For a financial institution, lending or providing loans is one of the main sources of revenue. However, in the current highly competitive business scenario, banks need to streamline their operations and incorporate various platforms to improve operational efficiency, risk management and increase profitability.
Sound decision making and speed are important in the lending business. With both revenues and profit margins being squeezed, every customer contact must produce the best possible return. This requires solutions that automate and consolidate lending processes to boost efficiency and reduce transaction costs.
Whether a high-volume originator or loan servicer, community bank, credit union or captive auto lender, it is important to provide excellent customer value while minimizing organizational risk. A loan management solution or loan management system (LMS) should enable financial institutions to automate the processes for achieving cost savings and enhanced customer experience.
Here’s a look at some of the business benefits to banks if they optimize their consumer lending solutions:
• Business agility- Faster time to market with new product launches
• Operational efficiency – Advanced operations and service levels with optimal cost
• Business growth – Support for multiple product lines, multiple channels with business analytics
• Enhanced manageability – consolidation and automation of lending processes
• Customer satisfaction – Straight through processing for quick disbursal of loans and other customer requests
Benefits of an Automated Loan Processes
Collection performance is a by-product of the quality and accuracy of information provided by the lending management system. A profitable collections program calls for departmental organization utilizing automated programs that emphasize speed and flexibility while providing collectors with more control.
While lenders have taken to technology for loan origination, the collections which are a source of significant potential revenue, has been left to archaic manual processes or third party service vendors such as collection agencies. This is surprising, since the foundation for reduced delinquencies and high recovery rates is accurate tracking of problem accounts with productive telephone follow up, activities which both benefit from automation. The index card and telephone method is labor intensive and susceptible to errors, besides being costly. Software technology has developed to the point that its impact on reducing delinquencies can no longer be ignored.
Loan-origination policies and credit screenings have a limited effectiveness in diminishing problem loans. And in a flat economy, credit reports often fail to accurately reflect the clients repayment ability. Once a loan is approved, the lenders loan servicing system is the only control over delinquencies and defaults.
The main advantage of an in-house automated collection system is increased cash flow as a result of cutting days or weeks off the average collection time. Without automation, less time is available to work on problem loans, and more loans must be prematurely sent to outside collection agencies, who ironically report sizeable productivity gains as a result of using automated systems. A survey by the American Collectors Association found that collectors using computerized systems handle twice as many accounts as those with manual systems.
The challenge is finding cost-effective collection software to support delinquency reduction. Collection software should provide documentation that clearly records information, activity, tracking and correspondence, while providing decision support reports.
Evaluating Loan Management Solutions
Making a smart software choice, calls for matching software capabilities to organizational needs. Here are the primary considerations for most lenders while evaluating a Loan Management System:
• Conduct a needs analysis
Determine how work and documents currently flow through the loan servicing department and how the process might be improved. Focus on the most important problems and try to solve them first. Avoid the temptation to find an all-encompassing solution; it probably doesn’t exist.
• Get the right people involved in the decision process
The collectors who will be working on the system, as well as the loan servicing manager, should be asked to evaluate each software option. For example, collectors can focus on the cash collection solutions available in the Loan Management System. Involving them in the decision process also provides idea ownership. There is likely to be less criticism for a system they helped select than for one imposed upon them.
• Watch out for hidden costs
Establish a budget for the system acquisition, and be prepared to identify ancillary costs like software upgrades, computer modifications, systems back-up and training expenses.
• Choose short-term solutions for both hardware and software
Lenders should see a demonstration of the selected software working on a hardware platform before acquiring it.
• If possible, select the software program before the hardware
Finding a computer that is compatible with a specific software program is much easier than finding a program that addresses the lender’s needs and is compatible with existing hardware. It is unwise to attempt to operate state-of-the-art software on obsolete or non-standard hardware.
• The program should be user-friendly
Look for on-screen help windows. Read the accompanying documentation. Collectors should be able to learn how to use the system and train others in a short period of time.
• The system should be expandable
This means modular software programs that can integrate with other software, such as loan origination or tracking programs, and operate on a LAN or WAN.
Choosing an appropriate collection software system can be an exhausting and confusing search, but discussions with front-line collections people, combined with some diligent research, can make the search much easier. Lenders should evaluate their specific requirements and how the capabilities of potential automation solutions can meet them. For example financial intermediaries like micro finance lending solutions typically have their own set of requirements that comes with rural lending. The right software, combined with a stable management support program, will create a sense of professionalism and aggressiveness among collectors, a sense of urgency among delinquent clients and significantly enhanced cash flow for the organization.
It is also important to look at the Loan Origination System (LOS) which is developed specially to
support the loan application processing needs of banks and financial institutions. It employs
workflow technology to control and monitor the various work steps in the loan processing and
uses digital imaging technology to reduce the delays and inefficiencies in handling paper documents. A robust Loan Origination System simplifies the whole process starting from a borrower applying for a new loan, to the lender disbursing the loan.
The Highlights of a LOS are
• Structured workflow for automatic routing of application
• Support different origination channels
• Support different loan products and loan types
• Loan type parameters and constraints definition
• Interface to external systems
• Provide internal credit checking, credit scoring and compliance check
• Support multi-tier rate structure
• Generate letters and forms automatically
• Application details and status enquiry
• Document imaging and archiving
Nelito provides comprehensive lending solutions which take care of all operations in the loan cycle – right from loan origination till its recovery.