How to process loan applications automatically and approve more of the right loans faster

Consumers choose speed and convenience over price, even when it comes to their finances. That’s why successful lenders strive to deliver instant approvals, and 1-day funds transfers. They’re training borrowers to expect quick action with every application. Can your lending operation approve loans at warp speed, without sacrificing credit quality?

According to a PACE Insights report, borrowers say they’re frustrated with an application review process that crawls along, compared to other purchase and transactional experiences. They go on to say that their top three decision criteria when choosing a lender are speed, convenience, and reliability. Did you notice that speed is at the top of the list, and low price isn’t even on the list? This could prove to be a good challenge for the lending community. 

Give borrower what they need

When a consumer needs extra cash, or a business needs more working capital, they become credit hungry. This term is not an exaggeration. These potential borrowers can sometimes feel physical discomfort until their financial needs have been resolved, which explains why they focus on speed instead of price. They’ll close with the lender who delivers the fastest approval, not the lowest interest rate. 

In our hyper-competitive marketplace, one of the most important predictors of lender performance is time-to-funding. This is the time between application submission and access to funds. Successful lenders consistently deliver approvals in hours, and funds within a few days. In fact, several digital lenders promote their products, by promising 1-day and 2-day time-to-funding in their advertising headlines. 

How do lenders adjust to this new norm, where time-to-funding has been reduced to a single day? You could throw more people at the problem, but more hands won’t speed up the process. The only way to deliver account approvals at this pace is to automate your application review process with technology platforms, automated systems software, and advanced credit scoring software. 

It may sound like a big investment, but these FinTech systems deliver several benefits that work to improve portfolio profitability:

• approve applications faster
• create process efficiencies
• reduce manpower
• lower operating costs
• increase the number of booked accounts
• decrease the cost per booked account
• improve risk profile
• improve portfolio yield. 

Now may be a good time to invest in a cost / benefit analysis that will quantify the impact of automation technology and advanced credit scoring software on your loan portfolio. 

Balance approval speed with credit risk 

The primary goal for every lender is to maximize their portfolio yield. So it’s important to understand how small changes to the origination or account management processes could potentially increase the risk profile and reduce returns. 

Historically, lenders have equated decision speed with credit risk. The faster the approval, the higher the risk. That’s because they were gaining time by cutting corners. Credit decision software has changed this equation. Today’s lenders can control credit risk, without slowing down the process, by leveraging a fully managed LaaS platform. 

The TurnKey Lender platform leverages traditional and non-traditional credit scoring combined with machine learning to constantly refine the credit scorecard. Our clients enjoy a faster approval process that delivers more new accounts, all accurately priced to maintain and improve portfolio yield. 

Best practices for faster applications processing

Let’s look at some of the ways lenders pick up the pace when it comes to the application approval process. At TurnKey Lender we monitor best practices used by digital lenders, alternative funders, and online banks. In addition, we like to keep an eye on the e-commerce industry. This group of online sellers is on the leading edge of conversion rate optimization (CRO). And quite a few of their conversion rate techniques are applicable to the lending industry.

1. Attract the right prospects

Start by reviewing your prospecting strategy, search engine optimization (SEO) tactics, and advertising messages. You want to make sure you’re targeting the prospect audience that is searching for the type of loan you offer, and is likely to pass through your credit screens. Even the most sophisticated lending platform won’t be able to convert the wrong target audience.

2. Optimize your digital processes 

A recent study shows the negative impact of slow technology: 

• 79% of participants hesitate to complete a transaction on a lackluster website.
• 50% click to a competitor’s website when load-time exceeds 3.0 seconds. 

We believe these behaviors are due to subconscious assumptions made by consumers. They translate cutting edge functionality to cutting edge cybersecurity, cutting edge products, and cutting edge customer service. On the other hand, dated functionality and slow manual processes makes them question the quality of all three.

On the positive side e-commerce websites increased their completed transactions by 7%-12% when load-time was reduced by 1.0 second. 

It’s a good idea to audit your system on a regular basis. You want to make sure every individual link in the application path is optimized and cybersecure. 

The digital processes checklist should include:

• traffic driving ads and blog posts 
• landing pages
• website pages
• application forms
• call center systems
• onboarding processes
• account communications.

3. Optimize the application path

Work with user experience (UX) professionals to cut down the borrower path to the minimum number of steps, and the minimum amount of information you need to make a good credit decision. Audit the path and reduce any friction. It’s the enemy of speed. Any extraneous steps, or nice to have information fields, will slow down the process and lose good accounts to the competition. There will be plenty of opportunity to capture additional borrower information, to support upsell and cross-sell campaigns, as you nurture a relationship with your new account holder.

The application path checklist should include:

• Minimize the number of steps in the process, and the number of information fields on a form. 
• Implement an omni-channel system that integrates desktop and mobile devices, so your prospect can start an application on one device and complete the application on another device. 
• Include red box tactics that force applicants to complete every field before moving forward. 
• Implement an auto-save function to make the process easier for an applicant who starts an application, and returns later to complete the form.
• Integrate the account approval process with your onboarding process for a seamless borrower experience. 
• Incorporate a debit card into your product features. Then use the debit card payment system to provide instant access to funds. This process could save 1-2 business days, compared to the ACH clearing system.

4. Encourage applicants to do their part

Consumers are demanding faster approvals, but they’re willing to do their part. They search online for articles about the loan origination and underwriting process, because they want to proactively participate. 

Your marketing team should post informational articles on your website blog as part of a content marketing strategy. Include topics designed to help prospects complete their application more efficiently. Start by outlining the steps in the process, and tell your readers the data they’ll need to input during each step. Include a list of all the supporting documents they’ll need to attach to the completed application form. 

One of the benefits of content marketing in the digital age is that the information seeker can move from the blog article to the loan application with one click. The article content has already established your credibility, which increases the likelihood that they’ll complete your loan application instead of checking out the competition.

5. Automate manual identity verification processes

According to a recent article in Finovate, at least half of the origination budget gets eaten up by manual processing for identity verification and anti-money laundering programs.

An automated application review system can replace manual procedures, increasing operational efficiencies and reducing costs. TurnKey Lender comes pre-programmed with regulatory compliance rules (like GDPR) specific to your local jurisdiction, and it’s compatible with add-on regulatory technology (RegTech) software packages that automate identity verification.

6. Leverage lending technology platforms

Today it’s easier than ever for digital lenders, alternative funders, local banks, and credit unions to replace manual processes and outdated technology with a comprehensive, fully managed LaaS platform. These turnkey solutions use sophisticated automation software to review applications faster, and to make more accurate credit decisions. Your lending operation will originate more loans, reduce operating expenses, and increase yield by booking more profitable loans at an individual account level.

A superior LaaS program will include these service features: 

• automated origination and account servicing processes
• credit review via traditional bureau data, alternative bureau data, and proprietary scoring models 
• leading edge cybersecurity 
• regulatory compliant processes 
• digital money transfers for account funding and monthly payments
• omni-channel customer communications options
• consolidated cross-platform reports. 

The operating platform will include advanced functionality: 

• cloud-based system (easy to deploy, easy for your team to master)
• rules-based processes customizable for individual lender requirements
• outstanding technical and customer service support.

Loan processing steps from application to approval

Lending, whether it’s for mortgages, personal loans, or business financing, involves several intricate steps. Traditionally, this process could be arduous and time-consuming. However, with the advent of digital solutions, the journey from application to approval has become more efficient and customer-centric. 

1. Application and Prequalification 

The journey begins with the loan application. Borrowers provide their personal and financial information, and lenders assess their creditworthiness. Prequalification, which is often automated through software, helps borrowers understand their eligibility and potential loan terms. 

2. Documentation Collection 

Once prequalified, borrowers need to submit their documentation. This includes proof of income, identification, and other necessary documents. Automation in document collection ensures accuracy and expedites the process. 

3. Credit Analysis 

Lenders analyze the borrower’s credit history and score to determine their creditworthiness. Advanced algorithms and machine learning are employed to assess risk and provide more accurate lending decisions. 

4. Underwriting 

Underwriters evaluate the borrower’s financial profile and the loan’s risk. Automated underwriting systems use data analysis to make consistent and objective decisions. 

5. Approval and Funding 

Once the loan is approved, the lender proceeds to fund the borrower. Automation expedites this step by facilitating secure and swift fund transfers.

Let’s break down the three key parts of the consumer loan application and approval process and how it works in TurnKey Lender. 

1. Loan application process
2. Credit decision engine configuration
3. Loan underwriting process. 

Loan application process with TurnKey Lender

TurnKey Lender comes with both a sophisticated back and front-end built-in. The borrower portal and separate workplaces for employees check off all the boxes of what the lender and borrower need for a smooth digital lending experience.

TurnKey Lender lets businesses provide borrowers with a 1-minute loan application process. 

The first step of the loan application process is the loan terms selection.

1. By default, the loan terms selection is where the borrower chooses the loan type and specifies the basics of their financial needs. At a glance, the borrower can see the calculations for their loan. Default TurnKey Lender functionality also allows businesses to offer promo codes for custom terms and special offers.
   
2. For the second step, the borrower needs to create an account that the loan application will be connected to. The system needs their email to confirm they are a real user and not a robot. The customer can easily use Google or Facebook authorization if the business allows this form of authentication verification.
3. The third step is the final and the most important one in this process. The vast majority of financial institutions still rely on manual labor to rekey the application data or pass it between departments.  This is not the case with TurnKey Lender.The data entered in the application form will be analyzed by the TurnKey Lender Decision Engine. This Decision Engine applies deep neural networks and machine learning to determine the creditworthiness of this particular borrower and the risk group they belong to. A business can customize the loan application form, scorecard, and the decision rules to make sure the criteria for reliable borrowers is met and exceeded. 

Once the borrower fills in all the required fields, they need to accept the disclaimer(s) which a business can create in the TurnKey Lender portal and then submit their application.

That’s it! The System will automatically fill the borrower profile with their data and show them the current status of their application. 

Borrowers have come to expect intuitive online interfaces from their service providers. If you choose TurnKey Lender, you’re providing your customers exceed the expectations of your customers. 

Credit decision engine configuration in TurnKey Lender 

Now, here’s the step-by-step process of adjusting the credit decisioning rules in your TurnKey Lender portal.

In order to access and edit the decisioning rules, navigate to System -> Decision Rules. Here you can disable or enable separate rules by clicking the checkbox next to each rule. 

The three default behaviors for matching each rule are as follows:

• Refer – Pass the application along to the Underwriting Officer. 
• Reject – The loan application is rejected. 
• Do Nothing – No actions are taken on the loan application. 

The credit decisioning rules are divided into several categories:

• Anti-fraud Rules
• Credit Policy Rules
• Internal Rules
• Alternative Rules

Let’s go over each category in more detail.

Anti-fraud Rules

This is a basic list of rules that compare the borrower’s data against the internal and external databases. 

• Open Sanctions Database – TurnKey Lender runs borrower data through the international open sanction lists to make sure you avoid doing business with dangerous people. 
• Blacklisted – Runs the borrower and application data against the internal blacklists. 
• Identical Phone Numbers – Checks if borrowers with identical phones exist in the System. 
• Mobile Phone Number – Checks if the borrower’s mobile phone number has already been used by another user.
• Suspicious Age – Specify the age you may consider suspicious. 
• Suspicious Phone Number – Searches for borrower’s phones in the list of suspicious phone numbers.
• Driver’s License – Checks the uniqueness of the driver’s ID.
• Minimal Age – Specify the minimum age you are willing to work with. 
• SSN – Checks the borrower’s SSN against your database. 

Credit Policy Rules

The credit policy rules check the borrower’s sources of income, financial stability, and residence. 

• Employment – Check the borrower’s official employment.
• Residence At The Registration Address – Specify the time you prefer borrowers to have lived in the place of residence. 
• Net Income – Specify the acceptable lower income limit. 
• Loan To Income – Specify the acceptable loan to income ratio. 

Internal Rules

A few more rules check the number and quality of loans the borrower has in the System. 

• Number of Active Loans – Specify the number of active loans you consider to be acceptable for a borrower. 
• Delinquency Check – Check the minor and major delinquency rates you consider acceptable. 

Alternative Rules

Alternative rules check borrower’s psychometric and behavioral factors. 

• Application Details Pasted From The Clipboard – Checks if the data was pasted into the application form from the clipboard.
• Replacement Of Attachments – Checks the number of times the borrower has replaced the attachments. 
• Suspected Copy/Paste From Filling or Abnormally Fast Typing – Checks if the application was filled too fast to be filled manually. 
• Suspected Irresponsible Behavior – Checks if the maximum loan term and loan amount were specified too quickly. 
• Too Doubtful About The Loan Term – Checks the number of times the loan term has been changed. 

Click Save Changes once you are happy with the decision rules settings. The changes will be applied to all the loans originated from that point forward. 

Multiple Credit Products

TurnKey Lender also allows for offering different types of loans (e.g. personal and mortgage) if your lending operation needs to. This is achieved with the help of several sets of decision rules and scorecards built-in within the System.

Each tab contains a separate set of decisioning rules to make sure you have a flexible business flow that covers all your digital lending needs.

How to Make Decisions on Loan Applications with TurnKey Lender

Loan underwriting process in TurnKey Lender

And here’s how this looks for the underwriter reviewing an application within TurnKey Lender on the decision-making stage of a loan application.

First, select the loan application you’d like to work on and assign it to yourself.  Its details will be displayed on the right-hand side with the following tabs:

• The Summary tab contains the general information on the borrower’s current loan, previous loans, and the general information received from the credit bureau.                                                                                                                                                                                                                                                                                   
  
• Risk score.  After the loan application has been submitted, the System automatically calculates the score and verifies a borrower’s data according to decision rules and displays the following determined parameters:
  • The Risk levels
  • The system decision based on the scoring results
  • The odds of offering a loan (i.e. Good or Bad)
  • The probability of default

The comments on the decision are displayed in the decision comments area inside the System.

In the “matched decision rules” field, if the borrower’s information matches at least 1 decision rule the results from processing borrower’s data under pre-defined decision rules are displayed.

• In the “Customer Rating” tab, the System uses available data to gauge if the borrower matches your optimal target audience profile.
• The “Customer Details” tab contains the borrower’s application data.
• Instantly get in touch with the borrower to clarify any details with the information provided in the “Contacts” tab.                                                                                  
• The “Documents” tab displays the loan agreement automatically attached to the loan application as well as any other documents the borrower or lender’s staff have added.
• The “Credit history” tab contains information about the loans the borrower may have previously had.                                                                                                        
  
• The “Schedule” tab contains the automatically generated payment schedule that is comprised of the following information:
  • When the payments are due
  • The principal
  • The interest
  • And a borrower’s total payment amount for each installment     
• If the System is integrated with a local credit bureau, then the “Credit Bureau” tab will show a complete report that has been automatically retrieved from the credit bureau. 

• Any changes in the loan status can be checked in the “Workflow” tab.

Once the loan application has been processed, the underwriter can either reject, send for reprocessing or approve the loan by clicking the corresponding button at the top of the application. 

If the approved loan is non-collateral, the application is submitted to the Loan Manager working in the “Servicing” workplace. If it’s a collateral loan, the application will be moved to a dedicated workplace where the Collateral Officer conducts further processing. The Servicing Officer will be able to disburse funds with a few clicks of a button from the “Servicing” workplace.  Or you can set the System to automatically disburse approved loans. 

Next Steps

In a consumer marketplace where borrowers choose speed and convenience over APR, your lending operation must be positioned to deliver instant approvals, and 1-day funds transfer. 

One of the best ways to deploy an advanced automation and credit scoring system is to leverage LaaS technology. These fully managed, cloud-based lending platforms use state-of-the-art technology that’s continually upgraded. The credit decision software integrates traditional credit data, alternative credit data, and machine learning that supports your ability to approve more credit-worthy applicants, even those with thin credit files.