Build or Buy: Choosing the Right Approach to Loan Management Software

Explore the pros and cons of building or buying loan management software (including a hybrid approach) from an executive’s perspective. Learn from real-world examples and expert insights to make the right choice for your business.

A Word from Turnkey Lender Co-founder

“The decision to upgrade your lending business with automation software gives a clear sign that you prioritize convenience for your customers and efficiency in your operations.

It also means you care about adapting to the evolving financial landscape. 

Now you stand before the choice whether to develop this solution in-house, work with a vendor, or a combination of both.

Choosing between building or buying can determine the success or failure of the entire project. The wrong path can lead to wasted resources, delayed implementation, or a system that doesn’t fit your needs.  

Rest assured, there’s no room for indecision. The right choice depends on the nature of your business and your unique requirements.  

In this guide, we will show you the pros and cons of each approach, pose essential questions, highlight key factors, and help you make the best decision for your business.”

– Dmytro Voronenko, Co-Founder at TurnKey Lender 

What Does This Guide on Building or Buying a Loan Management Software Entail?

1. What exactly is loan management software, and why should you care?

Dive into the fundamentals of loan automation. Discover why it’s becoming a game-changer in the financial industry. Learn how automation can reduce processing costs by up to 70% and why industry leaders predict 90% of finance-related analytics will be automated by 2027.  

2. Buying loan management software: advantages and who it’s for

Explore why purchasing an off-the-shelf solution could be your smartest move. Through real-world success stories from Globe Telecom and National Iron Bank, see how buying a loan automation solution can speed up your time to market and provide immediate ROI.  

3. Building loan management software: advantages and who it’s for

Is custom development the right path for your unique business needs? Uncover the compelling reasons why some organizations choose to build their own loan automation software. Learn the critical success factors and potential pitfalls that could make or break your custom development project. Essential reading for companies considering in-house development. 

4. Considerations on building vs buying a loan management software from TurnKey Lender’s Co-founder

Get insights from Dmytro Voronenko, TurnKey Lender’s Co-Founder, with over two decades of fintech experience. Learn from the cautionary tale of Goldman Sachs’ Marcus project and understand why even industry giants can stumble in their automation journey. This part offers an executive-level perspective on avoiding common pitfalls in the decision-making process.

5. Combining buy and build: the hybrid approach to loan management software

Discover how to get the best of both worlds by combining pre-built solutions with custom development. Learn how this strategic approach can offer both rapid deployment and unique competitive advantages. Explore a practical 5-step process for implementing a hybrid solution.

What is Loan Management Software

Loan management software typically refers to a system or platform designed to streamline and automate various processes involved in lending operations.

Financial institutions, banks, and other lenders as well as businesses who want to provide loans to their customers use these solutions to improve efficiency, reduce manual work, and enhance the overall lending experience for both the lender and the borrower. 

What Should Be the Key Capabilities of a Loan Management Software?

• Automated loan application processing  
• Credit scoring and risk assessment 
• Document verification and management 
• Underwriting automation 
• Loan decisioning 
• Workflow management 
• Compliance and regulatory checks 
• Customer communication and notifications 
• Reporting and analytics 

What Are the Main Goals of Implementing Loan Management Software?

• Reduce the time and cost associated with loan processing.
• Improve accuracy and consistency in decision-making.
• Enhance customer experience by providing faster loan approvals.
• Ensure compliance with regulatory requirements.
• Increase operational efficiency and scalability of lending operations.

You can apply these solutions to various types of lending, including personal loans, mortgages, auto loans, and business loans. They often integrate with existing systems and can be customized to fit specific institutional needs and processes. 

Gartner predicts that by 2027, 90% of finance-related descriptive and diagnostic analytics will be fully automated, which will significantly enhance data quality and transparency, removing the needs for the manual tasks.  

According to a McKinsey report, automation in the financial services sector can lead to a reduction in processing costs by up to 70%, with loan approval times reduced from days to minutes. 

In short, lending automation is the foundation for a more profitable and scalable business. 

Just as the examples that follow. 

See how USBC, a community-development financial institution in the USA, made loan access easier for its community by automating every stage of the lending process, from origination to discharge to reporting and much more.  

Another great example is one of the oldest private banks in New England, National Iron Bank, that digitized residential and commercial lending through a fully automated, end-to-end loan management solution. 

Now, if you decide to go for a loan automation solution, you stand before the obvious question:  

Which is the better option, buy or build? 

We start with the advantages of buying loan management software.

Buying Loan Management Software: Advantages and Who It’s for 

When you buy a loan automation solution, you’re not just purchasing software.

You’re gaining ongoing support, continuous adaptation to market changes, and peace of mind regarding regulatory updates and software complexities.  

Vendors typically deliver these solutions via the cloud as a SaaS (Software as a Service) solution, offering additional benefits such as scalability, no upfront capital expenses, fast time to start, pay-as-you-go pricing models and easy access. 

While the allure of building a custom solution can still be tempting, there are compelling reasons why buying a pre-built, yet customizable loan automation platform might be the more strategic choice for your business.  

Let’s look into those.  

Advantages of Buying Loan Management Software

1. Faster implementation and time-to-market 

One of the most compelling reasons to purchase a loan automation solution is the speed of implementation. Pre-built solutions are designed for rapid deployment, often taking just weeks or months to configure and integrate into your existing systems (CRM, core banking, etc).  

This is in stark contrast to building a custom solution in-house, which can take years of development, testing, and refinement.  

For businesses seeking to capitalize on market opportunities quickly or respond to evolving customer demands, a faster time-to-market can be a decisive factor in choosing to buy rather than build. 

2. Access to vendor expertise and support 

When you partner with a loan automation vendor, you gain access to a team of experts with specialized knowledge in software development, regulatory compliance, security, risk assessment, and lending best practices.  

Their expertise will help you navigate the complexities of lending automation and ensure your solution is optimized for the best outcomes and satisfied customers.  

3. Regular updates and maintenance 

Buying loan management software is like subscribing to a streaming service. Vendors offer ongoing support and maintenance, providing updates and new features, bug fixes, and troubleshooting assistance as needed.

This keeps your lending operation running smoothly and up-to-date with the latest industry trends and regulations. 

4. Cost considerations and budget predictability 

When you buy a loan automation solution, you know exactly what you are paying for – a predictable subscription or licensing fee. This makes budgeting easier and more transparent.

Additionally, the faster time-to-market can translate to quicker revenue generation, potentially offsetting the upfront cost.  

This is in stark contrast to building a custom solution which often involves hidden costs, such as ongoing maintenance, upgrades, and the need for specialized IT personnel. 

Ideal Business Types for Buying Loan Management Software

Buying lending automation software is particularly appealing for businesses that: 

• Value speed and efficiency
  You need a solution implemented quickly and don’t have the time or resources for a lengthy development process. This is ideal for businesses under pressure to go to market quickly or respond to changing customer demands. 
• Prioritize proven solutions
  You prefer a tried-and-tested platform with a track record of success in the lending industry. This is especially beneficial for businesses that are risk-averse or have limited experience with software development.  
• Seek scalability and flexibility
  Your business is growing, and you need a solution that can easily adapt to your evolving needs, whether it’s expanding into new markets or adding new products and services. 
• Lack specialized technical expertise
  Building a custom solution requires a dedicated team with specialized skills. If you don’t have those resources in-house, buying is a more practical option. 
• Operate within a defined market
  Your lending processes are relatively standard and fit within a well-defined market segment. This means a pre-built solution can likely meet your needs without extensive customization.  

Did you just nod? If so, buying loan management software is for you. 

Not sure yet? Then you can check successful stories of businesses that bought a lending automation solution. 

Successful Stories of Buying a Loan Management Software

1. Globe Telecom transformed 87 million mobile users after automating their lending process. 

Globe Telecom, the leading digital solutions provider in the Philippines, serves over 87 million mobile users. They needed an automated loan management system that could keep pace with their massive scale.  

TurnKey Lender helped Globe integrate a seamless cloud-based automated solution with their existing infrastructure, allowing them to process thousands of loan requests instantly.  

Plus, borrowers could easily access loans through familiar channels like the GlobeOne app, SMS, or even Facebook. 

2. New England’s Oldest Private Bank automated 100% of their lending operations with an end to end solution. 

Established way back in 1847, National Iron Bank is New England’s oldest private bank and a key player in the mortgage lending scene. Despite its rich history, the bank recognized the need to modernize its lending processes to stay competitive. 

So, they partnered with TurnKey Lender and automated their entire lending process with a Cloud-based solution. This streamlined their workflows, seamlessly integrated with existing systems, and supported the entire loan lifecycle.  

As a result, National Iron Bank went fully paperless, launched a digital portal for borrowers, and expanded services efficiently without hiring more staff. 

Most importantly, their decision to buy a solution rather than build one helped them implement it quickly, making it accessible to customers within weeks. 

Building Loan Management Software: Advantages and Who It’s for

Building your own loan management software can be rewarding for certain businesses since it offers control and flexibility that pre-built platforms will hardly match.  

This path demands a unique set of business attributes and requirements to truly succeed. If those aren’t in place, what could be a powerful asset might become a costly liability, draining your profits and human resources for years. 

Advantages of Building Loan Management Software

1. Customization and full control 

This is the biggest advantage. With a custom-built platform, you control everything, from features and functionality to the technology stack. This ensures the platform matches your unique processes and needs which leads to greater efficiency, and a strong competitive edge in your niche – if your niche is really unique and there are no standard solutions for it. 

2. Eliminate third-party reliance & enhance security 

Building your own loan management system minimizes dependence on third-party providers. This gives you full control over the platform’s operations while strengthening security. With no external parties involved, you can safeguard sensitive data and implement custom security measures that meet your unique requirements. 

3. Intellectual property ownership 

By building your own system, you retain full ownership of intellectual property (IP) rights. This means you have full control of the technology, allowing you to modify, update, and enhance it without relying on external vendors. This ownership gives you a stronger strategic advantage by keeping all parts of the technology proprietary and protected. 

Is Building a Loan Automation Solution the Right Choice for You?

Consider building your own lending management software if your business meets these criteria:

1. Competitive advantage 

Your lending processes are your secret sauce, your unique edge in the market. You don’t want to share that knowledge with anyone else, especially if your business model is built on proprietary lending methods or risk assessments. 

2. Unique business needs 

You’re a leader in your niche. And your business has specific requirements that no off-the-shelf platform can fully satisfy. You need complete control to design a solution that perfectly aligns with your unique operations and workflows. 

3. Unwavering commitment 

You’re absolutely certain that this platform is essential for your business’s long-term success. You’re prepared to invest the time, resources, and ongoing effort required to maintain, update, and adapt it as your business grows and the market evolves. 

4. Time requirement 

Building a custom solution is a marathon, not a sprint. It can take years to develop a truly functional system. In that time, the market can change drastically, and you need to be confident that your custom solution will still be relevant and competitive when it finally launches.  

Did you nod when asked if your business meets the criteria listed above? Then, building is your way to go. 

Combining Buy & Build: Hybrid Approach to Loan Management Software 

If you’re unsure whether to buy or build a loan management solution, exploring the hybrid approach might be the answer. 

Hybrid gives you the speed and efficiency of a pre-built platform with the customization and flexibility of a tailored solution. 

• But is it the right choice for your business?  
• Do you have unique requirements that justify a hybrid solution?  
• What advantages come with this approach? 

We’ll explore all that, but first, let’s consider two key points about the hybrid approach from TurnKey Lender Co-Founder, Dmytro Voronenko: 

1. Business complexity: Many businesses think their processes are unique—whether it’s their credit products, workflows, or risk management rules. However, many of these “unique” features can often be configured using existing solutions. It’s crucial to assess whether your needs truly require custom development or if current solutions can meet them. 

2. Flexibility requirements: Consider how flexible your solution needs to be. If you don’t foresee major changes in your market, like new regulations or disruptive technologies, a hybrid approach might not be necessary. But if you expect market shifts, evolving customer needs, or competitor actions, a hybrid solution offers the flexibility you need. 

A hybrid approach allows you to use a vendor’s platform for most functionalities while customizing only the specific features that are truly unique to your business.  

This gives you the best of both worlds.

A flexible, easily configurable platform that can be tailored quickly when needed without being hard-coded or rigid. 

Advantages of a Hybrid, Build-And-Buy Approach to Loan Management Software

• Faster time-to-market – you can launch a functional lending platform quickly using pre-built components and develop custom features as well. This helps you get your platform up and running faster so you can start generating revenue sooner.
• Reduced development costs – save money by using pre-built components. And let your team focus on developing unique features that make your business stand out.
• Scalability and flexibility – pre-built platforms are often designed to scale. That gives you room to keep adding custom features as your business grows and your needs change.
• Expert support and maintenance – you’ll benefit from ongoing support and expertise from the platform vendor. This frees up your team to concentrate on custom development and other strategic initiatives.

Partnering with vendors for a hybrid approach to lending automation is generally straightforward. Most established vendors are accustomed to working with clients who have specific needs that go beyond the standard functionalities of their platform.   

They often have experience in integrating custom-built modules and can provide guidance and support throughout the process. 

5 Key Aspects to Consider in a Vendor for a Hybrid Approach

When choosing a vendor for a hybrid solution, look for a lending platform that is highly flexible and configurable in at least these five areas: 

1. Application Form: You should be able to configure all interaction windows and dialogue screens for both front-office and back-office operations. 
2. Workflow and Business Process: The platform should allow you customization of workflows and business processes to match your unique needs. 
3. Decision Flow and Risk Management: The system should let you adjust decision-making processes, whether for credit risk or operational decisions. 
4. Credit Calculations: The platform should offer flexibility in configuring calculations for credit product parameters. 
5. Third-Party Integrations: It should support seamless integration with third-party services, like a reseller API, credit bureaus, or AI tools. The platform should be so customizable that your solution feels entirely unique.

Questions You Should Ask to Select the Right Vendor for Your Loan Management Software Needs

• How will the vendor change the system for unexpected market changes?
  Can the platform quickly update policies or products in response to big shifts, like new regulations or economic events?  For example, if you had to change your credit policies quickly due to something like Brexit or a newly introduced regulation. How would they handle it?  
• Can they show how they’d update risk assessments, data collection, reporting and lending rules across the system without causing much disruptions? 
• How can the vendor set up unique credit products for special promotions or customer needs? For example, is the platform flexible enough to support customized lending offers, such as a special 0% interest loan for Christmas?  Can it easily activate or adjust changing terms, like a 5-month zero-interest loan for customers with a 3-year history or an even better offer for 10-year customers?  
• Additionally, can their platform support dynamic configurations that can be easily turned on and off when promotions end? How adaptable is the vendor’s platform to future technology changes? 
• Explore how future-proof their platform is by asking about potential technological shifts. For example, if voice interfaces or AI-driven systems become dominant in the next few years, will their platform be able to adapt? 
• How easy are the reconfigurations? Is their platform hard-coded, or is it built on a no-code platform for easy customization with API capabilities? 

Transformative Hybrid Approach: How a US Car Dealership Achieved 50% Growth in One year

This US car dealership company wanted to rebuild its auto-financing process to better serve its customers and stay competitive.  

To achieve this, they: 

• Chose TurnKey Lender’s existing software platform for its quick setup and specialized tools for car dealerships. 
• And collaborated with us to create extra features that fit perfectly into the platform, allowing them to offer specialized financing options and unique options like GAP and CPI insurance 

This enabled the dealership to provide specific financing choices and meet the varied needs of their customers. You can find more details in this case study.

A hybrid approach can bring both successes and failures, largely depending on your chosen vendor and their configuration options.  

It’s important to assess your specific needs and involve your team in the decision-making process. 

Think about how it affects different areas of your organization: technology, strategy, market trends, competition, and operations. Collaborating with colleagues from various departments can provide valuable insights. 

Factors to Consider When Building or Buying Loan Management Software

With over two decades of experience in fintech, Dmytro Voronenko, TurnKey Lender’s Co-Founder, highlights key considerations when deciding whether to buy or build a loan origination and management software.

“Don’t assume building your own lending system will automatically attract fintech investors,” Dmytro explains. “Fintech investors are smart; they know the long-term costs of running an in-house system. Trying to impress them with a custom solution can backfire.” 

Also, be aware of unrealistic expectations. “Even with expert in-house developers, problems with these advanced and complex software solutions can’t be fixed in a day or two. You may need help from niche experts.” 

To help you better understand what elements influence the decision about buying or building your own loan management software, Dmytro put together the following 7 factors.

The decision to buy or build a loan automation solution isn’t one-size-fits-all.

It relies on factors unique to your business, resources, and strategic goals. Two critical factors, namely ROI and time-to-market, often play a decisive role in this choice. 

To navigate this decision with confidence, carefully evaluate the following considerations:

1. Complexity of lending operations – Are your lending processes simple or highly complex and customized? Simple processes might be well-served by an off-the-shelf solution. While complex ones with unique needs may require a custom-built platform. 
2. Scalability needs – are you expecting significant growth in loan volume or product offerings? A scalable solution is essential to accommodate future expansion without major disruptions. 
3. Competitive landscape – how urgently do you need to launch your solution to stay competitive? Buying a solution gets you to market faster. While developing one internally can take much longer. 
4. Return on investment (ROI) – evaluate the potential ROI for each option. Will a purchased solution bring quicker returns due to faster setup and vendor expertise? Or will a custom-built solution save costs in the long run and give you more control over your technology? 
5. In-house development team – do you have a skilled team experienced in building complex software systems? If not, the difficulties of developing internally may outweigh the advantages. 
6. IT infrastructure – is your current IT setup capable of supporting the development, deployment, and upkeep of a custom solution? If not, buying a cloud-based lending automation solution is a better option for you. 
7. Time commitment – developing a lending platform requires significant time and resources from your team. Can you dedicate the required staff and attention for an extended period (6-12 months or even more)? 

How Goldman Sachs Tried to Enter Consumer Lending with Its Marcus Project

Dmytro further explains that staying ahead in the market and having ample time and resources doesn’t guarantee success. He also mentions the perfect example of that – the Goldman Sachs story. 

Back in 2015, Goldman Sachs decided to enter the consumer lending market. They were confident in their financial expertise and resources and aimed to shake up the industry with their new online lending platform, Marcus. 

Their goal was to offer a simpler, more transparent option compared to traditional banks, focusing on personal loans and high-interest savings accounts. 

However, it took them two years to launch Marcus. By then, the market had shifted significantly, with other fintech companies already catching up and setting new standards.  

Goldman Sachs has officially decided to shut down key parts of its Marcus project. 

“This served as a stark reminder that even well-funded and experienced institutions can face setbacks when they underestimate evolving trends and competition in the industry,” says Dmytro.