In a world that is rapidly moving towards digital transformation, the financial industry is no exception. The traditional paper-based loan origination process is being replaced by an automated and streamlined software solution. Loan origination software is becoming increasingly popular among financial institutions, as it not only speeds up the lending process but also provides enhanced accuracy and security. In this blog, we will explore the power of the loan origination system and how it is transforming the lending landscape from paper to digital.
Lending is an essential part of a financial economy, and the process of loan origination is critical to any lending business. Traditionally, loan origination has been a paper-based process that is often slow, cumbersome and prone to errors. However, with the advent of loan origination software, the process has become faster, more efficient and more accurate.
A loan origination system is THE tool that streamlines the entire loan origination process, from application to disbursement. An end-to-end solution to enhance the customer experience, simplify the lending workflow and reduce the time and cost of origination. We are here to look at the nitty-gritty of LOS and how it is changing your business and taking it to the next level!
For you to understand how powerful the LOS tool can be for you and your customers, let us take you through a journey of a comparative study between paper-based and paperless loan origination processes in each stage.
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Imagine you are a borrower and need a personal loan (unsecured). The above paragraphs clearly specify that you can go two ways. But which way is better? We are going to dive into each stage of the loan origination process in two scenarios to analyse which way is faster, superior, user-friendly and, most importantly, beneficial for lenders and borrowers.
Let’s go!
Traditional | CloudBankin |
You visit a financial institution (FI) to get a personal loan. | You download the app from Google Play Store. |
You wait for a loan officer. | You click on “Apply Loan”. Different products like personal loan, business loan, home loan, education loan, etc., are displayed with their features. |
You state their loan needs. | You choose the most suitable product according to your loan needs. |
You enquire about your doubts and then collect the checklist. | The app guides you to provide all information & complete all requirements in each step to go next. |
You go back and prepare all your documents. | Your loan application is ready for submission. |
Time Taken For This Stage = 24 hours | Time Taken For This Stage = 3 minutes |
Traditional | CloudBankin |
You return to the FI and submit your documents like proof of identity (POI), proof of address (POA), bank statements, photos, etc. | You submit documents as & when needed. Only basic information is taken, and data is verified against the government portal. No scan & no uploads are needed. |
Time Taken For This Stage = 24 hours | Time Taken For This Stage = 2 minutes |
Total Time Taken = 48 hours | Total Time Taken = 5 minutes |
Traditional | CloudBankin |
The physical documents are verified against the originals produced. | You are verified via face-match and video verification as and when data is collected. Your geographical position is also located. |
If the documents don’t match, you are needed to revisit the FI with the required documents, or FI sends someone to your place for document collection. | The process happens at every stage. If you are not qualified here, you are rejected then and there. |
Time Taken For This Stage = 24 hours | Time Taken For This Stage = 2 minutes |
Total Time Taken = 72 hours | Total Time Taken = 7 minutes |
Traditional | CloudBankin |
The FI asks you to submit additional documents if required. And when the documentation is complete, the acceptance is given to proceed further. | Verification & acceptance go hand in hand. The rejection happens immediately if there is a deviation at any stage. |
Time Taken For This Stage = 24 hours | Time Taken For This Stage = 2 minutes |
Total Time Taken = 96 hours | Total Time Taken = 10 minutes |
The result after this analysis? When you take a sneak peek at the traditional process, it not only takes 4 days, but also you have to leave every work behind to visit the organization again and again for each stage and whenever they call you. They even have to visit your place to verify you physically. It is really bothersome and tiresome.
But, wow! Look at that! It took only 10 MINUTES for you to get your loan using a digital LOS! You didn’t even have to move from your place, and you completed the process totally online! It was such a hassle-free process! Isn’t that amazing?
Hands down, in this case, a digital loan origination system wins!
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Hence, you now realise how beneficial a LOS is from a borrower’s point of view. But what about a lender’s perspective? What would the scenario look like from a loan officer’s point of view? Let’s recreate the same from a loan officer’s perspective for each stage of the loan origination process in traditional and CloudBankin environments.
Let’s go!
Traditional | CloudBankin |
Here, the underwriting team appraises in the following steps. 1) Pull data from credit bureaus’ reports and analyse any discrepancies. 2) Validate the bank statements, and arrive at a disposable income. 3) Arrive at an eligibility decision. 4) If yes, define how much the loan amount is. The team can also ask for additional documents at any step if required. | 1. All 2000+ data points are collected upfront from CKYC, credit bureaus, bank statements, alternate data like SMS Analyser, etc. 2. They are then fed into Cloudbankin’s rule engine for instant eligibility decision and generating loan offers. |
Time Taken For This Stage = 24 hours | Time Taken For This Stage = 60 seconds |
Traditional | CloudBankin |
The sanction letter is issued for approval. | Loan offer is issued right away after approval. |
The list of documents collected is shared. | It is done online. The app takes the borrower through the journey. |
Time Taken For This Stage = 24 hours | Time Taken For This Stage = 3 minutes |
Total Time Taken = 48 hours | Total Time Taken = 5 minutes |
Traditional | CloudBankin |
The loan mandate is physically filled. | The mandate is registered online. |
The loan agreement is physically signed and submitted. | The agreement is e-signed and can be downloaded from the application at any point in time. |
Loan repayment is also done physically. | Loan repayment is automated here through mandate collection. |
Time Taken For This Stage = 24 hours | Time Taken For This Stage = 3 minutes |
Total Time Taken = 72 hours | Total Time Taken = 8 minutes |
Traditional | CloudBankin |
Post-sanction checklist is verified & approved by the concerned authority of the FI. | The app’s automated workflow handles the post-sanction checklist. |
Borrower’s account is set up & disbursement is done physically. | Borrower is guided through the process & disbursement is done online. |
Time Taken For This Stage = 24 hours | Time Taken For This Stage = 3 minutes |
Total Time Taken = 96 hours | Total Time Taken = 10 minutes |
The result? Here, the loan officer in the traditional loan origination process has to go through each stage in a paper documentation manner sitting from a physical branch. They also have to ask the borrower to visit the branch of the FI for documentation, including agreement and NACH signing. And here also, to complete everything, it takes 4 days.
But for a digital LOS, all the stages are completed within the app, which results in taking all documentation online. Even the e-Mandate and agreement signing is done digitally. Ultimately reducing the time to just 10 MINUTES!
All-in-all, in this case also, the digital LOS wins.
Hence, let’s collaborate on the overall analysis and see below points on how the digital loan origination system triumphs over the traditional loan origination process.
Hopefully, now you are able to grasp how powerful a digital loan origination system is. Let’s expand that understanding more by looking at the current trends and advancements in its technology.
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LOS has come a long way since its inception. Here are some of the most notable trends and advancements
In conclusion, the loan origination system has revolutionized the lending industry by streamlining and automating loan application processes, reducing potential errors, and increasing operational efficiency. Using a cloud-based loan origination software like CloudBankin allows faster loan processing times, increases transparency, reduces the cost per loan application, reduces operational costs and enhances risk management. Moreover, a LOS has the potential to change the industry even more in the future with greater access to credit and promoting responsible lending practices. Overall, loan origination software is invaluable for any lender looking to stay competitive and provide the best possible service to their customers.
A digital loan origination system manages and automates the entire loan onboarding process for lenders with the power of digital technology. This software solution is designed to provide lenders with a range of features that can enhance the loan origination process, including a) an online application and self-service portal for customers, b) data collection and verification from multiple sources, c) intelligent underwriting and credit decisioning, d) integration with third-party services such as credit bureaus and payment gateways, e) document management and e-signature support, f) workflow management and activity monitoring, and g) comprehensive reporting for a valuable insights to lenders. By leveraging these features, lenders can improve their efficiency, quality, profitability, and customer satisfaction by streamlining and simplifying the loan origination process. A digital loan origination system is the key to unlocking a more seamless and efficient lending experience for all involved.
Ever wondered how digital lenders and financial institutions make swift
Loan Origination is when a borrower applies for a loan,
Without a doubt, there has been a paradigm shift in
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After smartphone penetration, people are not watching their SMS at all. They use SMS only for OTP related transactions. That’s it.
But What can a Lender see in your SMS after you consent to them?
Lender can see income, expenses, and any other Fixed Obligation like (EMIs/Credit Card).
1) Income – Parameters like Average Salary Credited, Stable Monthly inflows like Rent
2) Expenses – Average monthly debit card transactions, UPI Transactions, Monthly ATM Withdrawal Amount etc
3) Fixed Obligations – Loan payments have been made for the past few months, Credit card transactions.
It also tells the Lender the adverse incidents like
1) Missed Loan payments
2) Cheque bounces
3) Missed Bill Payments like EB, LPG gas bills.
4) POS transaction declines due to insufficient funds.
A massive chunk of data is available in our SMS (more than 700 data points), which helps Lender to make a credit decision.
An interesting insight on vehicle loans for lenders.
A trend we are seeing today – the first-hand vehicle ownership is decreasing with time. Why? People are upgrading their vehicles in every few years because of technological advances. And, this can be seen more with the millennial generation.
So, what should a lender do in terms of financing?
– Estimating the residual value of the vehicle at the start of the financing period.
– Charging a borrower only for the residual value (which is the difference between the value after a few years and the current value)
Example: A bike currently is INR 1 lakh. You want to buy the vehicle for 2 years. A lender will estimate the residual value of that bike today and what it would be after 2 years. If the estimated residual value = INR 45,000, the lender will charge you only that (say, INR 55,000 with interest for this instance) during your tenure.
At the end of 2-year period, you have 3 choices:
1. Return the bike and upgrade to a new one without going through the struggle of selling it.
2. Pay the lump sum remaining amount to own the vehicle outright.
3. Extend the financing and own it by keep paying the EMIs for the remaining amount of the vehicle for the next 12 or 18 months.
Benefits for the borrowers?
– Flexibility to use a vehicle and upgrade to a new one.
– Affordability to not pay for the complete value of the vehicle with the intention to use for a lesser amount of time.
– Convenience in owning the vehicle.
Say goodbye to the old lending option and embrace the new way of financing for vehicle by lenders!
How many of us know this?
1) Tiktok does Lending ( is it an entertainment company or social media company or a fintech company?
2) Youtube China does Lending
3) Top 100 internet companies in China(no matter what business they are in) do Lending
The team which was heading Lending in Tiktok was the Advertisement team. If we do Ads, we do X no of revenue. But if we do lending, we’ll get X+30% more revenue. This is on the same Ad spot.
Ad team has transformed into a lending team, and in today’s world, it’s possible because the subject matter expertise can be put in as an API and given to you.
Embedded Lending as a service is becoming popular in India too, and I am happy to be part of this ecosystem.
The answer is No. Only the top 10 crore people have access to many credit products in India. Almost all Banks focus on this market.
Once you go beyond that, the credit access rate has dropped significantly due to multiple factors.
1) Customers who are having low income(30-40K per month)
2) Not earning from an employer who belongs to Category A or B
3) Not from Tier 1 or 2 cities
NBFCs and Fintechs focus on the above segment, pushing another 10 crores of people.
But in India, 70 crores more people are formally or informally employed, which still needs to be tapped.