helpful to start with a clear definition of what your goals are. If you are happy with your existing mix of customers, products and credit policies, perhaps you only need to consider speed of delivery, cost, and the quality of the new system (which can be measured in terms of reliability, ease of use, and/or operational efficiency and scalability).
It may however help to think freshly about your larger business objectives, starting with who your target customers are, their needs when it comes to seeking business capital, and your advantages when it comes to serving these needs. Also, importantly, what are the priorities for your business or department? These might include growth, profitability, customer satisfaction, community economic health, or more flexibility and nimbleness so that you can test new products and markets and quickly scale up (or down) your operations and costs.
Requirements, planning and process
With clear objectives in mind, it becomes more straightforward to map out what you need in your new system, and prioritize things appropriately. Some possibilities were listed in the matrix above. If efficiency and scalability are top objectives, a highly automated and tightly controlled system may be the way to go. If on the other had your competitive advantage is tied up with flexibility and personalized service, your requirements may include a more flexible online application as well as support for other channels with ample room for exceptions.
Translating requirements into a working system of course requires a plan. It may make sense to consider building with internal resources, buying something off the shelf, working with vendors to provide a customized solution, or some combination. There are of course tradeoffs inherent in each. Again, being able to refer back to your objectives can help determine what the right balance is for your organization.
Generally it makes sense to start with a fairly open process while you explore what options are available and then put more structure in place as you go. Sometimes, especially for large organizations with complex needs, a “request for proposals” process may make sense. In many cases though that will add time and complexity without providing significant benefits. It may even select out many simpler and cheaper options that are perfectly good.
For example, maybe one of your requirements is for a customer portal where applicants can upload and manage documents, and potentially also electronically sign closing agreements. Once this broad requirement is identified, it would make sense to go out into the market and see what off-the-shelf solutions are available, and what the strengths and weaknesses of each are. This may also surface technologies or techniques that had not been anticipated. Maybe something in the market is perfectly good. Or maybe you need something more customized and decide to do an RFP. Now though that can be informed by what you’ve learned.
If you are doing something that is materially different from what your organization is comfortable with, it may make sense to consider a proof of concept phase. This can allow you to box off the risk and experiment more freely before committing substantial resources. The learnings from the POC can then be incorporated into a final plan.
Sources of value
Throughout the process, it helps to keep in mind where the value of moving to a new origination system is going to come from. It may include better consistency and auditability, more efficiency and scalability, and a better user interface and UX for your customers and your staff. Each of these areas alone can be of huge importance, and the value that can be captured by moving to a system that is truly better in any one area – let alone all three – can be enormous.
The previous article in this series covered the impact of technology on underwriting, and the first in the series is here. Future articles will cover selecting an origination platform for a new lender (or an existing lender launching a new product line), and how new technology is affecting loan servicing and collections.LendingFront offers a full suite of software for small business lenders. Go to our homepage at lendingfront.com to find out more and request a demo.