Digitizing the Lending Experience
with a Loan Origination System

Deliver speed and convenience for borrowers while driving portfolio growth.

Meeting Customer Lending Experience Expectations

Over the last decade, Amazon has disrupted the retail industry, changing the way we shop and raising the bar on the customer experience. Likewise, online lenders have changed the lending game, improving the lending experience to meet heightened customer expectations for convenience and speed.

If financial institutions don’t modernize their traditional approach to lending with loan origination system technologies, they risk losing market share to the online lenders who have adapted. 

Many in the industry remember a few years ago when JPMorgan Chase’s CEO, Jamie Dimon, warned his bank’s shareholders, “Silicon Valley is coming.”

It appears he was right, as financial technology (fintech) companies originated $15 billion in personal loans in the first half of 2017, according to credit bureau, TransUnion. This accounts for nearly one-third of the total U.S. market for personal loans.

Frequently, consumers seek funding from online lenders due to the fast, seamless and oftentimes, paperless loan application process. The online application process typically takes less than 30 minutes, sometimes as fast as five.

Most online lenders have designed systems to fund approved loans within a few days and for basic credit requests, funds can be disbursed within 24 hours. Comparatively, consumers who apply for loans at traditional banks cite frustrations with the “difficult application process” and “long wait for a credit decision,” according to the Federal Reserve. 

For small business owners, the lending experience can be even more challenging, as the average small business owner spends 25 hours completing paperwork at up to three banks before obtaining funds.

Traditional approaches to small business lending also pose challenges for financial institutions in terms of profit margins. Oftentimes, financial institutions process a small business loan of $100,000 the same way they process a $1,000,000 commercial loan, which drives institutions to prioritize high-dollar commercial loans with greater profit margins.

However, by modernizing the lending process and leveraging technology, financial institutions can reduce the transaction costs for small business loans to boost profit margins and ultimately provide more funding to small businesses.

Despite these challenges, banks and credit unions boast a major advantage over online lenders. While most online lenders offer a more competitive application experience, traditional banks and credit unions have a leg up when it comes to rates.

Rates for a bank line of credit may be at or below a typical credit card rate, but an online or alternative lender’s rate can range from 7 percent to upwards of 25 percent, which means speed and convenience come at a premium.

Traditional financial institutions; however, can offer a similar level of speed and convenience at a lower rate, beating online lenders at their own game. Still, it is crucial that financial institutions take steps to optimize their lending operations with loan origination systems now because as online lenders develop steady and low-cost sources of capital, these lenders will eventually be able to price loans at rates competitive to those offered by traditional financial institutions.

This guide outlines how banks and credit unions of all sizes can digitize the lending experience, infusing it with speed and convenience to meet customer expectations, while positioning for sustained and profitable portfolio growth.

man looking at online lending portfolio

Digitizing the Process

Although some financial institutions have digitized part of the application process, many still require a visit to the branch or mailing physical documents. Financial institutions that simply replicate the paper-driven loan application process online are doing little to improve the customer experience.

Research Findings from ...

American Bankers Association

Some financial institutions only deploy digital for a specific category of loans, usually for mortgages, unsecured personal loans, or auto loans, according to research from the American Bankers Association. The same report also reveals that of the banks that offer digital loans using loan origination systems, 96 percent have only digitized the loan application process. Less than half of those banks, 47 percent, have digitized document uploads and just 41 percent support e-signatures. Just over a third of banks facilitate direct communication to customer service through digital channels, such as email or instant messaging. 

Oliver Wyman

A survey of borrowers by Oliver Wyman revealed that only 43 percent were able to complete a loan application online through a bank compared to the 79 percent that were able to complete an entire lending application online with an alternative lender. The same study revealed that nearly all borrowers under age 35 prefer to submit all documents online, rather than by mail or at a branch. Clearly, traditional financial institutions must up their game with loan origination systems.

Eliminate Friction with Simple, Impactful Functionalities

To offer the convenience today’s consumers demand, financial institutions must go beyond converting paper into digital documents and digitize back-end processes as well.

Minimize Data Entry

One way to accomplish this is by providing pre-fill functionality within the online loan application. This reduces the burden of manual data entry for the customer, prefilling the loan application with key data that is already on file at the institution. This is supported through integration with the financial institution’s core system. 

Financial institutions should also leverage technology with a responsive design to minimize keyboard usage. This is helpful for customers who submit an application on phones or tablets. Institutions should also replace input fields with drop-down menus to eliminate unnecessary keystrokes and reduce application abandonment. Additionally, eliminate any unnecessary input fields that add to the length of the loan application.

Offer Save & Resume Functionality

To further eliminate friction in the application process, banks and credit unions should allow prospective borrowers to upload supporting documentation without leaving the loan origination system's application.

For applicants who may not have all of their information available to complete the application, offering a save and resume functionality is essential. The financial institution can save the applicant’s contact details and then follow up with the applicant later, thus mitigating abandoned loan applications.

Lastly, it is critical that banks and credit unions have e-signature functionality for an outstanding end-to-end lending experience. If the borrower completes an application online, why should they have to step into the branch to sign loan documents?

Simplify Obtaining Loan Status Updates

Not only do borrowers want a better, more convenient lending process, they also demand a more transparent process. While online loan applications reduce the need for human interaction, this digitization of a previously manual, high-touchpoint process requires greater transparency. Consumers want to know the status of their loan application and when they can expect to receive a decision, but the bonus should not be on the consumer to hunt down that information. 

One way to achieve this is through a loan origination system's customer-facing portal that allows borrowers to obtain loan status updates at any time. This allows applicants to easily and securely attach missing or supporting documents right to the loan application at their convenience, even from a mobile device. The increased connectivity eliminates hours of follow-up while improving the customer experience and ensuring your customer feels like a partner in the process, not just another number. 

reviewing data on laptop with team

Shift Your Approach to Underwriting with Multiple Sources of Data

Ensuring a fast and convenient lending experience hinges on an automated underwriting process. If a bank offers a streamlined online loan application but it takes several days to decision the loan, this negatively impacts the overall customer experience.

Some alternative lenders can decision loans in minutes with borrowers receiving funds the same day. In order to remain competitive, traditional financial institutions will have to rethink their approach to underwriting. 

Banks and credit unions can mirror the underwriting tactics of alternative lenders with data analytics. Using algorithms, financial institutions can assess borrowers’ creditworthiness by interpreting multiple data points such as cash flow, Demand Deposit Account (DDA) or checking account data, along with external sources like an applicant’s utility bills. 

By applying analytics to such data sources, financial institutions can quickly evaluate risk and pre-qualify borrowers. Financial institutions may also decide to fully automate underwriting for lower-risk loans to free up internal resources to evaluate higher risk loans, driving portfolio profitability. 

Products & Pricing

To move toward an automated underwriting model, financial institutions should first standardize credit products and pricing. The bank or credit union can then offer a limited group of products and dollar thresholds that require no financial statement. From there, the institution can familiarize itself with the product set, pricing and scoring methods before deploying a fully automated decision strategy. 

Once the financial institution feels comfortable enough with the product set and pricing to refrain from touching each credit request, the institution can further minimize the human element in the underwriting process. This should be a gradual process, as auto-decisioning is driven by data analysis and cannot happen from day one.


Data is required to establish solid auto-decision parameters that align with the financial institution’s risk tolerance—a quality score to one bank may be too risky for another. To gather the necessary data, at least 300 loan decisions should be analyzed, excluding renewals. Only data from approved and denied applications is relevant here. By processing 300 loan applications, the financial institution can accumulate enough data to develop underwriting parameters that mimic the underwriter’s judgment.

Auto-decisioning is best-suited for certain loan types and dollar amounts, as higher dollar credit requests should require manual review. For financial institutions that are beginning to move toward an algorithm-led decisioning process, it is advised to have the system start with loans $50,000 or less. The bank or credit union should set the dollar threshold to an amount that the institution feels comfortable letting the system make the final decision.

Auto-decisioning, while incredibly efficient, must be managed in a way that still reflects the institution’s manual underwriting processes. In essence, a bank’s auto-decisioned portfolio should behave the same as its manually-underwritten portfolio.

Transparent Loan Terms & Costs Help Borrowers Differentiate Offerings

While efforts to deliver faster decisions for loan applicants will help increase transparency regarding the status of an application, there are still ways to boost transparency in the lending process and improve the overall borrower experience.

According to a recent Federal Reserve survey, transparency in the lending process is a problem for borrowers across the board, whether they’ve applied through an online lender, large national bank or a small community bank or credit union. 

Provide Consistency

An Oliver Wyman study also revealed that nearly one-third of borrowers indicate that understanding their loan’s fine print and terms is “frustrating” or “very frustrating.” Given the multiple drivers of the cost of a loan, including interest rate, origination fees, guaranty fees and prepayment penalties, it can be challenging for borrowers to fully comprehend the total cost of the loan.

Beyond finding ways to increase connectivity with borrowers during the lending process through tools like the aforementioned customer portal, financial institutions should ensure the terms of individual offers are clear. This will make it easier to differentiate their offerings from competitors.

Likewise, banks and credit unions can make it easier for borrowers to compare offers from multiple lenders with loan origination systems. Most borrowers consider at least two offers when seeking funds, but often find it difficult to compare the offers since lenders present the terms of the loan differently. For instance, perhaps a consumer applied for a loan through his or her local bank and through an alternative lender. 

By disclosing loan terms clearly and consistently, the bank empowers the consumer to better understand the terms of the loan offer. This also provides the bank an opportunity to highlight the lower rate they can offer compared to the rate offered by the alternative lender.

Aim for Clarity by Using Straight-Forward Terminology

An industry-wide standard for offer presentations would resolve this issue, but for now, individual financial institutions can take steps to avoid jargon and use consistent terminology in their own loan disclosures and provide standard definitions of fees.

reviewing information on tablet with coworker

Beat Competitors to the Win

Financial institutions that do not adapt to the on-demand, digital expectations of today’s consumers by adopting loan origination systems will lose market share to more agile banks, credit unions and alternative lenders. 

As the economy continues to strengthen and interest rates rise, forwardthinking financial institutions will identify ways to efficiently grow their loan portfolios while impressing customers with an optimized lending experience. 

The Time to Adapt Is Now

Initiatives will require effort, but given advancements in current technology, delivering a streamlined and more transparent lending experience at a competitive price point is attainable for institutions of all sizes.

Selecting a loan origination system is one of the most important decisions your financial institution will make.

Learn how to Choose the Right Loan Origination System

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Baker Hill’s sophisticated technology solutions enable banks and credit unions to compete aggressively in today’s complex lending environment. 

We leveraged more than three decades of lending and risk management expertise to build Baker Hill NextGen®, the cloud-based common loan origination and risk management solution built with the latest technology to help financial institutions address regulatory and competitive pressures while delivering the very best digital consumer experience. Our promise is to add value along the entire buyer cycle—from consultative selling to the training and education that helps our clients maximize their investment in technology. That’s why more than 500 banks and credit unions trust the experts at Baker Hill to help them work smarter, make sound credit decisions, and drive more profitable relationships.

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