From Manual to Digital: Transforming Retail Loan Onboarding for Success

Explore how digitalization can transform loan onboarding, how to measure its impact across operations and customer experience, and the costs of inaction. 

In today’s fast-paced world, the lending industry faces immense pressure to meet customer expectations. Retail loan applicants—seeking personal, auto, or home loans—want a quick and seamless onboarding experience. To stay competitive, lenders must transform their processes. 

One of the most impactful ways to do this is through digitalization. This article explores how adopting digital tools can speed up loan onboarding, benefiting both lenders and borrowers alike.

What is Loan Onboarding?

Loan onboarding is the process borrowers go through when applying for a loan. This process includes several stages:

• Application Submission: Borrowers fill out an application form and provide personal and financial information, such as income, employment status, and credit score.
• Data Verification: Lenders check the information provided by borrowers to ensure its accuracy. This often requires additional documentation, such as pay slips or tax returns.
• Underwriting: This is the assessment stage, where lenders evaluate the risk of lending to the borrower, considering factors like credit history and debt-to-income ratio.
• Approval and Disbursement: If the borrower meets the lending criteria, the loan is approved, and the funds are disbursed, allowing the borrower to use the money for their intended purpose.

Barriers to Adopting a Digital Loan Onboarding System 

While many top private banks, public banks and major NBFC lenders have implemented digital loan onboarding processes, smaller banks and NBFCs, particularly in both urban and rural areas across various countries, may be slower in adopting these technologies.

These institutions may still rely on manual processes or use a hybrid approach with limited technology. 

Despite the availability of more efficient digital solutions, these lenders may be resistant to adopting new technologies for several reasons:

• Cultural Resistance: In organizations with long-standing practices, there is often reluctance to change established workflows. Employees may fear that new technology will disrupt their roles or that they lack the necessary skills to adapt.
• Cost Concerns: Implementing new technologies involves upfront costs, and lenders may hesitate to invest, especially if the return on investment (ROI) is unclear.
• Legacy Systems: Many lenders operate on outdated systems that aren't easily compatible with new technologies. Overhauling these systems can seem overwhelming, causing lenders to prefer maintaining the status quo.
• Regulatory Compliance: The financial industry is heavily regulated. Lenders may worry that adopting new technologies could complicate compliance with existing regulations or introduce new risks.

Challenges in a Traditional Loan Onboarding Process

Having said that, let’s look at the various challenges and inefficiencies that can occur in a manual onboarding process. The process typically goes as follows:

• Application Initiation: Applicants fill out paper forms with various details, risking errors such as overwriting, spelling mistakes, and illegible handwriting.
• Submission of Application: Paper forms must be physically submitted to the lender’s office, involving travel and additional time.
• Manual Data Input by Staff: Lender’s staff manually enter data from paper forms into their loan processing system, taking hours or days depending on the volume of applications.
• Identification and Correction of Errors: Staff review applications for mistakes, correcting errors or contacting the applicant for clarification, causing delays.
• Approval Process: Manually entered information goes through the lender's approval process, which includes credit checks and income verification, further adding time.
• Communication with the Applicant: Lenders communicate updates or request additional information through phone calls and emails, which can lag if staff are busy.
• Final Decision: Once checks are complete, the lender informs the applicant of the final decision, potentially requiring additional paperwork.

Manual processes introduce delays and inefficiencies, ultimately prolonging the time it takes for an applicant to secure their loan.

How Digitalization Impacts Loan Applications

For simplicity, we’re first tackling the impact of digitalization on the loan application process. We’ll take a look at two methods. 

B2B Portal (To be used by loan officers at bank branches):

• Data Entry by Loan Officers: Loan officers input data directly from customer consultations using specialized software.
• Integrated Data Capture: The software guides data collection, ensuring all necessary details are captured accurately.
• Instant Access to Verification Tools: Loan officers verify applicant data in real-time, speeding up the approval process.
• Centralized Communication: The software facilitates easy communication with applicants, enhancing the customer experience.

Lenders can augment this with a D2C portal, further enhancing the onboarding experience for customers.

Direct-to-Consumer (D2C) Portal:

• User-Friendly Online Forms: Customers can fill out loan applications through a user-friendly portal, entering information directly from anywhere.
• Real-Time Validation: The portal checks for errors or missing information in real-time, allowing immediate corrections.
• Online KYC and Document Upload: Customers securely go through online KYC and upload necessary documents, streamlining the process.
• Automated Notifications: The system sends updates about application status via email or SMS, keeping applicants informed.

How Digitalization impacts loan approvals

Digitalization improves the approval process in the following ways:

Automated Decision-Making:

• Real-Time Data Analysis: Digital systems analyze applicant data in real-time, assessing credit scores, income, and debt-to-income ratios, speeding up decisions.
• Algorithmic Scoring Models: Sophisticated algorithms evaluate loan applications based on pre-defined criteria, quickly determining applicant eligibility.

Integrated Verification Tools:

• Instant Credit Checks: Lenders perform instant credit checks through integrated platforms, eliminating delays.
• Automated Income Verification: Lenders link to financial institutions and third-party data providers for automated income verification, confirming earnings quickly.

Enhanced Risk Assessment:

• Comprehensive Risk Profiles: Digital systems combine various data sources to create detailed risk profiles, helping lenders make informed decisions faster.
• Predictive Analytics: Lenders use predictive analytics to forecast repayment likelihood, improving approval rates and minimizing defaults.

Streamlined Communication:

• Centralized Information Sharing: Digital platforms enable seamless communication between departments involved in the approval process, providing real-time updates.
• Automated Notifications: Applicants receive automated notifications about their loan status, reducing uncertainty and enhancing the experience.

Reduced Paperwork and Human Error:

• Elimination of Physical Documentation: Digital applications eliminate the need for physical paperwork, making it easy to access and review information.
• Minimized Errors: Automated data entry and verification reduce human errors, ensuring accurate and reliable decision-making.

"Digitalizing retail loan onboarding isn't just about speeding up the process; it's about enhancing the entire customer experience. At iorta, we believe that by leveraging technology, we can make loan applications simpler, more accurate, and more efficient, ultimately building trust and satisfaction among our clients." — Himanshu Gupta, COO of iorta.

Costs of Not Embracing Digitalization for Retail Lenders

Failing to adapt to digital technologies can have significant consequences for retail lenders:

• Lost Business Opportunities: As customer expectations evolve, borrowers are likely to choose lenders that offer faster and more efficient onboarding processes. If you don’t keep up, you risk losing clients to competitors.
• Increased Operational Costs: Traditional processes often require more labor and resources. Without automation, costs can spiral, affecting profitability.
• Competitive Disadvantage: Lenders that do not modernize their onboarding risk falling behind those who are using technology to improve their services. This can lead to a loss of market share over time.

In today’s market, the cost of not doing anything can be greater than the investment needed to digitalize processes.

Key Metrics for Loan Onboarding Efficiency and Customer Experience

To evaluate the benefits of digitalization in loan onboarding, it’s important to track metrics that show both operational efficiency and customer experience. Here are the key metrics to consider:

Operational Efficiency Metrics

• Application Processing Time: Time taken from application submission to loan approval. Shorter times mean a more efficient process. Comparing times before and after digitalization shows improvement.
• Error Rate in Applications: Percentage of applications needing corrections. A high error rate leads to delays and frustration. Reducing this rate shows better accuracy and efficiency.
• Cost per Loan Processed: Total costs to process each loan, including labor and technology. Lower costs from automation can boost profitability.
• Document Verification Time: Average time to verify submitted documents. Faster verification leads to quicker approvals, enhancing customer satisfaction.
• Approval Rates: Percentage of approved loan applications. Higher rates after digitalization indicate better risk assessment and suitable loan options.

Customer Experience Metrics

• Customer Satisfaction Score (CSAT): Customer satisfaction measured through surveys after onboarding. High scores reflect customer satisfaction with the onboarding process, helping identify trends for improvement.
• Net Promoter Score (NPS): Measures customer loyalty by asking how likely they are to recommend the lender. A high NPS indicates overall satisfaction, leading to potential referrals.
• Customer Retention Rate: Percentage of customers returning for additional loans. Higher rates signal a positive onboarding experience and trust in the lender.
• Churn Rate: Percentage of customers who stop using the lender’s services post-onboarding. A lower churn rate after digitization indicates customer satisfaction and value.
• Feedback and Review Analysis: Reviewing customer feedback on platforms like Google and social media. Qualitative insights highlight strengths and weaknesses, providing feedback for ongoing improvement.

In conclusion, digitizing loan onboarding processes, including application and approval stages, significantly enhances efficiency, reduces errors, and improves the overall customer experience. Retail lenders who embrace digital tools can meet customer expectations, stay competitive, and achieve higher profitability.

At iorta, we offer our proprietary software platform, Salesdrive Lending, designed to streamline loan onboarding and related processes. We’d love to discuss how we can add value to your business. Reach out to us at hello@iorta.in, and we’ll be happy to arrange a quick exploratory call!

‍