Automated credit decisioning can take an incredible burden off of your support staff, yes, but it also has larger implications for the lending industry as a whole. Automation removes human error — and human bias — from the early application review process, sets a firm standard against which all potential borrowers are evaluated and significantly hastens the amount of time it takes to process applications, among some of the other benefits. We will discuss those later, but first . . .
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What Exactly Is Automated Credit Decisioning?
Automated credit decisioning, also called automated loan decisioning, is a series of computer-driven processes that use an algorithm to streamline every part of the application process and decide which potential borrowers meet the requirements to borrow money. Your bank can set any parameters they want for approval or denial for every service that your institution offers, whether a personal loan, a business loan, a mortgage or a car loan.
Using financial data automation to process loan inquiries reduces paperwork, increases processing speed and allows for greater accuracy in that processing. Potential borrowers move on to the non-automated process faster, which leads to more loans being processed in less time. This is fantastic for your bottom line.
What Does Automated Decisioning Do?
Automated credit decisioning takes the financial information from a client’s application, digitizes it, and uses that information to render a preliminary decision about said client’s credit-worthiness. For example, FlashSpread’s spreading software for financial institutions digitizes the information on a client’s scanned personal and/or business tax returns and then uses that information to recommend outcomes.
Automated Decisioning Pros
Automated credit decisioning software offers all financial institutions distinct advantages over human processing.
Increased Diversity Among Borrowers
By removing human bias from initial loan processing, you can increase borrower diversity. If the only parameters your algorithm is concerned with are financial, then nobody is giving preferential treatment to borrowers or, conversely, denying loans to borrowers of certain demographics. Automated credit decisioning helps financial institutions match customers with the most appropriate products for their needs, and while humans are influenced by what they feel, think or assume the data is telling them, software operates only with facts.
Reduced Compliance Risk
Engaging in discriminatory lending practices, even unintentionally, can result in fines, fees and court, where claims are taken extremely seriously. Don’t put your regulatory compliance into question. Instead, remove the human factor from your preliminary decision making; you will be better able to serve both minority borrowers and a more diverse small business population.
Improved Customer Interactions
Using automated loan decisioning allows potential borrowers to streamline the application process the same way institutions can. With auto-decisioning, they can complete their online application in minutes from anywhere, at any time, without having to go to an office or talk to anyone. Getting a fast preliminary decision ensures that wherever they borrow from, clients get the funding that meets their needs.
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With human processing, every time a protocol or decision making process changes, your staff have to change their attitudes, behaviors and interactions. But bringing automation into the mix just takes a little bit of code and some settings adjustment to update your decisioning process.
Reduced Error Rates
Removing human involvement in processing and decisioning means that your loan decisions are made with increased accuracy. Errors like transposing numbers or incorrect or missing data increases your consistency and mitigates potential credit risk.
Improved Loan and Applicant Monitoring
With automation, lending companies are able to better monitor loans and applicants. Automated solutions allow your bank or commercial lender to more quickly respond to inquiries with appropriate and accurate loan offers or decisions. This, in turn, helps you attract a greater number of profitable applicants as well as provide customers with near-instant loan decisioning.
A number of factors of automation lead to reduced costs. Primarily, automation means fewer hands need to do the work, which reduces both overhead and the application and processing costs for every loan. Standardizing decision making means your borrowers are less likely to have late payments or defaults, which protects your bottom line.
Automated credit decisioning is still relatively novel in the commercial lending industry, but already it has proven to be a more accurate, cost-effective and risk-reducing method than what humans can provide.