Technology is a critical factor in lending success. As examples, consider recent advancements in IT infrastructure deployment and management, as well as analytics that help extract the most value from institutional data. Here’s a quick list of the top tools and technologies competitive lenders are using.
Cloud-based loan origination: Economic benefits and beyond
Cloud technology offers proven benefits, all of which have an economic impact. Loan-origination solutions hosted in the cloud can reduce the ongoing costs of procuring and managing IT infrastructure. CapEx and OpEx are lower when IT hardware, electricity, cooling and 24/7 oversight become the responsibility of the cloud provider. Frequent, automated software updates and easy integration with lending-specific cloud services ensure users get the latest functional and performance improvements.
Machine learning: Rapid pattern analysis and optimized decisions
Artificial intelligence, underpinned by machine learning that discovers existing and evolving patterns in large volumes of data, is giving lenders the ability to make more confident lending decisions. With these capabilities, technology can be applied to identify fraudulent loan applications to offer terms that uniquely align with borrower attributes to minimize risk and identify accounts likely to become delinquent. Machine learning supports rapid, consistent decisioning, allowing lenders to reduce processing costs and lending risk.
Data sources: A wide range supports well-informed decisions
The internet and digital commerce have helped generate new sources of consumer information that give lenders a clearer, more detailed picture of borrower financial strength. Alternative data sources, such as rental records, utility payments, payday loans, and credit card payment trends, can be used to more accurately assess credit risk. Using this additional information, lenders can more confidently offer risk-adjusted terms. In many instances, the use of alternative data presents lending opportunities that would have otherwise been ignored based on credit bureau scores alone.
Analytics: Improving all aspects of lending
No one tool is as powerful as analytics, which enable lenders to realize the maximum value from the increasing volumes of data associated with a lending practice. Regular application of analytics can uncover trends, risks and opportunities across the entire lending cycle, answering questions like:
• Which underwriters show the best judgment, when factoring for approval volumes and delinquencies?
• Where are the bottlenecks in the loan-origination process? What are the causes? Can automation replace manual tasks or decisions to eliminate the bottleneck?
• Should credit policies be relaxed to increase bookings or tightened to reduce risk?
• What borrower attributes correlate with a higher percentage of early loan repayments? Are there opportunities to market additional services to these borrowers?
In any economic climate, it’s imperative that your tools complement your processes and offer the full advantage of the latest innovative lending technologies.
With more than 20 years of experience in the auto finance industry, Lana Johnson leads the charge to drive innovation as chief client officer at defi SOLUTIONS, the technology partner of Auto Finance Excellence, a sister service of Auto Finance News.