Loan origination software explained

Find out about current digital lending technology capabilities and how it could help transform your business.

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The number of small-to-medium enterprises (SMEs) applying to banks for business loans in 2018 dropped by 4% while it increased by 2% on online platforms, according to a Government survey.

In today’s “always-on” society, consumers and businesses no longer have time to wait days or weeks to have their loan application approved. Small businesses are increasingly moving away from banks towards online platforms for loans, primarily because of faster loan approval times.

What is loan origination software?

Loan origination software is the technology that enables a business to onboard potential customers then process their application in order to offer–and service–different types of personal and business loans.

This type of software allows businesses to process and approve loans faster than traditional lending methods.

Thanks to its use of APIs (Application Programming Interface), loan origination software can harness and analyse big data at speed, which is why its development has been disrupting traditional lending operations in recent years.

It is a full end-to-end solution that is often hosted in the cloud but can usually be brought in-house when larger financial institutions request that it is hosted on their premises.

Within the loan life cycle, this type of solution covers all stages:

  • Onboarding
  • Credit decisioning
  • Activation
  • Servicing 

Loan origination dashboards and platforms are secure and comply with regulatory requirements.

What does loan origination software do?

Digital lending solutions manage the entire loan life cycle thus streamlining a lender’s processes. When built, designed and modelled to a high spec, this type of lending software consistently provides a business’s customers with a fast and frictionless experience throughout each stage of their digital journey.

Robust and accurate loan origination software will also allow a lender to grow their lending portfolio as quickly as they have the aptitude for.

What are the main benefits of loan origination software?

Automating the lending process can transform your business, saving on operational costs and providing an enhanced customer experience across every stage in the lending cycle.

For businesses

Embracing a digital end-to-end credit system enables lenders to develop a proof of concept if they’re new entrants to the market. Lenders can save on manual operational costs and go to market with the offering far more quickly than using traditional methods.

For customers

Ultimately loan origination software speeds up a customer’s application as it facilitates faster decision-making and loans can be offered in minutes rather than days.

Key features

The best loan origination software is capable of providing a full end-to-end solution which includes a Customer Relationship Management (CRM) system as well as a post-purchase servicing operation. Both consumers and businesses expect a seamless, logical experience from start to finish when applying for a loan digitally.

Some features to consider:

Advanced CRM. A system that integrates with a respected CRM such as Salesforce  and has extensive capabilities such as automated communications.

Intuitive user dashboards. Whether at application or post-purchase stage (when a customer might need to log in to view their loan repayment schedule), dashboards need to be user-friendly and employ clear user experience methodologies. This includes back-end systems so that businesses are able to create reports and search for customer profiles.

Flexible credit risk models. Flexible risk models that can be easily integrated either as an out-of-the-box solution or tailored to a lender’s risk appetite.

Integrated data sources. By integrating with third-party data sources through APIs, a digital lending system can extract the necessary data from trustworthy sources in order to make Know Your Customer (KYC), Anti-money laundering (AML) and fraud checks in real time.

Customisable branding and customer journeys. The ability to create multiple buyer journeys which lenders can tailor and brand i.e. white label, according to their products.

Centralised document tracking. Tracked and timestamped loan documentation in case of audits or payment queries. The facility to capture e-signatures and have a centralised storage area of trackable electronic documents.

Loan servicing capabilities. Software that generates automated communications such as payment confirmations, overdue reminders and tracks repayments schedules.

Types of businesses that need loan origination software

As the lending market opens up thanks to financial institutions sharing data through Open Banking, businesses that may otherwise have been deterred from the regulatory hurdles in this market are starting to dip their toe in the lending waters.

As well as more obvious businesses such as high street banks and online payment services, companies that can best make use of this type of software innovation include:

  • mortgage providers
  • car finance companies
  • alternative specialist lenders

That said, it is still the traditional banks who have much to gain from transforming into a digital lender. According to McKinsey research: “While the challenges in digital-lending transformations are formidable… success means much faster credit decisions, with customers getting cash up to 80% sooner; lower costs, with 30 to 50% less time spent on decision making; and better-quality risk decisions, which translate into greater profitability down the road."

In uncertain times, one thing remains certain–traditional lenders will be left behind if they don’t embrace digital innovation.

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