The lending industry is a constantly evolving sector that brings new and exciting market trends each year, and 2023 is shaping up to be a game-changing year, especially with the Gen Z population coming of age and looking for financial advice. As the new desirable demographic for FinServ institutions, small business lenders need to level up their loan origination process and marketing strategies to win over these native digital borrowers and build brand loyalty from the get-go.
But that’s not all. It’s not just Gen Zers who are demanding a more digital, convenient, and flexible way to apply for loans. Traditional borrowers are also hopping on the digital bandwagon, seeking engaging, fast, and adaptable digital platforms for their loan needs. To keep up with these changing demands, lending businesses must adapt, upgrade, and develop their loan platforms with emerging loan origination trends in mind.
Curious to know what these lending trends are and why they’re crucial for lenders? Well, you’re in the right place! In this article, we’ll dive into the upcoming advancements in Loan Origination Software that you need to know about. So, sit back, and let’s explore the future of lending together! Keep reading!
Why are these Trends Important for Lenders?
Besides attracting new prospects, one challenge of the loan process is to keep them engaged enough to complete their loan application. Borrowers are looking for an easy and quick loan application process where they can avoid in-person contact and complete everything needed either by mobile or online channels, and once the application has been entered into the system, they expect a decision to be made in a matter of minutes. Additionally, borrowers are looking for lenders that can provide or support multiple payment options, ranging from wiring money to credit cards.
Given all these and many more challenges coming up in the loan market, lenders must find ways to adapt and transform their digital platforms to meet these customers’ demands. So, instead of being held back by legacy technology, small business lenders should look out for new loan origination trends that can help provide an easier, more seamless, and faster experience to borrowers.
Fortunately, these trends already exist and are making their wave this year. So, we did the heavy work (research) and summarized the 15 more interesting loan origination trends for 2023 that can help shape lending businesses and give them the competitive advantage they need to succeed.
Loan Origination Trends
From low-code or no-code solutions, embedded lending, and multiple payment methods to third-party integrations, social media, and regulatory and compliance-focused technologies, these are some of the new advancements making waves in the financial services industry, especially in the lending sector.
1- CRM Systems to Improve Customer Engagement
As we previously mentioned, it is very important to keep the borrower engaged so they can finish their loan application. This is key, as many lenders experience high rates of application abandonment. But how can lenders mitigate this? Easy, by developing customer-friendly loan channels that are easy to navigate and by streamlining the application process, including the data collection, verification, and credit decisioning process.
A CRM system helps businesses stay connected with customers and potential customers. It helps to streamline business processes, track a borrower’s interaction journey with lending channels and create a better relationship with borrowers.
By using a CRM system with your loan origination software, you can streamline your business loan processes, making the loan process much quicker, which helps with the borrower’s need for immediacy. Additionally, a CRM system allows lenders to manage borrowers’ inquiries across any channel without losing track, making it more convenient for the customer, as they can start their inquiries from the lender’s social media or email but complete the application from the lender’s website.
CRM software lets lenders get a clear view of the borrower’s history with their business. They can find out what the borrower’s needs and challenges are or include their social media information about their likes and dislikes. With this information, lenders can really understand what products and offers the consumer really wants and what loan or solution they need, so they can work to personalize their customer experience, offering what they need expeditiously. This type of personalization makes the customer feel like they are really understood. It helps with future customer engagement and makes customers want to come back.
A great CRM Software that can give lenders a true-360 view of their borrowers or potential borrowers and can also be connected to other business apps for a more complete loan origination software is Salesforce.
2- Cloud Based LOS
Cloud-based systems have the largest spending and growth rate of all the other technologies impacting lending businesses. This type of technology makes fintech companies, especially small business lenders, agile, more scalable, and ahead of financial institutions that are still using legacy systems.
By implementing cloud-based loan origination software, lenders are free from complex software and hardware management and installation, making it more cost-efficient for lending organizations. Lenders can handle the large volume of applications much more easily, reduce the lending process time, improve data management, and improve collaboration and data sharing between teams, optimizing data access.
Moreover, what makes cloud-based LOS a very interesting loan origination trend is how quickly lending organizations can see results after integrating it because it brings manageable costs, involves minimal set-up, and provides faster processing time for applications.
3- Low-Code/No-Code Solutions
According to the 2021 Gartner LCAP Report, by 2025, 70% of new applications developed by enterprises will use low-code or no-code (LCNC) technologies. So, if your business isn’t using it yet, you might be using it soon.
Low-code and no-code software are a great alternative to traditional development, helping FIs businesses develop custom apps and products much faster than before. Additionally, they are more agile, adaptable, and secure, which helps with the protection of sensitive data.
Lenders using a low-code or no-code loan origination software can save on software maintenance and troubleshooting, and because many of these systems are cloud-based, too, lenders can reduce spending on on-site infrastructure.
LCNC loan origination systems can help streamline lending processes and automate third-party compliance and regulatory verification. Finally, this loan origination trend empowers loan businesses to remain competitive by quickly introducing new features to their products that resonate with customers and increasing agile adoption for native iOS, Android, and web applications.
4- Data Science
Big data and analytics can help businesses to really get to know a lot about the consumer. Big data allows lenders to keep track of the large flow of information coming from different channels and data collection, so they can predict more accurately the borrower’s behavior and create more personalized customer journeys. It helps to provide the loans and offers borrowers really need while also helping with regulatory compliance.
Moreover, data science has been playing a larger role in helping loan organizations implement a more sophisticated auto-decisioning process by bringing alternative data, like rent, cellphone payment history, and machine learning algorithms, for credit decisioning or as fraud management measure.
In short, lenders must see the importance of really understanding the borrower’s journey when seeking and obtaining a loan from beginning to end, and data science helps with that. It prioritizes customer experience to create a hyper-personalized borrower’s journey, which can build customer engagement and bring a range of cross-selling opportunities.
Automation is a trend that can accelerate the applicant’s evaluation and loan decisioning process, and robotic process automation is one of the biggest manual labor savers that lenders can possibly have. Not only does it eliminate manual steps, but also, by automating the decisioning process, it eliminates the inconsistency associated with human decisions.
Additionally, this technology allows lenders to better manage data collection, accelerate application processing and review, and improve document management. Furthermore, lenders can automate some elements of the evaluation process and pre-establish decision guidelines for faster loan approval while still being flexible enough to create exceptions that can direct more difficult choices to expert underwriters.
6- Embedded Lending
As consumer behavior has been changing throughout the years, online shopping and digital transactions have become more popular, and many potential borrowers have preferred to get funded by companies they are familiar with. Embedded lending can make this happen, and its popularity has been increasing in the last few years.
However, even though embedded lending is offered through a non-financial service or product, it is also an opportunity for lenders to insert themselves into the exact moment the customer identifies a funding need, which is the most important moment for the loan officer. And they can make that happen by partnering with a SaaS business that needs a more effective embedded lending platform and a lending partner to build the lending infrastructure and analyze customer financial data.
This new loan origination trend provides a faster, more straightforward, and seamless lending experience for customers, boosting their engagement and retention. Moreover, any digital brand can integrate embedded lending options that are tailored to meet their specific customer’s needs by using a customizable API.
7- Mobile Apps
Nowadays, borrowers are looking for the convenience of getting things done the way they are used to, in addition to having the flexibility of handling their loan application in the platform of their choice. So, giving them the option of applying on a computer and finishing their application on a tablet or any other mobile platform is a big plus for borrowers.
Furthermore, this is a very popular and in-demand loan origination trend, as mobile applications are often the channels of choice for borrowers who have taken mobile devices as a lifestyle and a way of doing business.
Implementing mobile apps with a loan origination system is an excellent way of getting applications coming in, managing data collection, and keeping a better communication between lenders and borrowers. So, suffice it to say it is expected for financial services companies, especially lenders, to be accessible on a mobile channel and get into this trend.
8- Multiple Payment Methods
As we mentioned before, one of the keywords for 2023 loan origination trends is flexibility. And offering multiple paying methods enters within this trend. Once the loan has been funded, the most important thing is to ensure the borrower can wire the regular payments. By supporting many payment methods (from wiring money to credit cards), lenders are not only guaranteeing that the payments will be collected but also giving borrowers the flexibility and convenience they are looking for which in turn will increase their loyalty to the brand.
One of the best payment applications for lenders, especially for merchant cash advance businesses, is Plaid. So, by integrating this application into your loan origination process, you can ensure the borrower’s payment is pulled from their bank account on the due date.
9- Dynamic Queue Management
We have discussed trends on how to keep the customer engaged all through the loan application process, but one important part of the loan origination process is collection. Dynamic queue management is a new technique that has been proven to dramatically improve the efficacy of collection.
With dynamic queue management, lenders can set up queues based on different conditions and assign these queues to individual collectors or a team of collectors. This tool not only provides a more efficient collection but also accelerates the cash collection process, improves the management of borrowers’ flow, and enhances the borrower’s experience all through collection. And, if a borrower is engaged and happy even in the collection process, the probability of them renewing a loan contract or getting a new product with the same lending business is very high.
10- Text Messaging
Another loan origination trend for this year that is helping with collection is text messaging. Borrowers are more open to engaging with a collector via SMS because it diffuses the awkwardness of discussing the debt with the collector, and it’s a secure way to provide document collection links through the loan origination process.
But text messaging is not only beneficial for collection. According to G2, texting has a 98% open rate, and it is the new way to communicate with borrowers throughout the loan process. It helps lenders keep borrowers up to date with their loan applications, offers quick responses to clients’ requests and inquiries, lenders can send timely reminders and personalized messages, and reduces loan abandonment rates.
Lenders can improve their success in the lending industry by enhancing their relationship with the borrowers, and by using the correct SMS platform, they can also ensure data privacy and regulatory compliance.
11- Third-Party Technologies
Consumers love personalization, and to provide the best-personalized borrower experience, lenders must integrate their loan origination systems with 3rd party technologies, which will help keep the borrower engaged and accelerate the lending process.
Additionally, if lending businesses are looking for ways how to stay competitive in the digital lending market, they need to be familiar with 3rd platform technologies that are designed to speed up the loan application process, reduce the cost for lenders and enhance the borrower’s experience.
A leading move would be to integrate multiple third-party technologies into the LOS that help streamline the pre and post-loan process, facilitate the process for the customer and create more engagement even after the loan process, such as robotic automation, different payment platforms, or AI for future personalized lending offers.
12- Nonbank Lenders
Even though traditional banking still leads the business lending market, Alternative Finance is growing in popularity. One of these Alt finances is Nonbank Lenders. By working with Nonbank providers, borrowers will benefit greatly because they will be getting lenders who have invested in technologies to make the application, loan process, and communication between lenders and borrowers easier and seamless.
Many of these nonbank lenders are tech-focused lenders using financial technology to provide the best way to finance customers. Additionally, these lenders are looking to introduce innovative products or reimagine the front and back end of the loan process, bringing new thinking methods to business borrowing.
13- AI-based Loan Origination Software
We can’t talk enough about AI technology, and we’ve previously mentioned how Artificial Intelligence can improve a business CRM, or how small business lenders are taking advantage of their continued advances and increase in popularity, and it is still true to this day.
AI has shaken the financial industry, and it is expected that in 2023 the financial sector will continue adopting AI-based solutions like AI-based loan origination software. With a LOS that uses AI and machine learning, lenders can have assistance in the prequalification process and in detecting possible fraudulent transactions before closing a deal.
AI algorithms in loan origination can also support chatbot interactions, help with the personalization of customer services, with cross-selling opportunities, and to accelerate borrowers’ verification and the credit decisioning process.
Finally, according to a Deloitte survey, 86% of financial services using AI say that adopting this technology will be critical for businesses in the next 2 years.
14- Social Media
At the beginning of this article, we mentioned that the Gen Z population will be breaking into the financial mainstream as the new desirable demographic, and lenders will need to boost their social media strategies to attract this population through the channels they usually use.
Social media not only works as a platform for digital advertising and marketing but also helps in attracting and onboarding new clients.
Lending businesses that use social media as a financial services tool can get alternative borrower information to help them provide the personalization the borrower needs, which can lead to future lending services or cross-selling.
Furthermore, by integrating social media strategies into the loan origination process, lenders can improve the management of their customer’s relationships and complete more successful business transactions.
The financial sector is one of the most regulated industries, and RegTech (regulatory technology) is a class of system applications for managing regulatory compliance. In 2023, RegTech is expected to make waves in the regulatory ecosystem by offering advanced tech solutions for compliance issues.
Many financial institutions are already working with regulatory-focused technology. However, RegTech is there to help FIs become more competitive because many new RegTechs are now using cloud-based technology, machine learning, and big data analytics to analyze data and to detect and reduce risks to financial institutions. So, being on top of this trend can be very helpful for lending businesses that would like to be at the top of their game throughout this year.
Engaging customers, accelerating the credit decisioning process, improving social media strategies, or making the loan process adaptable and flexible to customers’ needs are some of the trends expected to shake the lending and the fintech industry to help loan businesses improve their customer experience, boost revenue, and keep ahead of their competitors.
Many of these new trends can be adapted or integrated into lenders’ current Loan origination systems, but they also can be found in turn-key lending solutions, like Cloudsquare Broker, already built to meet lenders’ needs while also facing the industry’s more common challenges.
If you need help updating your current loan process to include these new advancements, see Cloudsquare’s suite of products for the Lending Industry to check some turn-key solutions aimed at helping you achieve your short and long-term business goals. Or, if you are looking for something more personalized, contact our experienced consultants to discuss how we can make your vision a reality.