What does innovation in loan origination look like?

The lending industry is undergoing massive and rapid change, driven by major shifts in consumer expectations.

innovation loan origination

Loan origination refers to the process of capturing a credit application and carrying it through a series of steps and checks until you eventually land on a decision. The process can vary depending on the product (eg. home loan, credit card, buy-now-pay later, etc), segment (eg. prime, sub-prime, near-prime, etc) and other factors like the applicability of regulator standards. However, the principles remain the same:

  • Capture application data

  • Perform standardised series of assessments/ verifications
  • Routing to assessor
  • Credit decision
  • Hand off for settlement/ funding

The lending industry is undergoing massive and rapid change, driven largely by major shifts in consumer expectations surrounding experience and speed. As we welcome a new era of digital-native consumers to the market, the power has certainly shifted in favour of the consumer, who expects a frictionless, mobile application experience and a quick decision, not to mention great products/rates.

Lending institutions are racing to offer better user experiences

Meanwhile, institutions are grappling with the democratisation of their industry, with new entrants emerging every day, each with digital-savvy offerings that have blossomed from the perk of having no legacy tech (or attitudes) to deal with. When combined with the fact that brand power and loyalty ranks pretty low in the list of credit consumer needs and wants, lending institutions find themselves in a race to offer great user experiences (consumers have little patience these days), provide a decision fast (first to respond typically gets the deal), get it done as inexpensively possible (manual underwriting is costly) and do it all with greater levels of compliance than ever.

So, how do institutions remain competitive in this rapidly evolving landscape? Quite simply, process automation. At the heart of any innovation program for lenders must be a commitment to automate process and decisions.

Overcoming errors, inefficiencies & risk

Throwing people at the problem has been the answer for decades. For example, many of the big brands you know today have responded to the rapid influx of home loan activity, which has gone through the roof since COVID arrived, by you guessed it, hiring more credit assessors. A proven, and seemingly logical, response that has been the go-to for decades.

However, the trouble with throwing people at the problem is that errors and inefficiencies, and therefore risk and cost, grows exponentially as the manual operation scales. One may be getting through the backlog of work and growing the book, but at what cost and at what point do those crucial errors emerge, if ever at all?

Real innovation in the loan origination industry requires some rethinking and rearchitecting. If loan origination is the overall process from capture to outcome, and credit decisioning is the application of credit policy to determine that outcome, then taking a careful look at the process automation afforded by the loan origination system and the automated decisioning supported by the credit decisioning platform is crucial.

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Key questions to ask of loan origination platforms

There is a myriad of loan origination systems and credit decisioning solutions out there. Some good, some antiquated. The important questions lenders need to be asking of these platforms are:

  • 1 My process or yours? Many of these platforms spruik flexibility, but ultimately require you to run process and make decisions according to how they think, not how you do or want to. It’s hard to differentiate if you’re doing the same thing as everyone else.
  • 2 Evolved or refreshed? Established doesn’t necessarily mean it’s good. In many cases evolution really means a fresh interface underpinned by old approaches.
  • 3 Is it flexible? The ability to quickly and confidently implement new products, rules and methods is crucial to continuous innovation.
  • 4 Is automation at its core? Many loan origination and credit decisioning systems were developed by industry specialists. Makes sense, but may be a little biased. Modern loan origination and credit decisioning is better served by those who understand process automation and digital decisioning first, then apply a credit lens to the topic.

Using the right automation and decisioning platform, to either work as or with your current loan origination and credit decisioning systems, can yield significant rapid and long-term benefits. Smart decisioning can fuel process automation by allowing lenders to orchestrate the origination process, being smart and selective about how assessment activities are timed and executed.

Real innovation in the loan origination industry requires some rethinking and rearchitecting.

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A good process automation platform can allow lenders to dynamically and automatically source data to complement the application, reducing the need for applicants to fill out pages of forms and instead relying on the API economy and open banking to harvest much of the data from a community of sources, which are often more reliable than what is provided on an application form anyway, rather than the age-old approach of applicant supplies, lender validates.

Digital decisioning principles for credit decisioning

Applying digital decisioning principles to assessment and credit decisioning can mean the gauntlet of assessment processes – whether ID, KYC, grading, credit reporting, serviceability, pricing, employment checks, or anything else – can be automatically executed and the results used to deliver a self-driving origination process. Even if/when manual underwriting is needed, these practices can dramatically reduce assessment time by intelligently routing work to the right person at the right time, but also spotlighting the rules and reasons why the application has been referred in the first place, reducing mental load and drawing focus to the cases and facts that matter most.

At Digital Experience Labs, we’ve had the pleasure of working with a number of forward-thinking lenders and Fintechs. We specialise in process automation and digital decisioning and have come to understand a lot about the role these play in the future of lending and would love to reflect on what this means for your organisation too.

Luis Nejo | Founder & CEO

Luis Nejo | Founder & CEO

Luis is the CEO and founder of DXLabs and has spent 20 years leading technology innovation and strategy across a wide range of industries. A self confessed digital pragmatist, Luis is great at reading between the lines to find the hidden problems worth solving and building motivated, skilled teams that deliver solutions with an edge.

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