Lending process automation is especially valuable for financial institutions in the modern lending industry. With custom software solutions, organizations can benefit from faster loan processing, better risk assessment and loan decisioning, as well as improved customer satisfaction. 

Implementation of  automated loan processing systems help lending institutions reduce human errors and operational costs, while meeting industry regulations. In this guide, we’ll look closer at the loan lending processes and ways how automated loan solutions can improve operational efficiency and streamline the loan processing. 

What is Automated Loan Processing?

Before discussing automated loan processing, it makes sense to understand what credit & loan processes are.

A loan application involves a series of steps that a client must go through before receiving loan approval. The entire loan and credit process, from application to signing, is called the loan origination process and includes several stages, encompassing loan underwriting immediately after application and decisioning to assess creditworthiness.

The lending process journey looks as follows:

  • Credit & Loan Origination. This stage includes several steps from the moment borrowers submit loan applications until the loan amount is disbursed. Then evaluations and loan approvals take place, considering accounts and compliance with regulatory requirements.

  • Credit & Loan Underwriting. The underwriting process allows financial institutions to conduct a comprehensive analysis and verification of information for risk assessment, which is critical for informed lending decisions.

  • Credit & Loan Decisioning. After establishing the eligibility of applicants for credit products, financial institutions can make loan decisions. This process includes analysis of the borrower's credit score, history, income, debts, etc. At this stage, organizations need to find a balance between risk management and customer satisfaction.

So, what is loan processing automation? Briefly, loan automation allows for more accurate and faster processing of borrower data. While traditional loan lending workflows involve multiple people and several hours of work to do everything manually, intelligent automation handles the task in just a few minutes.

Implementing solutions to automate loan processing significantly increases operational efficiency and guarantees auditability and transparency of the entire process, including automated underwriting, loan applications, loan origination, and payments. Additionally, financial institutions can benefit from real-time insights regarding their processes by integrating automated systems, thereby optimizing their lending operations and improving customer satisfaction accordingly.

How Does Loan Automation Work?

Software for loan process automation typically includes the following technologies:

  • Robotic Process Automation (RPA)

  • Artificial Intelligence (AI) & Machine Learning (ML)

  • Business Process Management (BPM)

  • Integrations & APIs

  • Data Aggregation 

  • Data Analytics & Reporting  

Such solutions allow financial institutions to configure custom workflows and optimize lending operations through loan automation, especially for tasks that are time-consuming and error-prone. Additionally, automation enables lenders to choose which specific parts of the lending process they want to automate, allowing them to use software to address their specific needs.

Automated systems work in such a way that they combine multiple steps typically performed by several departments into one cohesive workflow. With such a centralized dashboard, institutions can easily automate loan processes. Furthermore, automation has a positive effect when it comes to interaction with customer service agents, compliance officers, as well as financial and loan officers.

Automated credit & loan systems change various business processes, including:

  • Report Generation. Process automation software can automatically generate and send reports regarding performance, allowing teams to more accurately and efficiently identify areas for improvement and opportunities, as well as measure results.

  • Customer Service. With AI-based chatbots, the system can respond to customer inquiries and even handle more complex requests, providing self-service options that significantly enhance the customer experience by allowing users to independently update information, check the status of their loan applications, or submit e-signatures.

  • Document Indexing. Automated solutions can directly extract data from documents and send it to systems, indexing all critical information and providing access to it for appropriate parties.

Importance of Loan Processing Automation

Traditional loan origination processes and workflows typically involve extensive paperwork and manual data entry, which can cause backlogs and require significant time and effort from employees. Additionally, the traditional approach provides a poor customer experience since it slows down the entire loan application process.

At the same time, a decision to automate loan workflows allows institutions to streamline many processes and optimize each stage of loan origination, accelerating lending decisions while reducing risks and ensuring compliance with lending industry requirements.

Since the loan application process is often complex and time-consuming due to possible inconsistencies, it's essential for lenders to implement new technology both to remain competitive and to improve service quality for customers. Among the valuable benefits of automated loan processing is that it allows borrowers to access services anytime, anywhere.

So, why are automated loan workflows important? Here are some of the advantages of process automation institutions are looking for: 

Client Expectations

Loan origination automation is what many borrowers now expect. Beyond providing a faster and easier process, automation can offer clients a more personalized approach, thereby increasing their satisfaction.

Competitive Advantage

Implementing automated loan origination software and innovative tools is a necessity in today's lending industry. New approaches not only make loans more accessible but also ensure increased process speed, which is a crucial aspect for lending institutions to remain competitive.

Cost Reduction

Since process automation minimizes manual data entry and time-consuming repetitive tasks, lenders can streamline the entire loan origination process and direct resources to higher-priority tasks that require human intelligence. This approach allows for cost optimization, which is a valuable advantage of automated credit and loan systems for organizations.

Risk Management

Automated loan decisioning solutions allow institutions to conduct more accurate risk assessments, thereby helping maintain the quality of their loan portfolio. With automated loan origination processes, organizations can provide better services through a sustainable business model with improved efficiency, as well as higher profitability and lower impact of workflow deviations.

Benefits of Automated Loan Processing Systems

There is a number of benefits of loan origination automation for both lenders and borrowers: 

Accurate Credit Risk Assessment

With loan processing automation software, institutions can make data-driven decisions using up-to-date and accurate information, while benefiting from automated risk assessment for more precise calculations.

Reduced Complexity

Automation solutions streamline the loan origination process by eliminating redundancies and automating repetitive routine tasks. Additionally, this approach helps minimize errors and accelerate loan application processing.

Increased Efficiency

With loan origination process automation, lenders can significantly improve operational efficiency largely due to the elimination of redundant and time-consuming processes. Additionally, such software facilitates more accurate processes, ensuring a better customer experience and allowing institutions to process more loans to drive revenue.

Employee Satisfaction

Employees also benefit from loan origination automation as it reduces workload while promoting data-driven decisions and accelerating processes, positively impacting productivity and satisfaction.

Well-defined Workflows

With custom automation solutions, lenders can optimize workflows, prevent deviations, and improve their loan origination process.

Higher Productivity

Since implementing an automated loan origination system means less need for human intervention, lending institutions gain a valuable tool for increasing their productivity while providing faster and higher quality service.

Customer Satisfaction

With features like automated onboarding to make the loan application process easier, and delivery of more personalized experiences, loan origination process automation allows for significantly improved customer satisfaction.

Regulatory Compliance

As lenders are part of the financial industry, compliance is critical. By choosing to automate loan processes, organizations can enhance transparency through streamlined processes and implement necessary changes, which is especially valuable given the ever-evolving nature of industry legislation.

Improved Visibility

The traditional approach to loan origination often involves using separate systems for different products and loans. Automation solves this problem by providing a more holistic view of the process and increased end-to-end visibility.

Reduced Human Intervention

With automation of manual tasks, from document verification to financial data assessment and decision-making, employees gain time to focus on more complex and priority tasks.

Enhanced Decision-making

Automated credit decisioning software can quickly and accurately analyze large volumes of data, providing institutions with the valuable advantage of informed decision-making.

Fewer Errors

Since loan origination automation simplifies processes and provides capabilities for monitoring applications and accurate document review, the number of errors that could occur in the traditional approach is noticeably reduced.

Explore The Benefits Of Automated Loan Processing With Jappware! Reach Out To Us And Enjoy Streamlined Workflows & Increased Performance

Challenges of Loan Automation Processing

Despite many benefits, there are several challenges that lending institutions should consider when implementing an automated loan origination system.

Data Accuracy

Ensuring the accuracy of incoming data is crucial when it comes to loan origination automation. Some organizations may face the challenge of incomplete applications where customers might skip critical fields or provide inaccurate information. 

Document verification also presents a challenge, as automated recognition systems might occasionally miss fraudulent documents or incorrectly read information from poor quality documents. Another issue is the inconsistency of data from different sources. 

All these aspects require the development of comprehensive verification systems and decision-making processes when discrepancies are detected.

Creditworthiness Assessment Complexity

Automated assessment of borrower creditworthiness requires consideration of multiple factors such as income, credit history, current debt burden, employment history, and other parameters. Special challenges arise with non-standard cases, for example, when evaluating self-employed individuals or clients with irregular income. 

Scoring models must constantly adapt to economic changes (inflation, unemployment, market fluctuations, etc.), as these can significantly impact borrowers' ability to pay. Therefore, institutions need to regularly adjust their models for macroeconomic indicators to maintain accurate risk assessment.

Technical Challenges

Implementing solutions for automated origination processes can often be complicated by the need to integrate with legacy banking systems running on old technologies. Therefore, it's crucial to ensure uninterrupted system operation with high performance and protection against failures. 

Special attention must also be paid to cybersecurity aspects such as protection against hacking, data breaches, and fraud. As loan applications volume grows, the system should scale easily without performance loss. Organizations also need to provide a user-friendly interface for both customers and bank employees to offer a pleasant user experience and satisfaction.

Regulatory Compliance

When deciding to automate loan processing, institutions must strictly comply with regulatory requirements and local legislation. This includes adherence to personal data protection standards, decision-making transparency requirements, anti-money laundering rules, etc. 

Moreover, special attention is paid to consumer rights protection and ensuring equal access to loan and credit products. Thus, systems must automatically track legislative changes and adapt to new requirements. It's also essential to provide the ability to audit all system decisions and actions.

Human Factor

Implementing automation in loan processing may sometimes face resistance from employees who fear job loss or changes to familiar processes. Institutions need to carefully work on staff retraining and adaptation to new technologies. It's worth finding the right balance between automation and human involvement, as some situations require individual approach and cannot be fully automated. It's also necessary to provide system user support and prompt resolution of emerging issues.

Finally, customers themselves might sometimes be unhappy with automation due to the introduction of new features that may be complex or unclear to them, such as self-service portals. Therefore, lending institutions should also focus on creating educational content for customers designed to help them understand the new features.

Implementation of a Loan Automation Processing System

Implementation of software for automating loan origination processes involves several stages. Although the number of stages may vary depending on the goals and needs of a specific lending institution, there are typically several common steps. These include:

Planning & Goal Setting

The first step is to identify the main areas of loan processing that are most suitable for automation, typically tasks that are repetitive or prone to human error. 

Understanding the direction, institutions should set clear goals based on their needs. This could include accelerating processing times and improving accuracy of results, as well as enhancing customer experience and satisfaction.

For example, automated systems are extremely useful in onboarding and pre-qualification stages, when borrowers enter their data regarding personal information, employment, loan preferences, etc. Implementing such solutions helps speed up and simplify these tasks for clients by providing intuitive online forms or self-service portals. Additionally, these automation solutions can include built-in tools for real-time validation rules and checks to ensure that user-entered data is full and correct. Then, the system gives quick pre-qualification results based on pre-established parameters, allowing borrowers to instantly receive information regarding their eligibility, loan amount, and loan servicing.

Technology Selection

The next step is choosing and adopting the right technologies. Here it's worth paying special attention to both your goals and existing systems. Lack of alignment between technologies and your systems' capabilities can lead to several problems that will require additional efforts to overcome.

Most often, institutions prefer these technologies:

  • Artificial Intelligence and Machine Learning for loan processing

  • Robotic Process Automation for performing routine and repetitive tasks

  • Blockchain for security and transparency of records

  • Cloud solutions for increasing system scalability and flexibility

Management & Analytics

One of the key stages of automation is data analysis and management. Institutions must ensure their systems are robust enough for secure collection, storage, and analysis of data.

Data automation allows for more accurate decision-making, as well as offering personalized services and meeting regulatory requirements.

Workflow Automation

The first thing to do to ensure workflow automation is mapping out existing processes and identifying bottlenecks. In this case, the best solution would be implementing Business Process Management solutions that allow streamlining a wide range of operations from loan application intake and evaluation to account setup and notifications.

Regulatory Compliance

Integrating automated software into loan processing not only ensures compliance with standards and rules but also reduces chances of non-compliance, which is critical for financial institutions, as finding discrepancies during audits can result in severe penalties and loss of company reputation.

Automated systems must also include robust security measures to protect sensitive data, most commonly these are encryption, access controls functions, and regular security audits.

Staff Training

Automation means new approaches and processes. Thus, among the key stages of implementing automated solutions is training staff to use and interact with new systems to minimize disruption and errors. It's also worth emphasizing that automation is more about expanding capabilities and handling repetitive tasks, rather than replacing people, as solving more complex tasks requires human intelligence.

Scaling & Adaptation

Institutions should continuously monitor the performance of automated loan processing systems and gather customer feedback. This is necessary to respond timely to changes, meet customer expectations, and expand the system with new capabilities as needed and as the institution grows. Therefore, it's essential for lenders to partner with a reliable development company that will provide an infrastructure for further scaling.

Our Case Studies 

We are a custom lending software development company that collaborates with various institutions, providing solutions tailored to their specific needs and objectives.

Our case studies where our solutions have made significant impacts include Lending Score, a startup company that offers services for Mortgage Brokers, Lenders, and Conveyancers, transforming the mortgage application process, as well as our collaboration with a team of mortgage industry experts who were honored as finalists at the prestigious British Mortgage Awards in 2020.

In the first case, Lending Score faced the following challenges:

  • Eligibility checks that required a vast amount of manual work and time

  • Low call conversion and insufficient competitive advantages

  • Pre-application eligibility (customers needed a tool to determine the likelihood of their mortgage being approved before applying)

  • Insufficient applications processing capacity

  • Too many complex bank product rules leading to wrong advice and decisions

  • Excessive paperwork on the client side

To address these challenges, our team built a fintech solution for mortgage eligibility from scratch and put valuable business ideas on the table, which helped increase the client's conversion rate. Additionally, the system became a technical foundation for new projects. Jappware's team designed a robust, flexible, secure microservices-based financial system that can analyze financial and credit history, including different payment circumstances against the criteria of several bank lenders, helping clients find the best mortgage deals. We also implemented a security framework to protect sensitive data that is accessible only to authorized parties.

In the case of the team of mortgage industry experts, they needed solutions for the following challenges:

  • Reducing manual and time-consuming work when collecting, analyzing, and processing bank statements

  • High risk of making mistakes and creating inefficient mortgage or remortgage plans

  • Low performance due to complex and dynamic bank rules

  • Irrelevant information cluttering financial statements

Our team successfully delivered a fully operational MVP, ensuring a flexible solution architecture that allows easy integration of new features, enabling the client to respond more effectively to evolving market demands and opportunities. Jappware solved the client's problems by implementing custom solutions for:

  • Integrations to generate several types of bank statements

  • Document management to ensure data integrity and create tamper-proof documents

  • Security to grant rapid access and high data protection with encrypted in-memory storage

  • Infrastructure to ensure business continuity and smooth delivery of new features

  • Life-cycle management, business analysis, project management, and delivery process

Contact us today to learn more about automation and custom solutions in the lending industry and discuss your ideas and needs.