Enhanced loan operations in banking

Published on August 16, 2024 by Rajesh Dua

Introduction

Loan operations are a vital part of revenue for any banking system. It is, therefore, essential that an organisation spend enough time to enhance this aspect of its operations. By leveraging innovative technologies, fintech companies are providing support to improve lending and operational efficiency in the banking sector. Loan operations include activities from pre-closing of loans to closure support, i.e., customer onboarding and servicing support.

• Application processing:

  In this phase, a loan officer gathers all the information necessary for the pre-qualification. From this, a lender would assess a borrower’s need for the loan. 

• Underwriting:

  Here, a borrower collaborates directly with the underwriter assigned to their loan. The underwriter assesses and verifies the documents submitted in the application submission phase to determine their accuracy and the borrower’s The underwriter will also assess the borrower’s situation and future needs and assist the borrower throughout their loan journey.

• Loan closing:

  Once the institution providing the finance makes a commitment, a loan closing specialist will prepare a checklist of all the documentation the bank requires regarding the loan.

The abovementioned activities aim to evaluate the creditworthiness of a borrower who has applied for a loan, to ensure quality decisions are made quickly on whether to approve or reject the loan. However, the lending procedure has become surprisingly lengthy. Even in the age of banking startups, offering several services such as mobile deposits and an internet-based experience, this vertical has not caught up as quickly as these startups and still follows an old-school approach.

Challenges in loan operations in banking

• Unified data management

• Time consumption in a loan-origination process

• Cost-effectiveness

• Smoothing the loan process

Today, borrowers want loans that can be decisioned rapidly, are precise and come with as negligible a risk as possible. If the bank’s lending process fails in any of these areas, it would lose a potential customer and associated revenue. Banks can apply effective measures to evaluate their ability to provide loans quickly while minimising risk to borrowers.

Ideas to enhance loan operations in banking

There are seven important tools that enhance the lending process.

• Automating pre-qualification.

  This includes setting up pre-determined rules such as credit scores and income requirements that help automatically approve or deny a loan application, freeing up time spent on manual processes.

• Managing documents.

  To accelerate the decision-making process, all the borrower’s documents need to be in one place. Enhanced document-management tools help manage applicant information, increasing productivity.

• Verification and fraud protection.

  Identity verification minimises risk to the loan and protects against fraud. The manual process of checking identity is a lengthy process, whereas digital KYC tools enable an applicant to capture and confirm data directly from their driver’s licence or other personal identification documents.

• Data extraction.

  With the large amount of data that needs to be gathered, organised and reviewed, data extraction could be tedious. Data-extraction tools enable indirect sources to transmit and receive loan application data from financial agencies. This data would also prove valuable in cross-selling personalised offers. 

• Auto-decisioning.

  Evaluating and making decisions as quickly as possible is critical in the lending space, as every minute that passes would give a competitor an opportunity to steal your applicant. The lending process, therefore, needs to be universal, with auto-decisioning that can deliver a decision immediately. With the right tools in place, rules can be set that enable decisions on approval that look beyond a credit score.

• Payment processing.

  Consumers expect online payment systems to be safe and quick, and lending departments should be able to provide secured payment gateways. Customers would never compromise on this, and any failure in online payment system gateways would result in a potential loss of a customer.

• Automation.

  Once a borrower starts the application process, the financial company would have valuable data it can use to offer excellent products and a variety of services. With the right automation solutions, based on information gathered from sources such as credit card reports, customer acquisition and retention could be enhanced by providing personalised offers throughout a customer’s journey.

Seamless and hassle-free services are now a necessity, and by integrating the abovementioned tools into loan-origination systems, a company could become a market leader in loan operations.

How Acuity Knowledge Partners can help

We provide end-to-end expertise for all loan operations, covering pre-closing, processing and post-closing activities.

We provide secure systems and have designated workplaces to ensure risks are mitigated and work is managed with the utmost confidentiality. We ensure banks make accurate and correct decisions when reviewing loan applications in addition to mitigating any fraudulent activity.

Our extensive support enables clients to focus more on front- and middle-office services, develop business strategies for expansion and adopt technology without disrupting their day-to-day business.

Sources:

• How OKRs for improving loan operation of Banks | Profit.co

• 8 Tools to Enhance Your Lending Process – Temenos

• Efficient Ways to Enhance Consumer Lending Experience – Wipro

• What Happens During the Loan Application Process? (liveoakbank.com)

• Top Challenges for Lending Businesses in 2024 | Live Vox

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