The lending process is often a complex one that requires various interfaces between the front- and back-office. Depending on the type of loan, the loan origination process can vary widely. For example, the lending process of commercial loans differs from consumer lending. Let’s take a closer look at the consumer credit lending process.
Naturally, the granting of a consumer credit should be a highly automated decision-making process. However, many financial institutions struggle to automate their processes and its related decisions. However, clients expect banks to process loan applications almost in real time. One of the main reasons for this expectation comes from Fintechs, who revolutionize the entire financial sector with innovative technical ideas.
Incomplete Digital Automation of the Consumer Lending Process
To date, there are still various financial institutions where the consumer lending process involves several manual steps. For example, in many cases, consumers still have to go to their bank’s branch, either to complete a loan application by hand or for an appointment with their adviser. The applicant’s data acquisition and verification is performed manually, takes time, and is labor-intensive. Further, consumer financial protection regulations have increased documentation requirements that have resulted in more manual effort for banks to ensure compliance.
The following application processes and credit decisions takes place:
- Creditworthiness analysis
- Edit collaterals
- Credit decision
The answer to whether or not a loan is approved, and to what terms, will in many cases only follow the next business day. The reason for this is that in the case of consumer credit, customer interaction takes place in the branch office, whilst most of the processing and market follow-up takes place at the head office. Consequently, banks are still unable to noticeably reduce the throughput times of consumer loans. Accountable thereof are manual and paper-intensive processes. This can further include transport times, coordination problems and an unclear distribution of tasks between front- and back-office. Due to this, a 30-minute process can take up to a few days.
Enable Digitally Automated Consumer Lending
Coordinated IT and workflow systems, the avoidance of double voting and highly automated processes can help to significantly reduce throughput times. However, not every financial institution can or wants to fully automate the loan application process. However, various manual steps in the application processing and credit decision can be eliminated to reduce the throughput time from days to a few hours. In addition, the decision-making process in traditional lending is largely determined by subjective assessments of lending decision-makers. By means of (partial) automation of the processes, an objectification of the credit decision is possible, which considerably improves their traceability.
Furthermore, by automating the credit analysis or the entire lending process, the system can be rationalized by autonomously deciding on lending. The loan officer is thereby relieved of much of the routine work. This results in a cost saving potential in the standard business of consumer loans, especially in the area of human resources. Especially in times of non-existent interest rate margins, credit institutions need to reduce individual evaluations to a minimum.
However, only having an automated credit check does not suffice when the goal is to have a highly automated lending process. To enable this, robust and highly scalable platform-based applications can help automate lending and decision-making processes. Interesting systems are those that are based on a powerful graphical rule engine, such as the ACTICO Credit Decision Platform. This enables the implementation, testing, simulation and optimization of bank-internal credit decision rules, including risk assessment, pricing and credit decision-making strategies.
Such a rule service can be called from various input channels and seamlessly integrated with other internal and external data sources. A standard connector for external credit agencies for data enrichment is an absolute must. The efficient design and automation of the entire process can significantly reduce the time it takes to pay the loan (minimizing time-to-credit).
Ultimately, financial institutions need to be able to meet the expectations of credit applicants for a timely decision and provision of a loan. Not every consumer needs a 30-minute turnaround for a credit decision. Nevertheless, banks must automate their processes to adapt to current competition and the market situation.
Consumer lending automation helps banks transform today’s manual lending process to a truly digital process that meets the expectation of today’s customers. This allows banks to enhance customer service, reduce costs, improve compliance, and generate revenue faster. Process efficiency in the lending business is a key lever in competing successfully.