Lending is one of the core tasks of financial organisations all around the world. The Credit Origination System facilitates the loan origination process by obtaining critical facts about the proposed credit, performing a preliminary evaluation, and computing the price for the proposed credit, allowing the applicant to decide whether to advance with the loan process.
What exactly does a credit origination system do?
In today's market, financial organisations always strive to improve their operations. Efficient systems not only improve the client experience but also increase ROI. Financial organisations are increasingly focused on automation to enhance loan management. Adopting microservices, APIs, machine learning, and AI is now simple. Integrating these technologies into older credit origination system will save processing time and operating expenses. To increase efficiency, lenders should focus on the following tasks:
1. Automate data collecting from customers.
2. Check the validity of papers digitally.
3. Automatise the underwriting process.
4. Enable third-party connectors with the credit origination system.
5. Enable automated workflow models.
Benefits of the Credit Origination System
Credit Origination is a process that identifies, accepts, or rejects proposals depending on eligibility requirements. Usually, officials and managers review a proposal before rejecting it due to prerequisites or fundamental eligibility standards. The knockout conditions are confirmed in the early phases of the Credit Origination system.
Front office workers can utilise the Credit Origination system to determine whether to apply for further processing.
A risk assessment is performed to determine whether the applicant has the means to repay the loan.
It's a selection tool. It allows the lender to identify individuals/businesses with strong creditworthiness.
The credit underwriting procedure is simplified because the basic review is already completed.
The Credit Origination System enables front-office workers to make an immediate decision regarding an applicant based on the eligibility conditions established by lending institutions.
Elements of Credit Origination Process
The breakdown of the loan origination process is strongly influenced by customer, product, market structure, and other general considerations (regulatory). The following components highlight the most common elements present.
- Appropriate Channels- A appropriate application channel for initiating a transaction, such as physical branches, internet apps, peer-to-peer marketplaces, and syndicated markets.
- Credit Application Process- A Credit Application Process in which a client requests credit and provides the necessary information.
- Credit evaluation - Here, the lender assesses a proposed transaction by processing the relevant information and determines whether to approve or refuse
- Credit Pricing - Here, the lender determines the recommended loan rate or credit premium.
- Credit structuring -The lender may alter additional components of the proposed contract.
- Closing Document Preparation - The lender prepares and offers to the consumer the proposed contract.
Funding, in which the lender credits the client account with monies and records the transaction in their own systems.
Issues and Challenges
For enterprises supported by debt or deposits, the form and quality of the credit origination process can have major ramifications on the risk profile of such obligations.
Acceptance criteria and associated filtering procedures integrated in credit origination might have ramifications for financial inclusion.
In a securitization setting, the underlying exposures in the portfolio must be underwritten based on the same underwriting criteria that apply similar techniques to the evaluation of credit risk associated with the underlying exposures.