Before now, launching loan products took quite a structured and stress-intensive approach. Thankfully, technology has changed the way loan products are launched and includes the unbanked customers in the financial ecosystem.
Financial institutions and fintech companies need to adopt new technological capabilities and refine their go-to-market strategies to meet growing demand and survive.
Unfortunately, some of them still cling to outdated approaches and legacy systems, losing sight of the benefits to their business.
Launching new lending products requires ensuring customers are qualified to avoid risks and expand the market safely. Many factors can slow down the lending business, including the use of separate platforms, loan application queues, no electronic signing, human errors, double data entry, and disparate digital solutions
Loan origination and automation software like Oystr can quickly solve these problems with modules that perform various functions, including loan management, decision-making, loan accounting, digital onboarding, and debt collection.
Launching a New Loan Product with Technology
To successfully launch a new loan product with technology, it's crucial to follow a few well-defined steps.
1. Define your Strategy
.The first step is to position your product by identifying your target customers, defining a strategy, and understanding your prospects' financial needs. With technology, financial institutions can choose underserved customer segments, such as SMEs or freelancers with irregular income, to cater to their unique requirements.
However, it's important to understand the regulatory requirements associated with your chosen segment. This involves researching the specific financial regulations that govern your product offering and partnering with licensed banks if necessary.
2. Partner with Data Providers
To ensure that you make accurate, informed lending decisions, choosing the right data providers is essential. Lenders need to identify the right data sources and establish strong relationships with data providers.
Determine the right data needed for customer onboarding and credit decisions. In the case of customer onboarding, it's important to comply with KYC and AML regulations by verifying customer identities and checking negative media, politically exposed people, sanctions lists, and country-specific regulations.
You’ll need to be intentional when choosing a KYC data vendor, as you may need to trade-off between coverage and accuracy, depending on your customer segment's risk profile.
In credit decisions, the external data sources needed strictly depend on the customer segment. You can partner with a credit bureau or a related data aggregator for customers with established credit histories. For less traditional segments, such as SMEs, you can explore data providers that offer alternative insights. Traditional data is rarely enough, so don’t be afraid of exploring a customer’s alternative data to determine their current financial situation.
Once you've identified the right data providers, establish relationships and negotiate any necessary checks to ensure you can access the data. High-quality aggregators that manage compliance in-house can speed up the process, but you should factor in any necessary checks in your product launch plan.
3. Explore Automated Decision Engines
To effectively make accurate, automated decisions in real-time, lenders need decision engines that operate at various stages in the lending process. These stages include onboarding and credit decisions, both of which require different considerations.
To save resources and launch your product quickly, you can consider buying a decision engine from a software provider instead of building one in-house.
For customer onboarding, you need an onboarding decision engine that can determine whether to onboard a customer and move them to the credit decision stage. It is crucial to balance accuracy and drop-off rates by creating the right decision flows for your customer segment. You can start with passive onboarding checks and then introduce active checks like a one-time password if necessary.
Once a customer passes the onboarding stage, you must assess their creditworthiness and create an individualized loan offer. This involves knockout rules, creditworthiness checks, and affordability calculations that make up your credit policy. You can choose to build and maintain these manually or use a credit decisioning engine that easily integrates all desired data sources.
You can also integrate machine learning models to further reduce lending risk by identifying patterns in customer behavior.
Using a decision engine from a software provider like Oystr can help lenders launch their products quickly and save resources compared to building one in-house. Additionally, integrating machine learning models on Oystr can further reduce lending risk by identifying patterns in customer behavior.
4. Use a Loan Management System
Once you’re done with credit decisions and other prior steps, originating your loans becomes the next hurdle to overcome. To effectively manage your loans, it's important to use a Loan Management System (LMS), which provides a system of record for originating, managing, and servicing loans.
When it comes to origination, first-time lenders typically fund loans using their capital, but once they have enough evidence that their credit policy works as expected, they seek debt financing from third parties.
In addition, it's essential to collaborate closely with your partner bank when developing your lending product, especially if you're a first-time lender. Proactively aligning each product component with your partner bank can minimize internal process barriers and speed up your product launch.
5. APIs Integrations
API integration is a crucial aspect of building an end-to-end lending platform that can perform all necessary lending operations. By integrating the necessary APIs into one module, you can enable any stage of any lending type, such as loans or buy now pay later (BNPL), to be completed using a single tool.
This eliminates the need to switch between different unrelated platforms, providing a more streamlined and efficient lending experience for both lenders and borrowers.
Launching a new loan product doesn't have to be stressful and time-consuming. With Oystr Float, you can launch new plan products, originate loans, assess customers' credit worthiness and disburse loans all from the same platform. Visit oystrfinance.com to learn more today.