How to make loan servicing more economically effective?

Loan servicing costs are one of the factors that slow down the lending business’s growth and flourishing. One of the primary answers to the question “how to minimize expenses and maximize profits in loan services?” is automation. The word is with us for a long time, but few specialists know exactly what it means when it goes to details. 

Why you need automation? 

Manual and paper-based practices of loan processing lack accuracy, are highly dependent on the human factor, difficult for auditing, and very time-consuming. Automation will help disparate the separate systems and pieces of the legacy software to create a streamlined and reliable data flow and workflow for loan origination and loan servicing. 

How exactly can automation boost the process of loan management or loan servicing, enhance the effectiveness of your lending officers’ performance and fully meet the customer needs? 

3 ways to automate loan servicing and make it more efficient

There are dozens of software applications on the lending market that digitize and automate application and credit scoring, customer onboarding, customer relationship management, and loan servicing as a whole. Thus your financial institution needs to be increasingly mindful of choosing the proper solution in terms of requirements and costs. 

The automation of loan servicing may come with three most popular options:

  • an out-of-the-box lending solution
  • with custom development of a lending platform 
  • or with a valuable combo that takes the advantage of both and offers a configurable lending software tailored to your needs. 

All of them will help to improve the practices in lending, increase the decision speed, overall performance of the team and drive a better customer experience. 

However, with the readymade software lenders won’t be able to highlight their competitive advantages and automate everything they would need to. Just because the functionality is common and hardly configurable. 

This problem can easily be solved with custom development, but few financial institutions are ready to wait for years to launch their newly developed software. 

Perhaps the best way to make a loan servicing most economically effective is to stick to configurable software that combines a pre-developed platform full of basic features with an opportunity to add functionality, integrations, and convenience to deliver a seamless experience for the lender’s team and the end-customer. 

Here are the key areas that have the biggest potential for automation:

  • Customer Management (CRM system in lending)
  • Credit Scoring and Analysis (using traditional and alternative data for scoring)
  • Decisioning and Approval (cases that can be automated with low risk)
  • Disbursements and Collection
  • Risk Management of a Loan Portfolio

A highly functional loan management platform can help automate client management: from gathering financial and other valuable information to creating full customer profiles with statistics and dashboards. It would be extremely hard doing it manually. Fewer typos, duplications, and other problems – here are the main benefits in this area. 

Credit scoring is another manual and redundant task that can be automated. Recently developed AI credit scoring systems can cut time for scoring to minutes. Building risk models requires special skills and a lot of time, so automation can help make loan servicing more economically efficient. 

Decisioning and approval are about collecting the appropriate data, including risks, and informing the end customer about the decision. Automated decision-making in lending is easier than it seems. The effectiveness is close to manual work with every single application. 

Disbursements and Collections need integrations and back-end security for the software development but by automating these processes, lenders reduce human-associated risks and increase the stability of the entire system.

As for the risk management of the loan portfolio, the key concern is that manual loan underwriting makes lenders struggle to check the exposures and the dynamics of these exposures. Automation allows improved data integrity and unbiased data governance. Accurate measurement of a loan portfolio has a substantial direct impact on your financial stability. 

The bottom line

The best recommendation for increasing the economic effectiveness of loan servicing is smart automation. Numerous industries take the benefit of automation, so banking and financial services are no exception. Lenders need to mind the changing landscape of the industry and timely modernize their software, automate the process and benefit from well-established and profitable business models.