In recent years, many banks and credit unions have been motivated to up their lending game due to increased competition from non-traditional players like marketplace lenders. In fact, financial institutions planning to upgrade their LOS outnumber those planning to upgrade their core systems by 2 to 1, according to a recent article published in American Banker.
You may have tools in place to streamline your loan processes and gain efficiencies, but you need an end-to-end solution like BankPoint. Or maybe you’ve built something in-house that has been good enough, but it can’t take your loan origination processes to the next level. You might be using an outdated, inefficient LOS that is costly to operate and—worse yet—costing you business. Smart financial institutions study the options available to find the most efficient systems to maximize their profitability, utilization of customer relationship data—and their investment in technology.
Because efficient, intuitive lending processes are integral to your business, an in-depth LOS evaluation is critical. This guide is intended to help lead the way. We’ve developed five key guidelines to consider, discuss with your team, and document before deciding to purchase, replace, or keep your existing LOS.
Begin Your Plan with the Customer in Mind
Your loan origination system (LOS) should enhance the customer experience. To ensure it does, it’s important to understand the common pain points customers face during the lending process.
For example, a recent Federal Reserve survey found that nearly half of loan applicants at both small and large banks were dissatisfied with the long wait for a credit decision. Additionally, 44% of applicants at large banks and 42% at small banks found the application process to be difficult. In contrast, only 26% of applicants who used online lenders were dissatisfied with the application process, and only 17% experienced long wait times. These insights highlight the need for an LOS that directly addresses these issues and offers a better, more seamless customer experience.
If your financial institution handles consumer, small business, or commercial lending, make sure your LOS offers a unified loan origination design. A common origination system standardizes processes for all types of loan requests, promoting efficiency in underwriting and ensuring that policies are consistently followed across different business lines. This standardization also improves the utilization of customer data, reducing the need for repeated data inquiries and speeding up loan application fulfillment. Moreover, it provides a comprehensive view of the customer relationship, helping you make more accurate risk decisions.
Additionally, evaluate your business strategy for both new and existing clients, as each requires a different perspective on your data. Ensure that your LOS is capable of extracting the necessary data for both types of borrowers and that it supports your business goals.
Consumer Lending Needs
Consumers today expect a transparent, efficient lending process and the ability to move through it quickly. Your LOS must be designed to meet this demand. It should allow you to respond rapidly by leveraging analytics and scoring, minimizing both time and resources spent. Furthermore, your system should engage with borrowers through their preferred channels, such as mobile or online platforms, offering them 24/7 access. A system that allows for seamless, quick decision-making is key to success in consumer lending—institutions that can deliver swift and frictionless loan decisions will stand out.
Small Business Lending Needs
For small business lending, centralized workflow support is critical. The most successful financial institutions rely on a centralized process, and your LOS should support that structure. Ensure the workflow is flexible enough to seize new opportunities, but strict enough to ensure that risk management standards are met.
A robust LOS should gather data such as personal and business financial histories for small business loan applicants, helping minimize portfolio risk while being responsive to client needs. A centralized database within the LOS can import data from both internal and external sources, enabling more effective relationship management and better risk assessment.
Moreover, your LOS should support multiple decision strategies in line with your institution’s credit policies. If your organization is moving from a manual review process to an automated decision-making system, a solid LOS can facilitate that transition. It can provide comprehensive pricing tools, data analysis, and portfolio reporting, ensuring that even if full auto-decisioning isn’t implemented, the workflow remains consistent and efficient. This frees up your team to focus on revenue-generating activities, such as business development, with confidence in the accuracy of the data throughout the process.
Commercial Lending Needs
Speed, efficiency, and data accuracy are just as important in commercial lending as they are in small business loans. A key outcome in commercial lending is the credit memo, which your LOS must be able to generate accurately by pulling relevant data. Customizable credit memo features allow your LOS to gather information from various systems, creating a more complete and valuable report. The credit memo should be adaptable to offer a full view of risk while maximizing opportunities in the loan portfolio, fostering a proactive relationship management approach.
Ideally, your LOS will streamline the entire commercial lending process, managing everything from relationship management to deal structuring, pricing, profitability, and credit analysis, all in one system. This ensures your institution can analyze, price, and finalize loan deals efficiently, optimizing portfolio performance.
For all types of loans, your LOS should guide the borrower seamlessly from the start of the application through the process to final document generation. Thorough, automated documentation is essential for compliance with lending regulations.
Determine Today’s Needs and Tomorrow’s Opportunities
When evaluating your loan origination system (LOS), it’s crucial to ensure it meets both your current requirements and future growth needs. It’s easy to identify the pain points in your loan origination process today, but it’s more challenging to anticipate what will limit your growth down the line. Your LOS is an investment in the long-term profitability of your institution. By considering both immediate needs and future opportunities, you’ll make a more informed decision that supports lasting success.
Key questions to consider:
- How complex are your deals? Are you dealing with general commercial and industrial loans, small business lending, complex real estate deals, or consumer lending?
- Are there new markets you’re looking to expand into?
- What is your risk appetite, and are you incorporating that risk into the offered rate?
- Do you want to use credit scoring and auto-decisioning?
- Is your underwriting process centralized, or would you like it to be?
- What types of reports do you need, and how would you prefer them to be presented?
These questions will help guide you to the right LOS for your institution. However, there’s one more question many institutions overlook until it’s too late: Is your current technology compatible with your LOS? To fully leverage the latest in loan origination technology, your platform needs to be up-to-date. Security and compliance alone necessitate a current technological foundation, and you can’t move forward with an outdated system.
Document Your Processes
To choose the right loan origination system (LOS), it’s essential to first have a clear understanding of your loan origination processes. Without well-defined processes, you risk having the LOS dictate how things are done, which may not align with your institution’s best interests. Take the time to document your current processes and then look for a software provider that offers the flexibility to configure the system according to your needs, rather than forcing you into practices that may not fit.
Your new LOS will likely offer capabilities you don’t currently have, and for that reason, you’ll need to adapt and evolve to fully leverage its benefits. By understanding your current workflows, you’ll be in a stronger position to enhance them through the new LOS. Rather than simply automating your existing processes, focus on automating in a way that drives improvement.
As you document your processes, pay close attention to aspects that either empower your team or may be hindering them. Look for opportunities to streamline your workflow and increase customer engagement. Identify areas that are working well and others that could benefit from guidance or refinement. These insights will be invaluable when evaluating LOS providers and selecting the right partner to implement the solution.
Choose a provider with a strong track record in both implementation and advisory services, backed by extensive industry experience. Your LOS partner should be seen as an extension of your team, helping ensure a successful and seamless implementation.
Review Your Data—And Your Analytics Needs
Whether you already have a robust analytics engine or rely on makeshift reports to inform decisions, it’s important to first take stock of the data you currently have access to. Then, consider what kind of analytics you use today or would like to leverage in the future. The right data analytics tools will empower your financial institution to better understand your customers’ needs and offer personalized services that strengthen relationships and increase wallet share. This becomes a significant competitive advantage, as 40% of customers prioritize relevant, personalized service when choosing a primary bank, according to a 2016 industry study. In fact, 63% are willing to share personal data in exchange for more tailored product and service options.
Given this, it’s crucial to select a loan origination system provider that offers powerful analytics tools to help you make sense of your data, identify the most profitable opportunities in your portfolio, and make informed decisions that positively impact your bottom line.
Here are key reporting functionalities to look for in your LOS provider:
- Configurable and customizable dashboard reporting tools
- Reports that pull directly from your core data
- Integration that provides a 360-degree view
- Actionable and shareable data
Let’s focus on the final point: you need an analytics approach that enables you to act on your data. Data is only valuable when it’s transformed into meaningful business intelligence. If you can’t capture the data and turn it into something actionable, it’s essentially useless.
A top-tier LOS will help you harness the power of integrated data and make it easier to digest through customizable dashboards. A system that allows employees to tailor their view of data analytics based on their job role ensures they can access the most relevant information for their specific objectives. For instance, board members and executives can customize their dashboard to highlight key areas of interest, providing them with the necessary data to develop growth strategies. Similarly, your chief lending officer will gain greater visibility into the lending pipeline.
It’s also essential that your data solution offers an enterprise-wide view, combining core data, credit data, financial data, and external third-party validation. This will allow you to identify risks and opportunities at the portfolio level. Additionally, these insights can help pinpoint profitability at the account, branch, region, and enterprise levels, as well as highlight which products and services are driving profitability. With this information, your institution can capitalize on top-performing accounts and understand which relationships need more focus.
Ultimately, an effective analytics engine provides a comprehensive view of your data, so you can identify which customers are profitable and find more like them.
Look for Ways to Connect the Dots
Loan origination system integration is the final piece of the puzzle. You need to be open to change and patient as your LOS partner familiarizes themselves with your institution to implement the best solution. Change and integration come with challenges, but your goal is to ensure that as many systems work together as possible, maximizing efficiency and benefits.
Implementing a loan origination system is not a one-size-fits-all process. Your partner should thoroughly review your current processes and work with you to adjust them as needed. They should spend as much time listening to your needs upfront as they do providing training on the backend. A standard implementation process should include consulting, clear milestones, expected duration, resource requirements, and a comprehensive statement of work for each phase. Your partner should guide your team through configuration, testing, and production phases, and don’t overlook post-implementation support. You’ll need a service level agreement with flexible support hours and quick resolution times.
Implementing a loan origination system is a significant project that can yield substantial rewards—if you choose the right solution. Your LOS partner should work closely with you to ensure the system is seamlessly integrated, enabling you to reap the full benefits quickly and efficiently.
