The Failure of Dated Lending Technology: Why Innovation is Key to Success

The rapid evolution of technology has led to major innovations in the lending industry.  Lenders using modern platforms are crushing the competition, while lenders using older or fragmented solutions are sacrificing large profits and risking failure.  History shows that high-risk portfolios,  lack of visibility, and data misuse are real problems but are easily mitigated with the right software.  Advancements in data science, origination systems, and underwriting greatly contribute to success. To stay competitive, institutions must invest in a complete modern lending platform, such as PayPlan's SaaS turnkey solution, which enables conversion-focused loan origination, intelligent decisioning, robust loan management, improved risk mitigation, and complete transparency.

The lending industry has existed for centuries, but it has never been more critical for lending institutions to adapt and modernize their business. The rapid evolution of technology has led to innovative loan portfolios, optimized data, and better insights for lenders to manage their businesses. However, some institutions have failed to capitalize on these advantages by investing in modern lending software solutions, leading to disastrous results.

Risks of the Past are Actually Opportunities

One of the biggest risks in today’s unstable macroeconomic environment is failing to diversify loan portfolios.  If a lender only offers loans for one type of industry or sector and that sector experiences a downturn, the lender is likely to suffer significant losses.  We’ve all seen how quickly a government or consumer confidence shift can bring industries and companies to a standstill.  Remember the real estate housing bubble or the mortgage crisis?  Lenders in those industries that failed to diversify lost almost everything.  

Diversified loan portfolios have always been an attractive way to mitigate lending risk, but the barriers have been large.  The additional software, processes, people, and rules required simply drove costs too high. Only the biggest and best organizations with deep lending knowledge have been able to diversify well.  However, this is no longer the case with the advance in technology.  Lending platforms can support diversification without the exponential costs of doing so.  In a matter of days, an organization can set up verticalized applications, complex business rules, underwriting systems, and support channels that once took months.  This functionality now comes out of the box, ready to plug and play, with only fractional costs to support new portfolios.

Silicon Valley Bank showed us what it looks like when a lending institution fails to implement strong risk management practices, transparency, and communication. Now more than ever, lenders need to have rigorous underwriting standards, ongoing monitoring of loans, and stress testing of portfolios to manage risk and communicate effectively.  Once again, lending platforms can solve these problems effectively and much more efficiently than in the past.

Sadly, many lending institutions still rely on outdated software systems to manage their portfolios and end-to-end lending process. They use systems that cannot unify data and provide lenders with the valuable insights they need to run their businesses effectively. As a result, they cannot make informed decisions about which loans to approve, which borrowers to target, and how to manage risk effectively.

The Balance Between Data Collection and Value

In 2023 customers expect easy, seamless loan applications, and they want to provide as little information as possible when doing so.  The more data a lender asks for, the more likely the customer is to apply elsewhere - especially if they don’t know the brand.  With big banks and lenders already holding large data sets on a potential customer, it is absolutely critical to moving the customer through the loan process without asking for too much information.  That said, lenders need as much data as possible to make an informed decision.  The more information they have on a potential borrower, the better they can serve their needs and provide the best product possible.  This is the challenge every lender will face.  Ultimately, the better they are at collecting data, the more successful they will be.

Historically, data has been gathered through lengthy forms and manual requests, leaving customers with long-lasting impressions of friction and frustration in the lending industry as a whole.  In recent years, applications have been getting shorter, but the gap is far from filled.  There is an ‘art’ to building a loan application, and real success is accomplished through leveraging recent advances in data services to balance value and trust vs. data collection.  We now live in a world where a few simple data points can be used to gather a robust and complete data set on any individual.  The key is understanding where and when to ask for that information.  A lender must build value and reinforce their brand and product messaging before requesting data.  This differs between a submitted application and a bounce to your competition if done correctly.

A modern lending platform will artfully and natively blend conversion-focused applications and data services into a lending program without the need to understand data science and maintain relationships with multiple data service partners.  Further, leading lending platforms will incorporate data-as-a-service, eliminating the need for large minimum monthly spends and multiple binding contracts.  

Transparency and Disclosure Builds Trust

Lack of transparency and disclosure to lending clients is also a significant issue plagues the lending industry. Many lenders do not provide enough information to their clients about the loan process, interest rates, and repayment terms. This lack of transparency can lead to confusion and mistrust, ultimately damaging the lender's reputation or worse.  Regulations and legal requirements must be in place, requiring state or industry-specific language.  This is often overlooked or ignored, leading to non-compliance and organizational risk.

Modern lending platforms can help institutions overcome these challenges by providing preconfigured templates ready to edit and use. These solutions offer greater transparency and disclosure to lending clients, building trust and enhancing the institution's reputation.   They should also handle all compliance and security-related disclosures.

Data as a Service Unveils New Insights

Among the newest trends in lending is an offering called data-as-a-service.  As the name implies, it is an emerging product that offers decision data to lenders on demand.  The key value distinction is that the data is provided through one offering but provided to the lending platform by multiple third-party vendors such as Experian, Equifax, or Instnt.  Ultimately this data will provide more complete, higher-quality insights to better qualify new borrowers. It allows lenders to access a vast database of improved decisioning data, which can be used in underwriting to make more informed decisions about which loans to approve.  This data can have multiple uses, including using the data for marketing to identify ideal target borrowers. Additionally, the data can be used to identify trends and patterns in the lending industry, allowing lenders to adapt quickly to changing market conditions.

Modern lending platforms usually include support for a few core data partners, but they should be able to plug in any data-as-a-service vendor and use it in credit decisioning.  The right lending platform should also support emerging data partners (‘exotic data’ for example) without the need for complex integration.

Innovate with Payplan

The lending industry is rapidly evolving, and lending institutions that fail to adapt will be left behind. Diversifying loan portfolios, investing in modern lending software solutions, and providing greater transparency and disclosure to lending clients are critical for success in the contemporary lending age. 

The benefits of modern lending software solutions are undeniable. They enable lending institutions to provide a better experience to borrowers, manage their portfolios more efficiently, make informed decisions about which loans to approve, and improve their risk management practices. They also provide greater transparency and disclosure to lending clients, which can build trust and enhance the institution's reputation.

All-in-one lending software solutions such as PayPlan offer a range of features to help lending institutions overcome these challenges and thrive in today's lending landscape.

PayPlan is a leading SaaS lending, all-in-one turnkey solution that will modernize any lending program.  It offers optimized loan origination, highly innovative and intelligent credit decisioning, data as a service, insightful analytics, robust loan management, and marketing services.  Payplan is built and managed by experts with deep lending knowledge and a history of building loan management systems for successful enterprises. 

Don't get left behind in the rapidly evolving lending industry - modernize your lending process now with PayPlan.  Contact us today!