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Loan Processing Automation
Use Cases, Capabilities, Costs
Bringing 19 years of experience in financial software development, ScienceSoft helps banks and lending companies implement seamless loan processing automation.
Contributors
Head of Enterprise Application Development, ScienceSoft
Financial IT Consultant, ScienceSoft
Loan Processing Automation in a Nutshell
Loan automation is aimed to streamline all stages of the loan cycle, from risk assessment and decision-making to credit reporting and repayment control.
Automated loan processing software relies on artificial intelligence (AI), robotic process automation (RPA), optical character recognition (OCR), and other advanced techs to eliminate time-consuming and error-prone manual lending tasks.
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Loan types that can be automated:
Essential integrations: A customer portal, accounting software, payment gateways, and more. Implementation time: 10–15+ months for a custom automated loan processing solution. Development costs: $200,000–$1,000,000+, depending on the automation solution’s complexity. Use our online cost calculator to estimate the cost for your case. Annual ROI: ~225%. Calculate ROI for your tailored solution. |
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Main Loan Tasks to Automate
According to Experian, loan origination automation is currently leveraged by over 70% of lending businesses, and the percentage of its adopters is rapidly growing. The popularity of automated loan solutions is driven by the software ability to foster improvements across all major lending areas:
Loan application processing
2x–25x+ faster capture and processing of digital and paper loan applications with the help of RPA, ML, and intelligent image analysis techs.
Loan underwriting
Borrower risk assessment in minutes rather than days and 100% accurate loan approvals due to AI-powered risk analytics, fraud detection, and loan decisioning.
Loan agreement management
Automated loan agreement creation to drive up to 4x faster loan issuance. AI-based suggestions on the optimal loan prices to maximize profitability.
Loan repayment control
Full visibility of open and paid loans and automated debt collection to achieve up to 300% higher productivity of the loan servicing teams.
Borrower interaction
Automatically processing >50% of omnichannel borrower inquiries and communicating loan-related details to clients using intelligent chatbots.
Regulatory compliance
100% compliance with the required lending standards and 90%+ faster regulatory reporting due to automated compliance checks.
Key Features of an Automated Loan Processing System
For each loan processing automation project, ScienceSoft creates software with unique functionality tailored to the specific needs of a particular customer. Below, we share a list of features that form the core of any automated loan processing solution.
Automated borrower onboarding and pre-qualification
- Configurable registration forms for borrower onboarding.
- Setting borrower eligibility requirements (minimum monthly income, geographical location, credit history, etc.) based on the internal lending policies.
- Automated data extraction from the documents provided by borrowers and data validation.
- AI-enabled borrower pre-qualification against the pre-set requirements based on the data provided by borrowers and the data available in public data sources (e.g., credit rating platforms).
- Automated borrower categorization by user-defined parameters, e.g., borrower type (a business or an individual), requested loan type, region, etc.
- Geography-based KYC/AML verification.
Task management automation
- Automated assignment of loan processing tasks to the loan officers, risk analysts, and other relevant staff members based on employee availability, loan application value, region, etc.
- Scheduled and ad hoc communications with borrowers.
- Instant messaging for the internal communication among lending teams.
Automated credit risk assessment
- Automated processing of borrower credit documentation in various formats (PDF, digital image, JSON, XML, etc.).
- Automated assessment of a borrower’s credit risk based on user-defined criteria (loan amount, monthly income amount, income sustainability, and other parameters with pre-assigned weights).
- Automated scoring of a business’ credit risk based on default probability and loss given default models (for commercial loans).
- Automated calculation of consolidated and distributed credit ratings for multi-entity borrowers.
- Flagging the loan applications that require additional borrower information for credit risk scoring.
- Automated registration of a borrower’s financial and non-financial assets for secured loans.
- Automated valuation of non-financial collaterals (e.g., real estate, cars, equipment) based on the analysis of available data on their condition and market prices for the assets.
- AI-based risk assessment for various collateral types.
Automated loan underwriting
- Template-based creation of loan approval forms containing the loan application and all necessary borrower data and documents.
- Automated multi-department loan approval workflow.
- Configurable approval hierarchies (based on a loan type, loan amount, borrower location, etc.).
- Automated approval or decline of a loan application based on user-defined rules.
- AI-based suggestions on the alternative loan terms to propose to the borrower in case of declining the initial loan application.
- Instant communication of the loan-related decision to the borrower (via email, messaging apps, or a customer portal).
- Automated generation and submission of funds transfer requests upon loan approval.
Loan agreement management
- Template-based creation of loan agreements.
- Calculating the due principal and interest/APR amounts for each loan agreement.
- Automatically adding to loan agreements the appropriate covenant and penalty terms for late repayments (based on a loan type, loan amount, borrower’s risk score, etc.)
- Configurable agreement approval and signing workflow.
- Loan agreement status tracking (approved, signed, etc.) for loan officers and a borrower.
Loan repayment control
- Automatically generating invoices on due loan repayments and sending them to borrowers.
- Real-time tracking of disbursed loans and loan repayment status (due, partially repaid, fully repaid).
- Customizable loan repayment calendars.
- Instant payment processing via the connected payment gateways.
- Support for multiple loan repayment methods: bank transfer, card, check, etc.
- Scheduled and ad hoc omnichannel notifications to borrowers about debt collection.
- AI-based prescriptions on the optimal debt recovery strategies and tactics.
- User-defined rules for payment rescheduling and loan prolongation upon the request from a borrower.
- Alerts to loan officers on overdue loan repayments.
- Automatically imposing penalties on a borrower in case of a missed repayment.
- Automated reconciliation of the received loan repayments.
- Calculating essential metrics such as average loan cycle time, average loan value, approval rate, profit per loan, and more.
- Automated reports on the granted loans, borrower risk scores, debt collection progress, loan portfolio performance and risks, revenue and taxes, and more.
- Scheduled submission of loan reports in the compliant format (e.g., Metro2 Format for the US) to the required credit regulators.
- Trend-based forecasting of loan demand and financial gains under lending activities based on the historical data on loan transactions, financial market data projections on exchange and credit rates.
Borrower data management
- Centralized storage of all borrower-related data, such as interaction history and ongoing activities, credit terms.
- Centralized borrower document storage for loan applications, loan agreements, loan repayment invoices, documents proving borrower creditworthiness.
- A search engine with filtering and metadata querying to navigate borrower-related data and documents.
Security
- Compliance with CECL, GLBA, FCRA, FCBA, ECOA, MLA, FDCPA, TILA, RESPA, IFRS9, Basel III, SOC1 and SOC2, SOX, GDPR and PSD2 (for the EU), other relevant global, country- and industry-specific regulations.
- Comprehensive audit trail for loan-related transactions and user activities.
- AI-powered fraud detection.
- Documents e-signing.
- Data encryption.
- Configurable data retention and deletion policies.
- Multi-factor authentication.
- Role-based access control.
Essential Integrations for Automated Loan Processing Software
Connecting your loan processing solution with the relevant back-office and third-party systems helps speed up loan origination and minimize lending risks. ScienceSoft recommends establishing the following key integrations:
- A customer portal: to process loan applications faster; to instantly communicate loan decisions to borrowers, send invoices, and notify borrowers of due repayment dates.
- Credit rating platforms of the selected credit rating bureaus (e.g., Experian, Equifax): for facilitated credit rating checks and credit report submission.
- Payment gateways of banks or independent payment service providers (e.g., Stripe, PayPal): for smooth processing and real-time tracking of loan repayments.
- Bank accounts: for centralized tracking of loan-related transactions, timely transfer of the approved funding amounts to the borrowers, and streamlined reconciliation.
- Accounting software: for accurate recording of loan-related transactions in the general ledger.
- A business intelligence solution: for comprehensive loan analytics and reporting.
How to Achieve High ROI for Loan Automation
Relying on decades-long experience in financial software design and development, ScienceSoft’s consultants defined the main factors that help drive maximum payback from automated loan processing.
End-to-end automation
To eliminate time-consuming manual workflows and free up the lending teams for high-value tasks.
Advanced analytics
To ensure accurate decision-making and leverage data-driven forecasting of borrower payment behavior.
To protect loan software and data it operates against malicious user activities and external cyber threats.
To guarantee digital lending workflow adherence to sectoral servicing guidelines and data protection standards.
Your loan processing solution needs to stay compliant with the up-to-date financial security standards and legal requirements for credit reporting. To avoid unnecessary headaches in the future, make sure your software offers flexibility to smoothly and promptly adopt the newly-emerging regulations.
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Our BFSI Customers Say
We are impressed with ScienceSoft’s pragmatic project management, quality-first mindset, and transparent communication. They are strongly motivated to deliver maximum value with their services.
When challenges arose, ScienceSoft problem-solved and elicited maximum potential with every system improvement. Ultimately, they took the project to the heights I never expected it to reach.
We especially appreciate ScienceSoft’s professional approach to security issues, which were among our main concerns due to strict regulations.
Ways to Set Up Automated Loan Processing
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Business process management tool |
Market-available lending software |
Custom loan processing system ScienceSoft recommends |
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Essence
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Implementing OOTB general-purpose business automation software that enables digital service operations (including loan processing) and document management. |
Implementing an off-the-shelf loan automation solution, which typically features RPA-supported processing of loan applications, automated credit decisioning, and repayment tracking dashboards. |
Building custom automated loan processing software to get all necessary functional and non-functional capabilities and achieve 100% compliance with all relevant legal frameworks. |
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Pros
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Establishing a cohesive lending business automation environment. |
A fast and cost-effective way to leverage automated loan origination for SMBs. |
Fully tailored features. The ability to leverage advanced techs (AI/ML, blockchain). Non-restricted scalability. Advanced security. Smooth integration with all necessary systems, including legacy software. |
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Cons
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High licensing cost. Chances to obtain a large share of unnecessary functionality. Learning curve may be steep due to complicated UX and UI. Limited integration capabilities. |
Pre-defined features, integrations, and processing flows. Customization can be costly or impossible. May not provide compliance with your local lending standards. |
Software design requires additional time and investments. |
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TCO components
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Initial setup costs + customization and integration costs + licensing fees (typically high due to a wide range of covered business aspects). |
Initial setup costs + customization and integration costs + subscription fees that scale with the number of users. |
Upfront investments in software design and development. Lower TCO in the long run. |
Which Approach to Loan Automation Fits Your Needs Best?
Answer a few simple questions and find out whether you should opt for a custom solution or a ready-made automation tool.
Do you need to automate specific lending tasks, e.g., borrower credit risk assessment based on custom criteria, collateral valuation using custom formulas, or processing multi-entity credit documents for joint loans?
Do you want to leverage AI-supported loan automation, e.g., to predict borrower risks, get intelligent advice on credit application approval, or spot lending fraud?
Do you want to process crypto loans, automate lending operations using smart contracts, or get blockchain-based traceability of funding and repayment transactions?
Do you need loan processing software providing compliance with the latest lending regulations of the countries you operate in?
Do you need to integrate your automated loan software with multiple back-office systems or legacy tools?
Do you need a solution offering advanced cybersecurity mechanisms (e.g., intelligent fraud detection)?
Do you need a loan processing solution with various interfaces for different roles in the team (e.g., sales specialists, underwriters, payment collectors)?
Do you plan to evolve the automation solution with new functional and non-functional capabilities in order to adjust it to changing business and legal requirements?
Do you have large teams involved in loan origination and servicing processes and look to avoid the software fees associated with the per-user subscription model?
Please tell us a bit more about your needs
Answer at least 3 questions to get results.
You can go with off-the-shelf loan automation software
Looks like market-available solutions are a viable option to meet your automation needs. Turn to ScienceSoft if you need help with choosing the optimal ready-made tools, their implementation, customization, or integration with your existing systems.
You definitely should consider custom development
A tailor-made loan automation solution will help you reap the unique benefits that market-available software cannot offer. Turn to ScienceSoft to get the detailed assessment of a custom loan automation system’s feasibility for your business situation.
Custom loan automation software is your best choice
Looks like market-available automation tools don’t fit your specific business requirements and won’t be able to provide the expected operational and economic feasibility. Turn to ScienceSoft to get a consultation on custom loan automation software development and receive cost and ROI estimates.
Costs of Loan Processing Automation
The costs and timelines of implementing custom automated loan processing software vary greatly depending on:
- The number and complexity of functional modules, including AI-powered features.
- The number and complexity of integrations.
- Role-specific requirements for UX and UI.
- Non-functional requirements: security, performance, scalability, availability, etc.
- The sourcing model (full outsourcing, partial outsourcing, or all in-house).
From ScienceSoft’s experience, developing custom loan processing automation software of average complexity may cost around $200,000–$600,000.
A complex system for credit documentation automation and intelligent loan decisioning may cost $1,000,000+.
Want to know the cost of your lending solution?
Benefits of Automated Loan Processing
Loan processing automation can bring up to 225% ROI in the first year of implementation.
Higher productivity of loan specialists
Rule-based loan automation eliminates low-value and error-prone manual workflows, which enables a 35–50% improvement in the productivity of lending teams. Intelligent automation drives even more impressive results across particular tasks: for example, AI-supported debt recovery can bring a 3–4x increase in collector efficiency.
Lower operational expenses
By automating their service operations, loan providers can achieve an up to 50% reduction in operational costs, including labor, lending document processing, billing, borrower communication, and debt recovery costs.
Increase in loan origination volume
Automated loan decisioning helps speed up underwriting and credit issuance, assess borrower creditworthiness 70%+ more accurately, and minimize the risk of defaults, benefiting both lenders and borrowers. According to Experian, intelligent loan automation brings a 2x increase in loan approval rates while decreasing risk-associated losses by up to 20%.
Improved customer experience
Automation helps process credit applications and issue loans on average 2–4x faster. Plus, it ensures accurate and fair loan decision-making. These factors contribute to higher borrower satisfaction with lending services and drive an increase in client loyalty.
Simplified compliance
Custom loan processing software offers automated loan origination and servicing in accordance with all necessary data protection standards and industry regulations, eliminating the risk of regulatory compliance breaches.
Loan Processing Automation with ScienceSoft
In financial software development since 2005, ScienceSoft helps established credit services companies and lending startups implement robust loan automation.
Consulting on loan processing automation
We introduce an optimal feature set, architecture design, and tech stack for your automation solution and provide expert advice on security and compliance. You also get a detailed implementation plan with cost and time estimates and the expected ROI calculation.
Implementation of loan processing automation
We cover end-to-end software implementation, including automation solution design, quality assurance, and integration with the required systems. Having proven tech skills and deep knowledge of the BFSI industry, we guarantee prompt development and top quality of the software.
What makes ScienceSoft different
We achieve project success no matter what
ScienceSoft does not pass mere project administration off as project management, which, unfortunately, often happens on the market. We practice real project management, achieving project success for our clients no matter what.
About ScienceSoft
ScienceSoft is a global IT consulting and software development company headquartered in McKinney, Texas. Since 2005, we have been designing and developing effective lending solutions, including automated loan processing systems. Being ISO 9001- and ISO 27001-certified, we apply a mature quality management system and guarantee that cooperation with us does not pose any risks to our clients’ data security.