“Automation” has become a common buzzword in business settings because of the significant benefits that it can bring. When it comes to the role of automation in loan servicing systems, there are plenty of benefits to be had.
In general, 51% of companies, use automation to save on costs. Furthermore, a study by McKinsey & Company found that continued automation could increase annual global productivity by 0.8 to 1.4%.
Loan servicing, generally, involves all aspects of the loaning process, including origination, debt collection, servicing, and tracking of all loans.
It is a vital part of the economy, providing businesses with the funds they need to grow and generate wealth, and automation is taking a key role in its evolution.
Understanding Automation in Loan Servicing
With all that said, automation can transform loan servicing in a variety of ways from making the process more efficient to generating greater ROI (return on investment) for companies. Automated loan servicing platforms can, among other things:
- Manage loans and payments
- Communicate with borrowers (i.e., updates, notices, customer support)
- Provide real-time analytics
- Determine the financial viability of a loan
- Approve and reject loan applications
Traditionally this was all done by hand, and the work was spread out among a number of employees/departments.
Large Excel sheets filled with data had to be continually tracked, borrowers had to be manually communicated with, and depending on the scale of the loan, the approval process could end up being very complex and time-consuming.
All these moving parts meant that loan approval times were drawn out and the possibility for errors was increased.
Why Is Automated Loan Servicing Important?
On that note, the primary reason why automated loan servicing solutions are important is because they streamline the process.
The primary goal of loan servicing is to make a profit, and automation can help with that by reducing the time and money spent on servicing loans.
Benefits of Automation in Loan Servicing
While time and money are the primary benefits of automated software for loan servicing, there are plenty more to consider:
1. Increased Efficiency
Increased efficiency means more than just saving time, it also means better processes and flow from one stage of loan servicing to another. For example, an automated loan servicing solution can streamline credit analysis.
This can be done by extracting all the relevant financial data needed—tax returns, accounting documents, credit history, etc.—for a credit assessment and then analyzing all the data to come to a conclusion.
This can all be done in a fraction of the time it would have taken if traditional credit assessment methods were used.
2. Improved Accuracy
People can make mistakes, automated systems, on the other hand, are much more reliable—especially when it comes to reviewing, analyzing, tracking, and updating large swaths of data.
In the loan servicing business, mistakes can snowball into large problems especially when it involves approving or rejecting loans.
That said, loan servicing solutions can analyze and make decisions or suggestions almost immediately which increases the accuracy or “shelf life” of loan assessments.
3. Enhanced Customer Experience
Automation in loan servicing increases overall customer user experience. Instead of getting on a call or waiting for, sometimes, weeks to be approved, customers can submit all the relevant information on a loan servicing platform and receive approval, in some cases, instantly.
Furthermore, loan payment notices and up-to-date information can all be found on the platform.
Because automated loan servicing solutions are often designed to integrate with other systems, like POS (point of sale) software, customers can also make payments directly online—which can then be recorded and tracked.
4. Scalability
Overhead is what keeps many businesses from growing. By automating the loan servicing process, businesses can free up their employees’ time so that they can work on other important tasks.
Software for loan servicing is also designed for scalability, allowing businesses to continue to grow their clientele without having to take on more manual work.
5. Better Risk Management
One of the hidden gems of automated loan servicing solutions is that they can provide real-time analytics. Traditionally, it could take weeks and maybe even months—depending on the size of the portfolio—to provide analytics on all current loans.
With automation, that is no longer the case. Businesses can use these analytics to help with risk management by adjusting loan approval criteria and strategies whenever needed.
Challenges in Automated Loan Servicing Systems
While automation in the loan servicing industry is filled with benefits, there are some concerns/challenges that should be addressed:
Regulatory Compliance
For one, regulatory compliance is critical in the lending world and requires strict adherence to local and federal laws. With that said, automated loan servicing systems can actually help in this area by ensuring that all processes adhere to the current guidelines.
The main potential issue is if the software is out of date. However, as long as the company responsible for the software is reputable and is not out of business, then regular updates to the software can be depended on.
Data Security Concerns
Loan service businesses are responsible for protecting sensitive customer information and so data security is often a top concern.
With that said, loan servicing systems come with integrated security measures and receive regular updates.
Conclusion
With the emergence of automation, the loan servicing industry is seeing greater efficiency and even competition. The little guys no longer need vast amounts of manpower to compete with larger companies and can scale quickly with automated loan servicing solutions.
The time it takes to process, approve, and manage loans can be drastically cut and in turn, businesses can save money on manpower.
Furthermore, with accurate and real-time analytics, loan service companies can more quickly pivot with the changing times and make smarter loan approvals.
While there are some concerns with automation, the streamlined process that automation provides far outweighs the potential negatives.