Tailoring loan origination technology to online lending needs
There’s no doubt that both traditional and new-to-market lenders are actively looking to tap into the burgeoning online lending markets. And it’s for good reason. Online lending has seen exponential growth over the course of the last year alone.
For example, Lending Club wrote more than one million loans in the third quarter of 2015, surpassing $13 billion in volume.
That’s more than double compared to what that company generated in Q3 of the previous year, when it wrote 477,000 loans for $6.2 billion. And it’s not slowing down. Projections for Lending Club—as well as its online competitors—look even stronger for 2016.
Yet the online lending environment is not a panacea. For example, the online application process involves a number of issues surrounding risk and authentication. Where banks, credit unions and finance companies have always required physical verification of an applicant’s identity and financial records to fund a loan, that’s simply not feasible in the virtual world.
Internet-based lending certainly adds elements of efficiency and expediency to the lending process, but it comes at a price to lenders—the risk of not truly knowing if the applicant is indeed who they say they are, and if the supporting documentation is valid and real.
Traditional origination systems, which are commonly used by established lenders to score, decision and manage the workflow around loan processing, may not be sufficient to satisfy the unique authentication and risk mitigation needs in online lending.
Some of the most advanced LOS platforms have integrated highly sophisticated authentication technologies that enable lenders to verify the veracity of each loan application.
These solutions rely on powerful analytics engines that collect data from a number of traditional and non-traditional sources, such as social media histories and mobile phone records, to paint a much more complete portrait of the applicants.
Once this data is integrated into the loan origination process, the system can be used to approve or decline an application, or call for an additional review—dependent upon the lender’s specific lending rules and parameters.
This entire process can be managed automatically or manually, driving down operating costs, while at the same time, reducing risk and mitigating fraud. It’s a win-win for any lender, particularly in the online sector.
In addition, some loan origination solution providers have recognized that there are distinct differences in how online and brick-and-mortar lenders utilize technology, and have delivered solutions that are optimized for the online space.
These include intuitive user interfaces that are compatible with smartphones and tablets, and streamlined administrative processes that allow lenders to create and manage their rules and workflows as they see fit.
Another tenet of online lending is the ability to identify and capitalize on fast-moving opportunities.
This is where the more sophisticated LOS platforms really shine. This high degree of flexibility completely supports the online business model in its ability to adapt to changing market environments.
For an online lender, lag time in responding to the market can be fatal. Lenders who must rely on outsourced IT staff or developers in order to quickly adjust their workflows and decisioning criteria are at a clear disadvantage.
They need the ability to make changes as needed, while following security, privacy and other compliancy mandates.
Through intuitive, self-administering interfaces, lenders can leverage their LOS technology to quickly adjust decisioning parameters and workflows, and even create new programs, delivering a level of agility not previously available in the market.
Some systems even provide real-time analytics, giving lenders unprecedented visibility into a number of performance metrics. All these capabilities help increase the lender’s efficiency, while reducing operating costs, as well as risk.
The online lending sector is a beehive of activity, and presents an attractive opportunity for generating revenue and serving an emerging market that demands anytime, anywhere access. But, like any marketplace, there are risks involved, and serious implications if regulatory and fiduciary responsibilities are not sufficiently addressed.
Online lenders have a unique set of needs compared to their traditional counterparts. As a result, the loan origination technology they use should be relevant for addressing their most pressing challenges, such as risk and authentication, along with delivering speed and efficiency.
A loan origination platform that can cater to this sector can make a huge impact on the profitability of any online lender.