From loan origination to disbursal, accelerating the lending lifecycle has always been top priority for lenders and borrowers alike. Until recently, manual underwriting was the more prevalent method of loan disbursal. But the evolution of digital technology and advanced automation has changed the game. Modern digital technologies are helping fintech firms better capture and manage client data for more accurate and accelerated decision making.
Traditional banks and financial firms struggle with legacy systems, redundant paperwork, and the resulting operational inefficiencies in the underwriting process. Several lending firms experience anywhere from a few days to several weeks to complete their underwriting process. They seek deeper levels of digital transformation to match the expectations of better customer experience and shortened loan cycles. With the rising need for an automated underwriting system, the lending industry stands at an inflection point where lenders need to re-evaluate their underwriting methods and secure a sustainable competitive advantage.
An automated underwriting solution is based on algorithms rather than human evaluation. Automation eliminates the chance of human error and bias, as well as misinterpretation of loan-related risks. Generating recommendations, analysing criteria for selection, and approving/ rejecting loans becomes easier and faster. RPA, AI/ML, OCR, and NLP are some of the new technologies bringing about a dynamic shift in the way loan approvals and disbursals are taking place, thus delivering several benefits.
Better decision-making
Fact is that robust, well-designed algorithms are unlikely to make errors. Combined with machine learning and quality customer data, automated underwriting will improve decision-making, forecasting, and loan performance.
Enhanced fraud detection
Fraud detection and prevention too is so much more accurate with automation. That’s because the robotic system uses predictive analytics to detect potential risks to loan disbursement and raises red flags where necessary
Better consistency
A huge advantage of automation is that lenders can underwrite, sanction, and document credit while maintaining consistency and standards. They can also personalise their offerings for each customer based on data analytics. Automation also does a better job of scanning and evaluating loan-risk elements linked with policies for making decisions regarding loans that could otherwise be overlooked in manual underwriting.
Reduced paper-based processes
Increasingly redundant paperwork continues to be a bane of the lending industry. A data-driven automated approach saves effort and time related to gathering data on paper. It also reduces imaging expenses, manual handoffs, and human error.
More scalability
Underwriting processes are tedious by nature, and achieving scalability is hard because managing classification, analysis, and extraction needs a thorough understanding of the lending business. With automation, a single underwriting system can handle the entire process with less hassle and at lower costs, and can expand to take on higher volumes of loan applications.
Enhanced customer experience
Automated underwriting offers customers a quick, efficient loan application experience without impacting the lender’s risk tolerance and regulatory compliance.
Higher profits
Automation brings in obvious benefits such as reducing the need for large underwriting teams, lowering operational inefficiencies, shortening loan cycles etc. Such benefits significantly increase a lender’s profitability and help save thousands of dollars.
Once a time-consuming and daunting task for lenders and applicants who relied on traditional methods and other offline sources, loan underwriting is getting an automation-powered facelift. It has gone through many changes and is evolving to meet customers’ expectations in a digital world. Automated underwriting can complete the entire lending workflow, from gathering data from multiple sources to comparing the collected information against third-party data from banks, creditors, lenders, and other financial firms to generate meaningful, actionable reportr. Lending firms world over have already started adopting automation and advanced solutions to streamline their underwriting process. New-age or incumbent, we will continue to see a wider adoption of automation in underwriting by lending firms of all sizes.
Case Study: A large South Asian mortgage lender modernises its digital lending system to target 2X increase in customer engagement.
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