Digitalisation of the lending process has brought significant benefits to financial companies, including scalability, better decisions, improved customer experience and lower costs. Whether you’re a lender, fintech or bank, an effective loan management system (LMS) is an essential component for your digital lending operation. But how do you go about comparing loan management software providers while considering the factors that are most important to your business? After all, the type of lending product you offer, size of your business, available resource and budget are all important considerations. In this article, we explore seven key factors to consider when choosing loan management software to help you understand what’s right for your company.
A loan management system is a digital platform that helps facilitate the end-to-end lending process. It helps businesses automate the loan origination process including application processing, underwriting and credit decisioning according to the lender’s criteria. Further, it can incorporate loan servicing features that involve calculating interest rates and collecting payments. Without a loan management system, all of these processes would be very time consuming, at greater risk of human error and prohibitive to business growth.
It may seem like an obvious one, but selecting a LMS that covers the type of lending service you offer, or intend to offer, is fundamentally the right place to start. Whether you cater to individuals or businesses, offer peer-to-peer lending or non-standard propositions, the right solution should be able to handle your workflow and automate those processes.
It’s also worth considering the extent to which the LMS will cater to the future needs of your business, if you reasonably expect to expand and diversify. It is becoming more commonplace for financial software vendors to operate an ecosystem of third-party apps and integrations, which can provide you with a ready list of add-on services including credit scoring apps and payment providers.
The rise of software-as-a-service (SaaS) deployment models over more traditional on-premises software implementation has been widespread in various sectors. The benefits of SaaS, which is where software is licensed on a subscription basis, include speed of implementation, lower setup and operational costs, portability and simplicity of upgrades and maintenance. SaaS and cloud computing have also enabled superior user experiences for borrowers due to improvements in efficiency and processing times. Put simply, the process of manually updating software every few years is outdated and the new paradigm is here in the form of SaaS.
There are very few scenarios where a company wants to wait longer than is necessary to take a product to market. As mentioned above, a SaaS solution is the deployment method of choice when it comes to getting set up quickly. Your overall timeline will then depend on the scope of your lending product and how fast LMS providers can help you get set up and integrated with other platforms, if needed. When discussing your requirements with vendors, get them to provide an implementation timeline and find out how long it has taken their other clients. It’s also a good time to find out how much support you’ll receive during implementation, and this is a point we’ll cover in more detail further in this article.
Finding a suitable LMS that fits with your budget is of course crucial, and there are a number of factors that will influence your spending level and schedule. Referring back to point two on deployment models, we mentioned that SaaS came with lower setup and operational costs compared with on-premises implementations. While on-premises installations typically come with a much higher upfront cost, the ongoing maintenance costs can be low and there is no subscription cost to bear. This can be an attractive option for companies with the right IT infrastructure and resource to service the software over time. If you are just looking to get started without a huge amount of capital, SaaS is a far more accessible option. Some SaaS LMS providers won’t charge any setup fees and that can be a particularly attractive option for start-up lenders.
A good LMS should make it easy to integrate with other systems and applications. Whether you’re connecting to a customer interface, data feeds, or applications for credit scoring and payments, you’ll want the process to be swift and straightforward. Make a list of applications you already use or plan to use and ask the LMS provider what integration options exist and review API documentation. Bricknode’s API documentation is available online so prospective customers can review modules at any time in the evaluation process.
As we mentioned in the first point in this list, product coverage is also an important factor here. Some LMS providers will come with more functionality built in such as customer management systems or these might be available as optional extras through a marketplace of add-ons. These options can save time if you don’t already have solutions in place, or just want certain features that are pre-integrated.
Any company implementing a new financial system should ensure that there is sufficient support during implementation and ongoing operations. Make sure that the support level is well defined and covers setup, integration, any customisations and access to ongoing support if required. The level of expertise can also vary from one LMS provider to another. You might find a provider that knows their own system inside out, but do they have market knowledge and experience running lending operations that could provide significant added value to your business?
Another point to consider is whether it could be beneficial to outsource any operational elements of your lending operation once you’re up and running. Some companies want to focus on growing their business and attracting new customers, especially if they do not have the resources needed to manage day-to-day operations. Some LMS providers offer managed services and can act as a silent partner in operating your lending business. These services are sometimes referred to as lending-as-a-service solutions and provide a complete off-the-shelf offering.
Today, so much of what we consume is through digital channels, and that’s no more true than in financial services. Security of customer data and the systems that operate these services is therefore absolutely crucial. Any LMS you consider should come with robust and up-to-date security features that prevent unauthorized access, data breaches and other compromises.
Cloud-based loan management systems often provide exceptional security because the platforms are normally hosted on one of the major cloud service providers like AWS, Google Cloud or Microsoft Azure. These providers have significant resources and maintain the highest level of security against new and emerging threats.
No matter where you are in your search for a loan management system, take the time to ensure the right fit for your business. When we speak to prospective customers about our own solution, Bricknode Lending, we also take the time to evaluate fit, so we’re both set up for success!