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Banks Can No Longer Delay Upgrading the Loan Process


In the post crisis period, renewed scrutiny on the banking industry will shape banks’ lending strategies. The Mortgage Reform and Anti-Predatory Lending Act under the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act, requires additional data points to be reported at the time of processing loans. It will add on the processing costs and time for origination systems.

In addition, according to a survey based research released by a financial research firm, Sageworks, more than half of survey respondents were planning to provide significantly more commercial loans in 2011 as compared to last year. As a result, a lot of dynamics will be further added to the lending landscape. Amid increased audit and review activities, manual operations of the lending process will hardly be able to meet the seamless and high quality service-level expectations of today’s retail customers.

While operating manually, lesser accuracy levels will have a negative impact on the financial institution’s competitive position. This will certainly press on the need of technology for handling processes to mitigate any off-putting effect on customers. Banks have thus gained an interest in bringing in automation in the lending process since the past several years, but implementation is expected to pick up in 2011.

Automation is highly desirable at present in the areas of loan collection, modification and credit risk systems. Higher investments in a portfolio of technologies like Data aggregation tools, regulatory compliance and risk management systems, default management solutions, technologies based on analytics that expedite loan processing decisions and so forth are required for streamlining the loan processes.

Although more sophisticated and interactive loan processing systems are available, they are expensive to install. Results of the survey conducted by Lieberman Research Group revealed that a large number of banks and credit unions are evaluating the intelligent applications of online lending technologies and about two-thirds of them are planning to implement them in next two years.

In case firms are not able to handle the burden of higher IT investments, financial services firms are all set to take a new look at outsourcing models. They are leveraging third party service providers, captives or hybrid models for effectiveness gains. According to Everest Group’s study, “Global Lending BPO Across Credit Cards, Consumer Loans and Commercial Loans”, the global lending processes outsourcing market is an over USD 20 billion market, wherein the benefits of outsourcing are not fully being explored. This offers a huge servicing potential for vendor firms.