What Is a Loan Origination System and How Does It Work? 

Loan Origination System (LOS) is an online system that financial institutions and banks use to track every loan application from start to finish. It simplifies workflow and automates it, reduces errors, and better serves customers. This blog delves into a Loan Origination System, its working, and the critical stages in the loan origination process. More significantly, however, this blog examines some meaningful ways in which location data can be utilised to complement the LOS.

What is LOS?

A Loan Origination System (LOS) is computer software that manages the whole loan origination process. It includes the entire process of applying for a loan: data collection, document verification, credit check, underwriting, approval, and disbursement. A LOS eliminates manual processes, speeds up turnaround times, and reduces errors by digitizing and automating these processes.

How Does a Location-First Loan Origination System Work? 

A location-first LOS that takes location information of customers and agents into consideration is a much more efficient location-first LOS. It considers bank branch locations, bank branch territories, mapping of agents to the bank branches, bank centres (agent touch point/customer touch point), and road networks that agents use to get to the bank centres.

How Does a Loan Origination System Work? 

A LOS integrates various functions and processes involved in loan origination into a single platform. Let’s take a look at how it usually works:

1. Loan Application

A LOS integrates various functions and processes involved in loan origination into a single platform. Let’s take a closer look at its operation, step-by-step:

In the loan application stage, the borrower will fill out a loan application form and provide required paperwork. Applicants typically submit their applications online or in person.

The LOS has a user-friendly, online portal. Through the portal, applicants can fill out forms and upload necessary documents. The portal verifies the information entered in real-time, which is complete and accurate prior to submission, therefore making the process comfortable and easy for the applicants.

Many borrowers of NBFC-MFI come from tier 3 & tier 4 towns/ villages. This group likes to do their loan applications in person because they believe that they are meeting them at the local centers and staff at the bank branches.

This is where a location-based field force management mobile application is key to monitoring what’s happening in the field, automating case assignments to field agents, optimizing routing to ensure field agents are able to reach customer locations in the shortest possible time, and capturing customer disposition.

Smart Beat plan optimizes the agents’ daily journey plan to focus on high-potential town centers, and agents need to touch base with all customers at regular intervals.

The documents that are uploaded to the field force management application can be seamlessly integrated into the LOS software, ensuring adaptability and transparency in the system.

2. Data Collection and Verification Important 

After the application is received, the borrower is responsible for filling in the data and documents. Certain documents contain verification of identity, verification of address, proof of income, and credit history. LOS collects data from different sources, including credit bureaus, banks, and government sources, automating the process.

As regards microcredit and small loans, NBFCs and MFIs use a large field force to collect the field and sell various offers of consumer credit. These field agents are tasked with going to the homes of customers and confirming addresses on-site for document verification. If there are any discrepancies in the information at the visit, they amend the information in the address part of the loan file to facilitate the loan process.

With location-first field force management, location intelligence and geocoding addresses with accuracy of up to 90-95%, it becomes much easier to do this tedious task. Geo-tagging customer locations with high accuracy helps field agents save time on travelling to their destinations, minimize on-the-field time, and maximize time with customers.

Location intelligence helps to simplify large, complex, and incomplete address datasets, which in turn helps NBFC firms and MFI companies to verify loans faster and helps shorten the time for disbursing loans.

Dista Sales provides a ‘Dista Confidence Score’ for address verification and validation done by our AI-based location intelligence platform, which is the basic building block to run highly optimized field visits.

3. Credit Assessment

The credit assessment stage is when the creditworthiness of the borrower is assessed based on his/her credit score, financial history, and other factors. The LOS is connected to the credit bureaus to get the borrower’s credit score and credit background. It automates the credit assessment process using pre-defined algorithms and scoring models, evaluating the borrower’s risk profile.

Additionally, banks, NBFCs, and MFIs have access to a location-first field force management platform, which enables them to take into account the creditworthiness of individual borrowers based on their home location.

By leveraging the historical data of delinquent borrowers from specific locations, and layering this data with other public data sources, banks can quickly (and visually on a map layer) identify areas with a high probability of defaulters and predict borrowers from each location.

4. Underwriting

Underwriting evaluates the risk of lending to the borrower and determines the loan terms and conditions. The LOS automates underwriting and uses rules and criteria that have been preprogrammed to evaluate the loan application. It uses machine learning to forecast risk and loan terms, that is, a uniform and objective assessment.

Just like evaluating the creditworthiness of a borrower, the underwriting process must also be location-based to identify high delinquencies and the ultimate consequences that they will have on field collection efficiency and coverage; this makes it easier to frame risk strategies for underwriters.

5. Loan Approval or Rejection

The results of the underwriting process will decide whether or not the loan application will be accepted or declined. The borrower is notified of the decision to grant the loan and its terms and conditions.

The LOS creates automatic decision notifications, which saves time in informing the borrower. It produces the loan agreement and other required paperwork for accepted applications. A well-built LOS will also automate loan status communication to customers via channels like email, SMS, WhatsApp, and others.

6. Loan Application and Disbursement 

The last stage in approved loans is to process the loan agreement and release the funds to the borrower’s account. The LOS automates the creation of loan contracts and enables electronic signatures. It also connects with banking systems to automate the distribution of funds for a seamless and quick transfer.

What Are the Key Features of a Loan Origination System? 

1. Workflow Automation

A LOS automates a number of steps in the loan origination process and makes it more efficient.

2. Document Management

The LOS is intended to facilitate the electronic upload, storage, and management of documents, which will ease the process of document verification and retrieval. LOS, combined with a location-first field force management system, offers all the above at the customer’s doorstep, enhancing the customer experience.

3. Integration Capabilities

An LOS can be connected to external systems like credit bureaus, banks, and government databases, allowing for easy exchange and verification of data. A geospatial-enabled LOS will make it easy for decision-makers to visualize all this data along with customers’ information on a map-based layer for easy decisioning and real-time insights.

4. Compliance Management

LOS includes checks and rules throughout the loan origination process that help to ensure compliance with regulatory requirements.

5. Analytics and Reporting

The LOS offers robust analytics and reporting capabilities, providing insights into loan performance, borrower behavior, and process efficiency. When the LOS is integrated with a field force management platform such as Dista Sales, it can provide in-depth insights into particular geographies via a mapping user interface.

Why Integrate an LOS With Location-First Field Force Management? 

Next on the journey of digital transformation for banks, NBFCs, or MFIs would be the adoption of the field force management system on top of the existing loan origination/loan application system.

Field force management platforms like Dista Sales enhance the loan processing experience by tracking field force activities, such as daily visits to customer locations, address geocoding, geotagging customer locations, distance traveled, number of routes taken to reach the area, and more.

The platform allows you to capture visit outcomes and keep track of visit compliance for complete transparency. By integrating with Dista Sales, loan origination becomes seamless, with the ability to flow without disruption and provide complete control and visibility to leaders.

The mobile application uses scheduling algorithms and creates multiple simulations of routes to customer sites to determine the fastest, safest, and shortest routes for field agents. Thus, field agents can spend more time with customers and have meaningful interactions regarding loan requirements and collections.

Why Use Location Intelligence in a Loan Origination System? 

1. Enhanced Efficiency

By automating repetitive tasks and streamlining workflows, a LOS integrated with a location-first field force management system helps cut down on processing times and operational costs.

2. Improved Accuracy

Automation reduces human mistakes, promotes accurate data input and processing, and delivers comprehensive and accurate customer addresses, helping to improve the quality of the loan origination process.

3. Better Customer Experience

• An easy and smooth application procedure.
• Simplifying the loan approval and disbursement process.
• This will enhance the satisfaction of the customers.

4. Compliance & Risk Management

A LOS can include regulatory checks and location-specific risk assessments, so that it meets industry standards and the risk of default is minimised.

Conclusion

In today’s digital era, where efficient and accurate loan processing is crucial for financial institutions, a Loan Origination System (LOS) is an essential tool that saves the day.

By streamlining and connecting different steps of the loan origination process with a location-focused field force management solution such as Dista Sales, processes become more efficient, quicker, and more customer-friendly. In the financial industry, the integration of LOS and field force management enables innovation and efficiency as technology advances.

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