Five Questions To Ask Your Lending Automation Vendor by MonJa

5 Questions To Ask Your Lending Automation Vendor

In Featured, Small Business Loan Underwriting by Yulia GnatyukLeave a Comment

In today’s ultra competitive lending market, fintechs have taken a march over traditional banks with their digital first service and speed of closing loan applications.  Brick and mortar banks now realize that their work is as much about technology as it is about finance.  Legacy IT solutions are convenient for in-house operations but can’t be expected to compete with the sophistication of systems being deployed by VC funded alt-lending startups.

In such a scenario, lending automation is not a question of if but a question of when.

Automation reduces the cost and time of loan processing, improves credit accuracy, assists in the operations optimization and in enabling paperless transactions. Lending automation players are financial institution’s best bet as they often combine the best of what is available in the lending technology market along with relatively fast deployment, and not necessarily heavy upfront investment.

A Peek Into The Lending Automation Industry

The lending automation industry is on a growth spree as its solutions have had a strong impact on the bank’s bottom line. A few players operating in the space are for example, nCino, Akouba, Sageworks, CIT, MonJa, etc.

Companies like nCino and Akouba offer systems which are created for banks and are primarily involved in cloud-based operating systems and business lending solutions respectively. Others like Sageworks provide products like financial analysis, credit risk, lending, valuation applications and risk management software. CIT provides services like lending, leasing and treasury management services to small and medium businesses apart from the transportation sector.

MonJa platform is a ‘3-in-1’ Platform that offers automated underwriting, loan scoring, and AI-powered risk algorithm all at one place in order to enable lenders (online lenders, banks and credit unions, and non-profit lenders) to underwrite small business loans effectively and efficiently.  

Lenders looking to transform their credit departments for efficiency, speed and measurable ROI may want to consider investing in an AI-powered platform that represents the next generation in lending automation and risk management.

So, What Do You Need To Ask Your Vendor?

The choice of loan origination systems is not an overnight decision. It requires a careful analysis to identify the need-gap in institution’s existing lending system.  It requires understanding which functionalities and features are missing and are most essential to be incorporated as an improved system.

Your financial institution might want to reform its loan origination system primarily for satisfying the needs of the customers.  Or, it may want to repackage the entire lending/ underwriting system to monitor the workflow that will result in more cost- and time-effective approach.

The requirements of each lender (traditional financial institution, online lender or a non-profit) differ  but we did our best to put together high level points that should be reflected in the questions you may want to ask your lending automation partner.


Robotic process automation can cut costs for financial services firm by up to 75%.

Source: KPMG


  • What Technology Infrastructure Are You Offering?

The technology or platform that has been used to build the Loan Origination System is an essential question to clarify. You may want to discuss with the lending automation vendor whether the technology shall run on-premise i.e. within the organization or it will be cloud-based i.e. work will be hosted in a remote server, etc. Both, on-premise and cloud-based have pros and cons.

On-premise may be the only option to meet your credit culture requirements of some traditional financial institutions. The biggest benefit is that the data always stays on the banks servers. Is it a big deal for your organization’s CTO? Are you required to comply with specific IT security regulations? In that case, make sure the lending vendor provides on-premise option.  Disadvantages? It’s relatively more expensive overall, generally takes longer to implement and is more hassle to maintain.

Cloud-based technology is great in scalability, remote feature updates and overall reduces operational costs. It’s less time and cost consuming to implement. Disadvantage? Less security.

Mobile application to onboard prospective borrowers may be an extra value. Not only does it improve the overall customer experience, it is may be a good way to compete more effectively in the market.  Having a mobile application option for a bank, for example, is an additional way for your institution to capture more leads in addition to the ones that are captured at branches.

  • What Is The Upfront Cost and Value?

Different platforms differ in their software pricing, depending on the facilities they enable, the customization requirements, number of users, assets, loan origination volumes and etc.

A KPMG report “Rise of the Robot” estimates that automation has a 40%-75% cost takeout for the relevant function as compared to labor arbitrage. The value exists but a cost-benefit analysis by the institution is essential to determine whether the loan automation  investment would pay off and deliver the promised return on investment (ROI).

Every lender has a certain budget and should be open to communicate the limitations to the lending automation vendor effectively.  For example, JP Morgan has almost a $10 billion annual tech budget.  Most lenders are not even close to 10% of the number.  With limited budget, this makes it impertinent that there is no heavy upfront investment attached with the automation process. Results based or transaction based approach would be a win-win for all involved.  

Some vendors offer fairly low upfront implementation cost and pay-as-you-go cost structure, meaning that lender is charged a certain fee per loan originated.

  • What Is The Credibility Of The Lending Automation Vendor?

The continuity of operations is ensured only if the software continues to support the business and the service provider should be around to help out if there is any lag in the system.  Track record of the service provider and availability of support staff are major considerations to keep in mind before selecting the right lending automation vendor.

Does the vendor offer ongoing customer support? How responsive are they? What support is included in the contract?

The soundness of the management that backs the company, the experience that the company has in the lending industry, the time the provider has been in the industry, the versatility of its operations in the space, the customer feedback and review about the company, etc. In other words, you may want to do some due diligence that will include all those classical questions to ask before getting yourself into a long-term relationship with any vendor, including lending automation one.

  • What Kind Of Risk management Services Is The Lending Automation Vendor Offering?

Risk management is integral to every lender’s success. One of the major challenges a lender faces is the collection of data at the time of application. The system’s ability to capture and process raw data is critical.  

Setting up of a risk-management interface for the business is vital especially when credit scoring comes into the picture.

The core underwriting system design must allow customization as per the internal credit policy.

It should be capable of integrating the financial data, compliant with regulators and auditors, to keep a tab on the financial criteria and other alternative data, be able to provide on-demand access to data and reports than may be necessary from the regulation perspective.  

Credit algorithms are the lifeblood of a lender. Ability to evaluate on the basis of the lender’s pre-defined criteria is a given. The value-add comes from additional (non-traditional or non-financial) risk assessment features by the vendor.

Non-financial criteria to supplement the cashflow-based criteria in the borrower’s creditworthiness assessment have been used by alternative lenders for some time already. But are now becoming more accepted by traditional financial institutions as well, in order to supplement the final decision on a borrower.

Ask your vendor  if they offer AI-powered decision making, predictive analytics for pattern recognition, social media, foot traffic and other data that can the decision process more unified and efficient.

 

  • Is The Vendor Focused On Data Security?

Data is the new age oil and banks have been major targets for hackers because of the precious financial data housed within their systems. Data security is now a CXO level function and recent data leaks have led to not only reputational damage and management firings but have seen billions of dollars of market cap wiped off in a day.

Asking your vendor about its security protocol is a must. Understanding how the vendor takes care of your data is essential for long-term productive partnership.

Five Questions To Ask Your Lending Automation Vendor by MonJa

 

About MonJa Lending Automation Platform.

MonJa has experience of working with fintechs since 2014. Since then, we have analyzed over $2 billion in loan portfolios.  Company has been featured in publications like Bloomberg and Financial Times. Our leaders are regularly speaking at conferences held by American Banker,  LendIt, IMN and others.

MonJa’s lending automation platform supports C&I, CRE, auto and other small business loans. We offer a cloud-based SaaS data infrastructure, as well as on-premise if needed. MonJa’s software comes with mobile loan application processing.

Our automated underwriting is enhanced by proprietary MonJa Loan Score ModelTM and AI-powered risk algorithm which takes into account social media presence and geographical locations at a very granular level.

2048-bit TLS end-to-end transport encryption ensures data security. We understands that often financial institutions do not find it feasible to go in for heavy upfront investments in tech. That is why we offers a pay-as-you-go model that scales with the your organization’s origination volume.

 

What Else?

The ‘Software as a Service’ approach often works well for a lending automation engagement. Other questions like UX, usability, flexibility to add features are important to consider before selecting the vendor.  Uncertainty is a given in such a process. Here is what will bring some structure to the process of selecting the right vendor:

  • Having a clear understanding of the your business goals
  • Putting together your needs as a client
  • Clearly communicating your needs to vendors
  • Understanding the latest trends in the lending market
  • Talking with at least a few lending automation vendors in the space

All of these steps together should be able to help you choose the right vendor for your organization, engage with them on a deep level and establish a strong mutually-productive partnership.  We hope our short guideline will help you with your journey! Good luck!  

Request MonJa's Lending Automation Demo Today!

Our platform supports C&I, CRE, auto and other small business loans.

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