How does digitization in the loan origination process help banks and NBFCs overcome challenges?

Loan origination occurs when a borrower applies for a loan, and a lender, after processing, lends the borrower the loan amount. Borrowers might be individuals, businesses, or corporations, with lenders being banks, NBFCs, MFIs, or Fintechs.

Most financial organisations are accustomed to lending in the traditional manner, which is often time-consuming. That is why it takes so long to process a loan application since manual work requires a lot of documentation at every level, extending the loan’s processing, disbursement, and recuperation time. However, as “technology in finance” evolves, we are pleased to see more and more digitisation in the loan origination process.

As a result, a digital loan origination system was born. It plays a much larger role than most traditional lenders realise. Simply put, going through the loan origination procedure online.

It helps

  • Reduce inefficiencies,
  • save operating costs and customer acquisition costs,
  • improve customer experience, and,
  • most importantly, save time.

Loan disbursement is completed in minutes, even when loan origination software is used. As a result, digital loan origination software is gaining popularity in the lending business. In fact, the market for loan origination software is expected to increase at a 14.8% CAGR between 2023 and 2028, from an estimated USD 4662.2 million in 2022 to USD 10670 million by 2028. Isn’t it intriguing?

So, let us go through why the loan origination system is so important for financial institutions.

Enhance the Customer Experience

Traditional lending involves delayed turnaround and limited transparency for customers. According to a Federal Reserve poll conducted in 2016, 45% of respondents complained about long delays in lending approvals, and 42% found the application procedure confusing. Online lenders with LOS, on the other hand, have outperformed traditional lenders and enhanced customer experience. Only 17% stated they experienced delays in loan decisions, which were minor in comparison to traditional ones, and only 26% felt the application procedure was cumbersome.

Upscale Lending Model and Customer Base Expansion

A lender with traditional lending has a specific target market in mind. If someone provides personal loans, for example, his entire business strategy relies around assisting consumers who require personal loans to satisfy their financial responsibilities. Using a loan origination system in digital lending, he may quickly grow his company model and look to add other loan products such as vehicle loans, home loans, business loans, and so on. He can offer his new products to the market and expand his clientele in a short period of time.

Reduced Time to Market

When a lender wishes to digitise his loan process, he must incorporate a large number of different APIs into his system at each stage. Furthermore, for each API, there are several providers on the market. As a result, lending becomes time-consuming and increasingly reliant on technology. A one-stop digital lending provider, such as Cloudbankin, has all of the APIs integrated into every stage of the lending process. As a result, a lender does not have to expend additional work to integrate numerous APIs. As a result, he can launch his lending product rapidly and reduce his time to market.

Reduce the cost of each loan application.

Using a loan origination system reduces the cost per loan application. For example, for one of our customers providing a specific region, the available cost (such as gasoline, photocopy, etc.) became the basic price for a customer’s loan per application cost, which was roughly INR 500. Because everything is done online, our LOS can keep the base cost per loan application between INR 100 and INR 150. There is no need to charge customers based on their location, thus this is only allowed if the API is integrated into the application.

Increase Geographical Coverage

Assume you are a standard NBFC looking to extend your lending activities and provide loans to new borrowers. Restarting the process requires more paperwork, physical branches, operational expenditures, lost time, human activity, and so on. A loan origination system, on the other hand, gives you the convenience of immediately disbursing loans at a new location. What allows it to happen? Without the requirement for a physical branch, simply enter the new location pincode into the system and begin disbursing loans. It will also propose where you should begin. It involves little to no paperwork, does not require a physical site, is less expensive to operate, saves time, and does not necessitate the hiring of new personnel.

Reduce Human Interference

The entire financing procedure is automated when you use a loan origination system. It can collect borrower data from a variety of sources. A loan officer or field agent is not required to verify loan applications. When you add loan origination software into your lending process, you may reduce the need for human interaction. According to the American Bankers Association, using less human involvement and more automated, faster services results in higher productivity, more closed loans, and higher income per loan. Consider another example. Lending organizations often have a cap on the number of loans they can approve. A bank manager has the power to approve a loan application for INR 50,000, for example. If it is larger (say, INR 1.5 lakh), the decision must be approved by the head office first. Before shipping the borrowers’ papers, the bank manager must first write an email. This necessitates far more human engagement and wastes a significant amount of time on approval. To mitigate this difficulty, a loan origination system directly obtains authorization from the authorized parties.

Reduced Fraud

 When employing a loan origination system, the likelihood of fraud, such as data misuse or misinterpretation, is low. It is now considerably easier to check a borrower’s information. A loan origination system, for example, simply obtains all of the data and validates it via the c-KYC portal by providing a PAN number and DOB. Face matching and liveliness checks (in which the borrower’s photo is matched to the c-KYC photo to confirm that they are who they say) can be added as additional stages of verification. So, this is how you may reduce the possibility of fraud occurring during the lending process.

Make Data-Informed Decisions

 Consider the fact that you must prepare a Credit Analysis Memorandum (CAM) report. You have all of the necessary information, such as bank statements, public records, previous loan histories, credit scores, loan amounts, interest rates, and loan terms. To complete the report, manually insert those data into an excel file and assess each parameter individually. This entire procedure is extremely time-consuming and tedious. However, if you utilize a digital system, you won’t have to worry about that. It collects information from many sources for you, and the credit rule engine compares it to your policies. It then gives a final conclusion from which you may decide whether or not to lend to the borrower. A LOS thus makes it exceedingly simple for you to make data-driven judgements.

Your borrowers can obtain loans at any time, from any location, and using any device.

Borrowers’ biggest issue is their incapacity to apply for a loan on their own. A loan origination system provides lenders with the convenience of allowing their borrowers to apply for loans from any location, at any time, and on any device, which helps to alleviate this issue.

Reduce Operating Expenses

 Traditional lenders’ operating costs average around 6%, compared to 2% for online lenders. Automation makes the underwriting process more efficient, allowing financial institutions to provide more loans and offer more products. Borrowers are receiving funds and loan approvals more quickly. Finally, the arguments raised above demonstrate that a loan origination system reduces a lender’s operational expenses by eliminating manual operations (physical data collecting, verification, manual underwriting, loan agreements and signatures, and so on) and expediting the loan origination procedure.


 Financial institutions are embracing considerable use of LOS software in their lending process as the loan origination process becomes more digitized. A platform like Cloudbankin provides NBFCs with a competitive advantage over traditional lenders. Cloud banking is now a luxury for lenders. It is an API-based digital lending platform that handles the entire loan process and supports the majority of loan products. A lender can easily onboard a borrower through automated (do-it-yourself) flow for the urban population and assisted (often loan officers) flow for the rural and semi-rural populations. Thus, it may be characterized as conducting an end-to-end lending journey online in order for lenders to efficiently onboard their borrowers. One of the most notable benefits of the app is that a lender can issue a loan in less than 10 minutes. So, take advantage of this chance, learn more about the benefits, and start providing loans to your borrowers easily and automatically with Cloudbankin!

Leave a Reply

Your email address will not be published. Required fields are marked *