Loan originations are a key part of the digital revolution taking place in the banking industry, and banks have two key goals when they replace their legacy loan origination systems (LOS):

• Enabling omnichannel delivery of LOS services
• Reducing time to fulfillment (turnaround time).

Long-established banks are adopting digital solutions to achieve these goals with the expectation that omnichannel will increase the size of the sales funnel, and reduced TAT will increase the rate of applications converted to loans. Here I look at the digital loan initiatives being undertaken by Citibank and Unicredit with their respective solutions and service partners.

Citibank & Digital Risk, Mphasis

Citibank recently selected Digital Risk’s LoanFX to deliver origination services. The key functionalities sought by Citibank, and how they will be used to improve origination, include:

• Single hub for loan origination: allows Citibank to manage and process its origination pipeline as a single portfolio
• Use of external data sources: (D1C approved) pre-populates required data in the application, including partial data fields, e.g.:
  • Identifying the borrower
  • Determining income and assets
  • Pre-underwriting the loan.
• Big Data Analytics: uses big data analytics to predict customer sales efficiency and improve the customer experience
• Single sign-on: enhances cybersecurity and reduce fraud
• Follow up analysis of engagements:  analyzes data generated from each customer application process to improve future engagements.

The solution accelerates origination by transforming the entire process, hence the ‘back end’ can keep up with the ‘front end’. Technology services are provided to clients by Mphasis, Digital Risk’s parent.

Unicredit & Circeo, Atos

Unicredit Central and Eastern Europe selected Circeo’s Loan Factory origination solution along with Atos’ services support for loan originations across multiple countries. Key capabilities of the solution include:

• Software: can be customized to individual bank requirements with zero IT coding to enable continuous, rapid innovation in customer experience, products, processes, partnerships and business data
• Rapid deployment: 4-6 months
• Delivery: cloud and business process services
• Pricing: pay-per-use model.

The Atos/Circeo partnership was formed in mid-2016, with each partner providing the following:

• Circeo: software, technical consulting, integration, and maintenance
• Atos: consulting, configuration, infrastructure, cloud hosting, additional functionality (primarily from the Worldline suite of solutions), BPS, infrastructure maintenance, IT operations, and helpdesk.

The solution allows Unicredit to continually change its business model, enter/exit markets, and adapt its loan offerings, at scale and without long lead times or continuing costs.

The wider picture

Digital banking is changing how banks conduct their business. Key capabilities delivered by digital platforms include:

• Access to larger data sets, from third parties via the internet, to make improved decisions at lower cost
• Faster deployment of new products, business models, and markets via cloud delivery of configurable solutions
• Faster processing of originations due to increased STP and digital submission of partially or completely prepopulated forms
• Conversion of operations costs from mostly fixed to all variable cost
• Increased customer interaction with lenders and ecosystem partners (e.g. appraisers) in real-time or near real-time, with improved visibility of customer sentiment.

In previous technology cycles, improvements were incremental, producing 5% to 25% cost savings over legacy systems. Digital banking services are producing much higher cost savings in the 40% to 60% range. Also, cloud delivery and pay-per-transaction are eliminating start-up and sunset costs (which are rolled into the per-transaction fee and amortized over multiple client banks).

Increasingly, product and services vendors are partnering to deliver their offerings at scale. The challenge of digital banking technologies is a lack of qualified staff to work with the technologies across multiple markets. Global services firms are positioned to deliver at scale in multiple markets, and are also best positioned to add and train personnel in key technologies.

Banks looking to implement digital loan origination platforms need to look for services vendors with scale delivery capabilities, with a roadmap and commitment to aggressively grow personnel in relevant technologies, and deploy them into fast-growing markets. Finally, banks need to look at the service vendor’s cloud delivery strategy. Cloud delivery is available from a small group of high-quality global firms (e.g. AWS, IBM, Google, and Microsoft), but the adaptability of the platform to cloud delivery, product partnerships, and cybersecurity remain the domain of the solution and service vendors. Credibility and commitment to the cloud as a preferred option will impact the effectiveness of digital solutions.