Why a Loan Origination System is a Critical Part of Digital Transformation

Admittedly, I’m not a fan of buzzwords/tech speak. AI, big data, “the cloud”, machine learning, digital transformation, etc. What do they even mean? Without applied application, we’re just bandying about terms that have little to no meaning.

Let’s look at digital transformation as an example. Digital transformation can be defined as the process of utilizing modern technology to create new - or modify existing - business processes, culture, and customer experiences. Okay, so what does that really mean?

In the banking industry, we have a bad habit of trying to replicate existing processes with newer technology and a slicker interface. While that sounds like it would be less work, it often creates unnecessary friction when you try to conform the tech to your often outdated processes, rather than taking advantage of the opportunity to see where and how improvements in efficiency can be made. We would be better served to clearly identify why we want to make a change in the first place and utilize a technology decision to truly transform the way that we do business.

A loan origination system is a prime example. Many of organizations that I’ve worked with have loan origination processes that have remained largely unchanged for decades. Decisions were made a long time ago to centralize or decentralize underwriting, how much information and data gathering should be done by the lender, the roles that branch may or may not play in the process, exactly what the printed copy of the credit memo should look like (and on what color paper!), the form and function of the credit committee, and other aspects of the lending process were chiseled in stone. While these methods might have been the most efficient way of doing things at one point, technology has moved quickly in the last several years. It can be hard to keep up, especially if you haven’t been adapting all along. What could have been steppingstones is now a much bigger leap, but it’s a leap that pays off in multitudes.

With a modern loan origination system, you are afforded the opportunity to go back to those original decisions and rethink your loan origination approach from the ground up. How can your organizations take full advantage of the technology available? While it seems daunting, the best way to answer this question is to take a step back and truly rethink how you do business. This is where the force multipliers start to come into play, and is what the highest performing organizations do. Revamping your lending processes to be customer centric with a focus on the experience of your employees will result in a process that wows your clients and drives higher acquisition rates. An engaged and satisfied employee results in the same from your customers!

Coming out of the last two years, as organizations look to the future, driving customer acquisition through pure digital channels will be more important than ever. A byproduct of the shutdowns we experienced and the restrictions to in-person engagement accelerated the existing trend towards online access to opening new product relationships with financial institutions. With loans being a key revenue source for banks and credit unions, your ability to capture your fair share of the digital natives will be key to ongoing growth. Now is the time to look to both process and technology change with loan origination system platforms as a natural first step – and as a critical part of your financial institution’s digital transformation.

While it might sound like I’m advocating for you to run out and change everything right away, a true digital transformation gets to the root of why you need to change. If only I had a dollar for every time someone told me “I need your loan origination system to do this thing in exactly this way because that’s how my system today does it,” I could be on a golf course somewhere, not writing this blog. If your goal is to continue adhering to your old processes and loan origination system architectures, then what is the purpose of changing it?

Fortunately there are experts, like those at Baker Hill, ready and waiting to help your team get to the root of the why. When you leverage organizations with the background and expertise in change management, modern lending practices, and loan origination process optimization and marry that with your internal knowledge, you are able to create a best of breed approach that maximizes what the technology brings to the table. At the end of the day don’t try and fit a square peg in a round hole, or a modern loan origination system into a legacy lending process and mindset.

You Might Also Like:

Blog: How to Personalize Banking with Lending Software

Blog: The Loan Origination Process and Meeting the Digital Expectation of Borrowers

Whitepaper: Are Banks and Credit Unions Really Making the Most of Technology?

Resource Guide: Digital Lending Resources and Strategy

Author Bio

Bryan Peckinpaugh has spent his entire career working in the financial services industry and the last 10+ years focused on business transformation. As SVP of Key Accounts and Strategy for Baker Hill, Bryan helps financial institutions increase revenues, reduce costs, and meet compliance requirements through process automation solutions.