The Paperless Lending Process: Opening Windows of Opportunity for Business Owners and Borrowers

May 26, 2022

This is a guest post from TurnKey Lender

Loan Management Software Provider and VoPay partner TurnKey Lender share their insights on how lenders can benefit when digital lending takes over from paper.

The lending space, stagnant for a couple of decades in the 20th century, is undergoing a revolutionary change. The monopoly traditional lenders held in the consumer and commercial credit markets is now being actively broken down and shared among challenger banks, conventional financial institutions that embrace digital transformation, alternative lenders, and embedded lenders. Embedded lenders in this context present the most significant change because of the elimination of the middlemen that borrowers have been waiting for. With the development of affordable, intelligent, functional, and flexible loan management automation, product and services providers have started to understand that they don’t need to share profits with a third-party creditor when their client needs a loan. There’s no need to delegate relations with your client (and profits) to someone else if you can offer them a financing option in-house which would be cheaper for them and won’t lead to your business taking on undue risk.

Move over paper; digital lending is here to stay

The reason why lending has been under the control of banks and other large-scale institutions for so long is due to the heavy reliance on manual analysis of borrowers’ creditworthiness and the enormous amounts of paperwork employees had to do. This way, lending could only be profitable when run on a grand scale.

 In fact, the cost of managing paper alone is quite staggering. According to Corp Magazine, U.S. businesses waste $8 billion annually just managing paper.

However, with e-lending becoming as easy as e-commerce or even easier, the management overhead required to run an embedded lending operation is minimal. For many businesses in today’s world, a lending platform becomes just another tool its staff uses during the day to create a finance application and move on with their day. One no longer needs the resources or the expertise of a bank to compete with large financial institutions.

Credit is integrated as a native part of the customer’s journey rather than remaining a complex side quest a client must undertake to get to the product or service. 

This demand is precisely why the global digital lending platform market size is projected to reach US$ 20.31 billion by 2027, growing at a Compound Annual Growth Rate (CAGR) of 16.7%.

How digital lending plays out on a modern platform

On a high level, digital lending with a modern platform like TurnKey Lender works like this.

1.      It takes you about a minute to create a new credit product with specific terms, interest, fees and schedule rules which your clients will then use.

2.      A borrower applies for the loan through a web interface or with your employee in the office.

3.      All the borrower evaluation, underwriting, and analysis heavy lifting happen on the backend, and the borrower gets a decision in seconds.

4.      They e-sign the loan agreement, and the funds are automatically disbursed to their bank account. Payment solutions have become a critical component in loan management software solutions. Hence, an API payment integration with a payment processor such as VoPay ensures funds are automatically disbursed to the borrower’s bank account. This delivers a quick and easy payout with no human involvement. However, it should be noted that Buy Now Pay Later credit products are the exception, in which case the money is processed later.

5.      Borrower is warned about upcoming and due installments, which are also charged from their account without human involvement.

6.      The business owner can track and analyze all the lending-related data in the Reports workplace.

A paperless lending process becomes part of the customer journey

As illustrated above, this is how simple the lending workflow can be with a modern lending platform. As you can see, at no point during the loan’s lifecycle does a piece of paper need to be printed or signed manually. Many businesses strive for an embedded finance process that they can set up once and have little to no involvement in daily.

The whole concept of embedded lending is for it to be seamless, so clients do not even feel like they are interacting with a different system when they apply or service their loan. It’s just a part of the process, and it simply works when you need it. With the current white-labelling capabilities, this is entirely possible.

At the same time, other business owners are looking for a more conventional process for flexibility, scalability and a high level of involvement in the management of different aspects of the lending operations.

Automate these 7 Loan management elements 

  1. Loan origination – includes everything that happens from a borrower filling out their loan application and the lender’s staff considering the application and making an initial decision on it.
  2.   Underwriting – modern underwriting automation requires intelligent credit scoring models and numerous data sources to help a business reduce credit risk and improve portfolio yield. Lenders often have their own scoring criteria, which they should be able to add to the system.
  3.   Loan decisioning – a loan officer can manually approve, deny or send back loan applications. However, ideally, the loan management system should be able to make decisions automatically and provide you with all the insights and analytics required.
  4.    Servicing –  one of the most critical areas where automation significantly boosts the business. Disbursing funds and monitoring repayments is faster, easier, and more efficient. The manual and time-consuming processes around schedule management, contacting the borrower, arranging grace periods and rollovers, sending out statements, and everything else under the loan servicing umbrella will dramatically increase productivity.
  5.  Collateral – for businesses that work with secured credit products, the system should be flexible enough for the users to submit their collateral and for the managers to have everything they need to work with these assets.
  6.  Collection – for lenders to have an easy way to set up and manage collection and action calendars and strategies.
  7. Reporting – to keep track of the performance of the business, all the data needs to communicate to the reporting piece of the system in real time, allowing to analyze portfolio, risk ratings, collection rating reports and other data about their borrowers, loans, and risks.

Loan management in Excel vs a lending platform

While smaller lenders may stick to old, manual processes like Excel because it’s comfortable and potentially more affordable, they miss out on gaining the massive boost to business and growth potential gained in transitioning to a modern lending platform. 

Of course, compared to Excel, lending automation leads to higher technology costs in the short term. But with it comes the benefit of making better decisions, working more efficiently and faster, serving clients better and from modern interfaces, thus building trust and goodwill – all that far outweighs the cost and lets your business scale. Moreover, using a modern lending platform like TurnKey Lender is as easy or more straightforward as using a simple website content management system.

Doing business on paper is something we’ve left behind in the pre-pandemic times. Now, lending can’t afford to be offline. Today’s technology is more than ready to help your business handle this change.  

VoPay and TurnKey Lender’s integrated technology can help lenders digitize every part of the lending process. Enhance the client journey, eliminate errors and time spent on the manual processes, and add to the bottom line all by simplifying the entire loan process.

Speak to a TurnKey Lender specialist today to learn more!

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