Are You Ready to Consolidate Your Systems?
Financial institutions today often use a combination of multiple, disjointed systems for loan origination and portfolio management, limiting their ability to compete effectively with the largest institutions and maximize profitability all the way down to the account level. Adding fuel to fire, banks and credit unions also face more competitors today than ever before, as alternative lenders like Kabbage and OnDeck gobble up a greater share of the market.
Plaguing the industry is a dire need to supercharge profitability while shrinking risk and loss; however, most solutions today focus on one or the other. As a result, many institutions have been forced to make tough choices about allocating their investments and resources.
This is changing.
Increasingly, more financial institutions are looking to replace multiple systems with one, single common loan origination system as a way to up their ante and become more competitive. In fact, banks are recognizing that they can’t offer financial services as quickly or efficiently as other companies. The 2018 FDIC Small Business Lending Survey points out that this is of particular concern for business owners, citing that “speed in decision making and funding is one of the top concerns of small businesses.”
Moreover, the Federal Reserve’s 2016 Small Business Credit Survey found that applicants for small business loans from banks were “most dissatisfied with wait times for credit decisions.” Additionally, 63 percent chose a non-bank lender for the “speed of decision or funding,” compared to 30 percent for small banks and 22 percent for large banks – and these numbers continue to shrink.
Banks need to move quicker if they want to compete, but they cannot open themselves up to greater risks. By addressing both loan origination (from online loan applications to complete lending process management) and portfolio risk management, financial institutions can aggressively compete while increasing profitability.
However, selecting the right LOS can be a daunting task, particularly since it’s one of the most important decisions your financial institution will make. Bearing that in mind, there are several key requirements to consider.
Leveraging Advanced, Flexible and Scalable Technology
By combining loan origination and risk management functionality in a single platform, financial institutions are empowered to work smarter and drive more profitable relationships. But it requires top-notch technology along with deep expertise. A simple face lift of existing, legacy systems simply won’t cut it. A modern, roles-based user interface that works across all devices is crucial to meeting the growing needs of the market and the increasing demands of customers for anytime, anywhere loan origination capabilities.
Cloud technology is also crucial. A system that operates on platforms like Microsoft Azure – a growing collection of integrated cloud services including analytics, computing, database, mobile, networking, storage and web – makes for an extremely attractive system for any size institution, enabling a transparent, 360-degree view of the bank and its customers.
More Integrations Increase Functionality and Convenience
Tapping a solution that offers numerous integrations adds to the functionality and convenience of a single system. Financial institutions are empowered, giving them complete control of creating a system that meets their specific needs. This makes it crucial that institutions look for technology partners that continuously create superior interfaces and integrations with leading solutions from the top providers, thus allowing institutions to pursue best-in-class solutions. Effectively, financial institutions always win.
Nothing is more critical to financial institutions than their customers’ trust; therefore, they must partner with technology companies equally committed to protecting that trust by providing the highest level of internal and external information security. Industry-leading security and privacy measures, along with holding top certifications and accreditations, are imperative to ensuring a highly secure, resilient environment for institutions’ data.
Supporting the Latest Industry Regulations
Financial institutions must also partner with technology companies committed to helping them stay ahead of regulatory changes. One example is the upcoming Current Expected Credit Loss (CECL) requirement – referred to by bank regulators as “the biggest change ever to bank accounting.” CECL changes the way financial institutions conduct business – not just in lending, but across all departments – and it also impacts how they manage their capital. Their system must be able to handle this requirement, but even more important, it must be able to turn it into a strategic advantage.
Doing so means a CECL solution must be fully integrated with a loan origination and portfolio risk management platform, providing the ultimate holistic view of risk in a comprehensive framework for financial institutions to establish, evaluate and validate credit risk.
By consolidating systems and addressing both loan origination and portfolio risk management within a single platform, financial institutions can increase their competitiveness and their bottom line. It’s no longer an issue of picking or prioritizing one area over the other based on resources or economic conditions.
Now, institutions can have it all.
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Posted on Friday, October 18, 2019 at 10:45 AM
by Baker Hill