The Changing Landscape of Commercial Lending

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Digitization the norm

The present-day industrial revolution is considered a fourth one. It involves the automation of almost all facets of our routine work. The way we transact, interact and execute the business process is dependent on artificial intelligence and machine learning. While machine learning uses deep neural networks to comprehend the data that can be used to build a system that speeds up the work, AI executes the knowledge assimilated through ML.

Automation in lending

Banks are moving away from legacy processes that involve a lot of paperwork and, man hours to review and decide about loan applications. The current generation of consumers has experienced automation and the scope of AI in other aspects of life. Even food and cab services have expedited their delivery timelines. The expectations of consumers from their banks to process their loans are on a similar line; they need faster credit. Owing to other factors like the availability of alternative lending platforms like fintech companies and P2P finance entities, banks have finally decided to transform the lending process and do away with the laggards of legacy banking. 

Scope of LOS

A digital loan origination solution (LOS) was adopted by banks to move away from the slow and tedious loan cycle that was seen in traditional banking. Automated loans using digital tools like AI are revamping the lending cycle on the end-to-end delivery process owing to its benefits. 

Expectations of a bank from LOS

Banks still are the largest lenders owing to the massive penetration they enjoy in varied countries and markets. However, whenever a bank is looking to upgrade or rehaul its old origination system, it is essential to see what are the advantages to the business at a superficial level. They are:

  • Low-cost easy access to borrowers
  • Open new opportunities to scale the business
  • Minimize risks and comply with regulatory aspects

A LOS ticks on all those fronts and offers many other opportunities that any new bank looking to automate its lending cycle should consider. Let us examine a few of these benefits from the perspective of a loan cycle and end consumer needs:

1. Improved efficiency

Lending is a risky business where rules have to be followed at every stage of the loan cycle. However, most rules associated with a loan application are standard with very little requirement to think out of the box for a solution.

Since most tasks are repetitive and have to follow the protocol, robotic process automation (RPA) is used to automate the cycle. LOS can be customized to make the entire process from client onboarding to payment collections in loan cycle robotic or just a few functions like document collection, verification, and underwriting. 

With automation comes the fine line – delivery time is reduced remarkably when a loan is serviced, often within 24 hours from the time the application was submitted. 

2. Happy consumers

When a consumer comes knocking at an organization’s doors, they expect fast and good service. With multiple channel onboarding, chatbot assistants to prompt when filling out the application, round-the-clock access, and service emails updating the status of the application, borrowers feel included in the loan origination process. A quick disbursal of the loan if approved and reasons highlighting recommendations to improve the chances next time if rejected have enhanced customer experience to new levels. 

3. Better underwriting standards

Legacy loans’ lengthiest stage was verification and underwriting. Cross verification, the credit assessment, decision, and underwriting of the terms need to comply with risk metrics set out by the bank and the regulator alike. 

In digital loan origination software, these stages are covered by AI, which extracts information from third-party sources, verifies it for accuracy, and assesses the given information with loan requirements. It then runs algorithms to forecast the probable risk and the underwriting terms for the specific covenants that need to be established for the credit decision. If the consumer likes the terms of underwriting, then the funds are disbursed. 

4. Consistency

Robotic processes are evolving to perform tasks where cognitive thinking is required. Nevertheless, these functions are not designed to develop the biases that human minds limit themselves to. A loan application is processed by the LOS purely on the ground rules set by the organization as eligibility criteria. If this limit is met, then an application is processed. 

5. Growth and profitability

With reduced time limes, faster loan approvals, improved customer and employee experience, verification with third-party APIs to establish the truth of the data, elimination of risks, and rejection of ineligible applications, LOS is a one-stop solution to enhance growth and profitability. The business insights that big data offers can be more meaningful through the analytics displayed in the digitized tools. When a bank understands what consumers are looking for, chances to innovate and offer improved products are plausible. 

6. Safer financial ecosystem

With automation and paperless loan cycles, the risk of data theft is mitigated. So it is safe for consumers to apply for loans with banks that have automated their systems. 

The ability to store and move a lot of consumer information through blockchain offers higher integrity for all stakeholders. Third-party cross-verification of the information submitted ensures that no loan is approved based on fraudulent information. 

With improved business analytics, digital lending solutions are tracking consumer insights and can recommend solutions that are required in the near future. In this manner, business leaders can prepare for future opportunities and not lag behind the competition. In this manner, most risks, including systemic and opportunity costs, are being mitigated by the system. In the long run, when lenders need to tweak the loan products, they understand if current underwriting can support it or not. If a future opportunity makes business sense but cannot clear regulatory barriers, then it is pointless to develop a product on those lines. 

Summing up:

With consumers who don’t wish to go back to the slow and cumbersome banking process, competition from alternative sources of financing, and an immediate need to overhaul the inefficiencies in the current lending system, any lender should consider digitization. 

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