In 2023, the FinTech industry is one of the most diverse and fastest-evolving business niches. Everyone has been talking about online banking, mobile payments, and blockchain, but one of the most attractive from the business perspective is loan automation software. Although the concept of software that helps streamline and automate financial business processes is not altogether new, many entrepreneurs are still to make concrete decisions concerning it. This article seeks to highlight the essential features of a profitable automation system and its benefits to a business owner. If you have been thinking about adopting some type of automation software but are still hesitant or need more info, keep reading to make a balanced and informed decision.
What is automation software for the financial industry?
The concept of automation is pretty easy to explain. It means that computers automatically perform various processes that humans typically perform using the parameters set up by humans. Automated processes require little to no human intervention and reduce the pressure on the employee and/or business owner.
Some may assume that the financial sector has too many risks and hidden pitfalls to give away control like that. There are loads of examples of businesses that went down the drain because of one unfortunate mistake. Nevertheless, the fact that one of the first patents for an automated loan processing system was granted in 2002 shows that those fears are simply immaterial. In fact, the size of the digital lending platform market in the US alone is actually skyrocketing!
For almost 20 years now, credit automation software has remained a powerful tool, an ace up the sleeve for alternative lenders helping smaller businesses compete with financial market moguls. So what are the main areas of use? Which processes can be automated? The list includes:
- loan application
- application processing
- loan servicing
- loan underwriting
- risk assessment and management
- payment collection
- collateral management
- reporting
- compliance
It is clear that modern automation software for financial services providers usually comes as a full package, a solution that covers every part of the process. It may help automate literally everything: from the customer’s application to risk ratings and keeping a business compliant. But is every financial automation system the same? Does it mean an entrepreneur can just pick any software provider out there? Not really. A business owner should know what to ask for and be aware of some of the features of every decent automation software.
Vital features of a trustworthy loan automation system
From the get-go, we should mention that when it comes to FinTech solutions, there is no such thing as a universal approach. A “perfect” soft for one company is a malfunctioning disaster for another. For example, some lenders prefer a multi-bureau strategy and benefit significantly from a bureau Integration tool, while others may find it unnecessary.
We will now focus on the critical elements of modern loan automation software.
Responsive and user-friendly interface
Even the most advanced Fintech software adoption is doomed if either the employees or the clients (in our case, borrowers) do not feel comfortable using it. According to a consumer survey carried out by Nomis, ease of application is the second most popular reason to choose a loan vendor. Thus, whether you opt for an out-of-the-box automation system or a customised solution, always pay extra attention to the interface. It should be sleek, intuitive, and mobile-friendly.
Keep in mind that an easy-to-use interface is a logical one. If the new user is able to sail through it, that is the gold right there.
Modular structure
The main point of automation is to save a business owner’s time and funds. It should be as easy as ABC, and cover all processes. To avoid staff being forced to switch between multiple tools several times a day, choose a modular automation software.
This approach is highly beneficial in several cases:
- You have never tried automation software and want to start introducing it only to specific business processes
- You require a scalable solution that will evolve as your business grows
- You do not have the means/vision to implement end-to-end automation at the moment but plan to adopt it in the future
A modular structure turns the software into a construction kit where you can add or remove elements without harming the system in general. It also means that an entrepreneur does not have to spend a fortune on a new automation system when the old one stops meeting the business needs.
Besides that, the modular structure is a cornerstone of Unified Lending Management. It means that the system is able to cover all processes from the time borrowers log into the application for the first time to when they make the last payment.
AI/ML-powered credit scoring and risk management
Credit scoring calculation and risk assessment processes must be fast, precise, and comprehensive. The automation software is effective only if all these conditions are observed.
Why do Artificial Intelligence and Machine Learning have to be involved? Because these two technologies provide the most accurate and quick data analysis. AI/ML-based solutions significantly reduce the risk of inaccurate decision-making. Innovative algorithms analyse thousands of variables simultaneously and identify patterns that are hard to recognise for a human. Consequently, the human error factor is eliminated, and the risk of lending money to the insolvent borrower is lower.
Seamless integration
Even when an entrepreneur introduces an end-to-end automation system, the employees will still have to work with a number of third-party services. The most common examples include:
- data sources (credit reporting bureaus, agencies, etc.)
- CRMs
- payment and e-signature providers
- email and notification services
- accounting software
- analytics solutions
- bank account verification tools
As the number of integrations varies from business to business, there is no universal solution. However, the more options for integration the vendor offers, the more trustworthy it is. A business owner must know which third-party tools the staff uses and seek a system that supports all of them. Otherwise, the efficiency and the quality of the business processes may be compromised.
Business logic adjustments
The lending industry is one of the most complex businesses to establish and manage. No wonder there is a wide variety of options and models when it comes to business logic and workflow.
That is exactly why the business logic adjustment feature is vital for any entrepreneur. Suppose a chosen system does not allow changes in this area. In that case, the business owner is forced either to adjust the business logic to fit the software’s capacity or look for other vendors.
In this regard, the most effective solution will be opting for a custom loan automation system. Bespoke software is always created with specific business needs in mind and fits the business logic perfectly. However, if investment in a custom solution is not an option for your business, take a little more time to find the perfect fit. Considering the growing number of FinTech software providers, this is definitely possible.
Multilevel security
Any company providing financial services is compelled to take extra security measures on so many levels. Therefore, a wide variety of security features should be something to look for in a perfect automation system.
The most common components include:
- User permissions system
- Adjustable password strength
- Two-factor authentication
- Protection against the most common cyberattack types (SQL injections, Phishing, DNS tunneling, XSS, etc.)
- Passwords encryption
- Using HTTPS protocol to send sensitive info to the servers
What are the benefits of automation software?
Now that you have gone through an overview of the essential features of an automation system, it is time to cover another important topic: What are the benefits from the business perspective? Luckily, there is plenty of advantages that make the automation trend something that will be with us for quite a while.
Save time & costs
This perk is so valuable that for many businesses, it is all that matters. If implemented correctly, automation results in impressive time and budget savings. But how exactly does it work? Several aspects help companies cut costs.
- Reduced manual workforce
- Minimised paperwork and paper costs
- Exclusion of duplication of effort
- Instant report generation
- Simplified data management (analytics, visualisation, extraction, etc.)
- Quick and precise data processing
Using modern software, you can generate all kinds of statements, reports, and invoices in a matter of seconds. You can assign various time-consuming, mundane tasks like sending notifications or data analysis to a machine and let staff deal with more complex cases that require direct human intervention.
Streamline the decision-making process
There is no doubt that even the most advanced artificial intelligence cannot outsmart humans. However, it can offer complex, accurate, and impartial analysis. The software does not have bad days. It is never tired and does not make human mistakes. The system carefully inspects information from different sources and presents it in a clear, coherent way. Therefore, decision-makers always have a factual base supporting them. This makes the whole process less time-consuming and more effective.
Improve client interactions
Client retention rate is one of the most important KPIs in the lending business. And the adoption of automation software could improve it. Lending automation software is just as necessary for borrowers as it is for the loan originating entity. Customers receive quicker decisions and faster access to funds. The interaction process becomes more accessible and less stressful. Consequently, both the client retention rate and the brand value keep growing.
Accelerate data collection & processing
Financial start-ups and smaller companies often overlook this aspect as, up to a point, the human brain can work with various data pretty effectively. But as the business evolves, it becomes increasingly harder to process information from different sources and not make a mistake.
Computers gather, process, and organise data faster and better than humans, especially when there is the need to work with thousands of applications simultaneously. Fewer calculation errors, delays, and burnouts are a great bonus for any business.
Mitigate risks
Dealing with bad debts is a cross every lender has to bear. Introducing automation software will not cancel those out completely, but will help a business owner mitigate risks and adapt to everchanging market conditions.
Automation makes the workflow more flexible, therefore adaptable to regulation updates. Sensitive information is well-protected and the risk of breaches is minimised. A comprehensive overview of the client’s financial background can be determined instantly. Accordingly, the company is able to reduce its number of potentially bad debts, prevent payment delays and past-due loans, ensure compliance, and guarantee top security.
Access new customer demographics
By the end of the decade, two generations will hold the most considerable portion of the disposable wealth: Millennials, and Gen Z. These demographic groups grew up with technology and form the primary target audience for FinTech companies.
If we consider automation as a certain digital filter, a necessary tool for digital transformation in the banking and lending industries, then companies willing to adopt it have a greater chance of attracting new customers. What is more important – young borrowers are more likely to actively use lending services over the next 20-40 years.
Final words
Automation in lending is something a business owner cannot ignore in 2023. It often drastically changes business processes, but also brings many benefits along the way. It is not exactly an easy or fast process, and an entrepreneur might feel overwhelmed with hundreds of offers, vendors, and solutions on the market.
With over 15 years of experience and 500+ projects under the belt, Light is always ready to provide you with comprehensive advice, estimation, and an action plan tailored to your business needs. If automation software for the lending industry is something you are potentially interested in, do not hesitate to contact us and claim your free consultation! It is time for you to reap the benefits of automation!
