Understanding the Benefits of a Loan Origination System for Financial Institutions

If traditional financial institutions want to compete with trendy, app-based challenger banks to offer small and medium business customers a seamless loan experience, they need to make their processes frictionless, friendly, and fast; according to McKinsey, over one-fifth of SMEs that switched banks were looking for better rates, better online service, and products and services that their previous provider did not offer. 

The trends are clear and consistent: a growing number of people are no longer interested in visiting a brick-and-mortar bank. In fact, 71% of millennials would rather go to the dentist than physically talk to their traditional banks. In just over a decade, the number of mobile banking users rose from 30% to 76% in the UK alone.  

And when it comes to one of the main reasons businesses used to visit a bank – taking out a loan –  the volume is rising: when small and medium businesses need a loan, it’s often a “must-have” rather than a nice-to-have; according to this study, of the companies that did secure finance in 2022, four in ten (42%) plan to use credit to manage cash flow, considerably more than the numbers planning to use funds for equipment updates (21%), expansion (19%), or recruitment (4%). This means this financing is becoming more common, with competition looking to grab as much business as they can: In short, the customers are there, and need your services – or someone’s – in order to run their business. 

The problem is that many banks haven’t figured out the formula do serving these customers effectively. The European Bank for Reconstruction and Development identified three large myths about SME finance; central among them: “Commercial banks know how to finance SMEs.”  
 
Against this backdrop, financial institutions have only one realistic solution to help them stay ahead of the competition: Automating their digital experiences by implementing a loan origination system.  
 
An automated loan origination system (LOS) is a technology used by financial institutions to manage and automate the lending process from the initial loan application to loan funding. Lenders can streamline the loan approval process, reduce risk, and increase efficiency.  

An effective LOS cuts down on human error stemming from manual completion and reduces the need for human resources. Previously time-consuming, manual tasks that can be processed automatically, making for a quick and efficient experience.  

Importantly, financial institutions can typically tailor an LOS solution to their needs. Some may require a holistic approach, while others prefer to hone in on a specific issue, such as generating compliant documentation. There are also different types of software available, but a popular choice is to opt for loan origination system software that can be accessed on the cloud at all times.  

Let’s explore how your enterprise can adopt a LOS and what some of the benefits of automating previously manual tasks can be.  

How to Adopt a Loan Origination System  

Lenders can easily manage the loan origination system workflow from application to decision-making when they implement the right automation. Let’s look more closely at the process of adopting an effective loan origination system.   

•  A cloud-based loan origination system is a good idea. This type of system is typically scalable, secure, and can facilitate easy access to information, real-time updates, and improved collaboration between teams. Like all cloud-based platforms, this approach relieves you of any hardware or maintenance responsibilities or risk, and is immediately scalable. 

• Strategy is key. It’s essential to involve key stakeholders to decide on a realistic scope of the project. Rather than adopting a holistic loan origination system solution at the outset, you may opt to automate a few tasks first. This “dipping your toes in the water” approach could be crucial to your success and help get each relevant team member comfortable with the shift.  
   

• Next, you’ll work with your chosen LOS provider to configure the system to your needs. You will likely have workflows in place already -– you’ll need to determine  whether your LOS provider can help replicate and automate these workflows, and how the system can still be configured to meet your needs, if not.  

• Once your LOS is configured, you’ll want to engage in testing and training with both internal resources and selected early-adopter clients. Allowing sufficient time and resources for thorough testing of the system will lead to a smoother launch experience.

To be clear, this isn’t a plug-and-play project. The advantage of working with a vendor partner who has implemented many similar systems is that it removes a lot of the guesswork; they can customize the solution to meet your needs form the get-go, and quickly adjust and course-correct as you gain feedback and like for ways to opitmise. 

Reducing Risk, Improving Customer Experience, and More  

Two of the most powerful advantages of this type of solution are reducing risk and improving your customers’ experience.  

Consumers' expectations of their digital experiences are sky-high these days. In fact, 25% of consumers have left businesses that have failed to adapt to their digital needs. But a secure, seamless solution that gives people what they need at the tap of a few buttons will attract and retain customers instead.  

A well-designed LOS solution can offer both security and a seamless experience. Many LOS software solutions are cloud-based, meaning data is stored remotely and usually on a secure, encrypted server.  

A LOS solution can also automate many workflows, leading to quicker decisions when it comes to lending, for instance. Decisions and documentation that might normally take days to process could be processed in minutes with some LOS technologies. That sense of “instant gratification” earns customer loyalty and effortless word-of-mouth marketing. 

Across all their online activities, your customers are getting used to a frictionless digital experience and instantaneous results. In short, it’s no longer a luxury; in the eyes of some younger customers, you are probably meeting expectations rather than exceeding them!  A LOS is how you give them what they want so they keep them coming back for more.  

From Manual to Automated: The Journey to a Loan Origination System  

Manual workflows are being relegated to the past for a good reason: they are time-consuming, error-prone, and frustrating for staff and consumers alike. Automating your loan origination process can create a smoother process for everyone: No more human documentation errors, no more customers waiting several business days to hear back about a lending decision, and no more arduous identity checks carried out by staff.  

That being said, the journey from manual processes to full automation can be challenging. It’s a technology-heavy paradigm shift, a process that will involve change management, additional training, and some inevitable hiccups along the way.  And that’s why choosing the right LOS partner is crucial: one that is not only focused only on technology, but also on the ‘people factor.’ Ideally, such a vendor will be a cloud-based software solution with an excellent compliance track record, ready to adapt their solution to your workflows.  

As more and more consumers are looking for streamlined digital experiences when it comes to dealing with financial institutions, competitors are exploring every avenue to get ahead. Ignoring the trend of having an effective LOS in place means losing customers. But with the right partner, financial institutions can develop new solutions fast and remain competitive in a rapidly evolving space.  

How ezbob can help 

Ezbob can be a helpful solution for financial institutions looking to automate their lending processes and improve their customer experience. By offering a cloud-based loan origination system as part of the platform, ezbob can help lenders streamline their loan approval process, reduce human error, and increase efficiency. Through automation, ezbob can process tasks that were previously time-consuming and improve the overall lending experience greatly.  

Adopting ezbob's LOS involves strategizing with key stakeholders, configuring the system to meet the lender's needs, and engaging in testing and training. Implementing ezbob's LOS helps to reduce risk, improve customer experience, and meet customers' expectations for quick and seamless digital experiences. With ezbob's help, financial institutions can compete with FinTechs and offer customers a fast, seamless lending experience.