Any growing business that values efficiency relies on good insights from its data. When used appropriately, it helps us make better-informed decisions that can translate into increased sales, better customer experiences, lower operating costs and higher profitability. Lenders certainly recognize the value of data and are seemingly eager to use it in both loan origination and loan servicing environments.
But, getting from point A of wanting data to point B of actually using it in a productive manner can be a circuitous path full of wrong turns and dead ends. It’s easy to get lost.
While collecting data points from a variety of sources is relatively straightforward, the challenge is processing it into formats that are understandable and usable by lenders. This is the point where the headaches and frustration most often occur, primarily because managing data is a genuine challenge.
Data management is a heavy lift
This point was underscored in a recent conversation I had with Stephanie Hanson, co-founder and chief executive of Gestalt, a provider of data warehousing solutions for lenders. As a veteran of the lending sector, Stephanie knows a thing or two about this industry. She said the inefficiency of every lender building its own data warehouse rather than using a configurable platform — as they do for LOS and LMS — is alarming. The incorrect use of data combined with unrealistic expectations inhibits growth and thwarts efficiency due to higher costs, delays and improper decisions, she said.
“Data is a subject that comes up quite often during the discussions we have with lenders, and it’s usually tinged with equal elements of exasperation and curiosity,” Hanson said. “Lenders have a misapprehension that their LOS and LMS systems are perfectly suited to store and process data. In fact, this is not the case.
“LOS and LMS platforms are designed to manage specific lending operations — like decisioning applications or servicing funded accounts,” she said. “They are not built to house and process enormous swaths of data across multiple systems. Lenders should be using separate data warehousing solutions that are built specifically to store and manage large amounts of data from disparate systems. Built correctly, data warehouses can simplify complex processes, maintain efficiency as businesses grow and ensure that the data received is relevant, accurate and actionable.”
Building a data warehouse, or even managing one, requires a serious commitment. The warehouse is needed to store all types of information, in both electronic and non-electronic formats. These can include databases, proprietary information and business applications, all of which frequently change. The storage infrastructure demands power, robust security and redundancy in the event of a network disruption.
The operation of these facilities relies on a highly experienced and expensive team of data scientists to oversee data models and processing to ensure that lenders get the information they need quickly and in a format they can use. The structure of data tables can speed up or slow down queries, which can be simple or complex to build. It takes skill and experience to get this right.
Find the right partner
The largest lenders often have the budgets to build data warehouses with teams of data engineers in house. But rather than attempt to build this function from scratch — which is tangential to the primary business mission — lenders could be well-served by a partner that specializes in data engineering to build and manage a warehouse that pulls and cleanses data from LOS, LMS and even CRM platforms.
This can be done much faster and at a fraction of the cost of the build-it-yourself scenario. Lenders should look for several attributes from a data partner to ensure they are the right fit for their operation, including:
- Proper staffing. Data manipulation and processing is a complex job, requiring deep expertise. Make sure your data partner is staffed by seasoned data engineers who are experts in creating data models and know how to parse the information so it has value for your organization.
- Expertise in compliance and reporting. Different jurisdictions have their own rules for handling proprietary data. The United States, Canada and EU, for example, have their own regulations about securely storing data in flight and at rest, and how it can be used for sales and marketing purposes. These regulations are both complex and fluid. An experienced data partner will take on this burden by managing the entire compliance and reporting process.
Reliance on data is not going away. Lenders that want to compete — and expand — in a highly competitive market must use data that is accurate, timely, understandable and relevant to business objectives.
But getting to this point takes significant time, labor and money. Rather than trying to do it all themselves, lenders would be well-served to work with a proven data partner to build, structure and manage their data, and allow their teams to focus on the lending business. In the long run, it can eliminate many unwanted headaches, and ensure that the financial institution has all the information it needs to make the most informed decisions.
Sam Heath is the chief revenue officer of Inovatec Systems, which provides LOS, LMS and direct systems that seek to eliminate friction in the lending process and automate much of the manual work of originating and managing loans.
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