The journey of loan origination, from applying for a loan to getting the funds, involves a lot of complex steps. While borrowers demand a quick, smooth, and hassle-free process, financial institutions face challenges of their own. They have to perform credit checks and assess the risk of each case, handle critical documents and make decisions while being compliant with regulatory requirements, and ensure the disbursement of approved loans happens timely and safely. Further, there needs to be efficient communication between the borrowers, loan officers, and other parties at all times.

A well-designed Loan Origination System, or LOS, is a well-oiled mechanism that enables the processing of loans with efficiency and ease. While LOS simplifies the loan application process for borrowers, it also empowers financial institutions, the lenders, with risk mitigation, decision support, and compliance management. Further, it ensures precision in credit risk evaluation and adherence to regulatory guidelines that usually evolve with time. The system can be viewed as a strategic asset for financial institutions. It makes the organization more agile, reduces operational costs, and elevates the overall competitiveness of the organization.

Our case study dives into the journey of how Agile Soft System built an advanced Loan Origination System for a client and helped them solve a problem they were facing with their legacy system. The legacy LOS presented a significant challenge to our client, a financial services company operating in the consumer durable goods space, providing loans to consumers and businesses. They suffered drawbacks that hindered efficiency, compliance, and profitability. Given below is a breakdown of the challenges our customer faced with the legacy LOS.

Challenges with Legacy LOS:

The old system had limited scalability and flexibility and was affecting the bottom line of the company.

Rigid architecture: The Legacy system had an inflexible architecture built on outdated technologies, making it difficult to adapt to changing regulations, market trends, and new product offerings.

Limited customization: Modifying or extending functionality in their legacy system was becoming increasingly complex and an expensive process. This was hindering innovation, growth, and agility.

On-premise infrastructure: Scaling up or down during peak periods and for sustainable future growth was challenging with on-premise infrastructure. The old system was breeding with bottlenecks in processes and wasted resources.

Manual workflows: Many legacy systems rely heavily on manual data entry and processing. Though our client had IT intervention in most parts of the process, a significant part of the process was still done manually, which led to human errors, delays, and increased operational costs.

Limited automation: Repetitive tasks such as document verification and credit scoring were not entirely automated, hindering efficiency and customer satisfaction.

Poor integration: Integrating legacy systems with other internal and external applications was proving to be complex and costly, creating data silos and hindering collaboration.

Data silos: The legacy systems stored data in isolated silos, which was difficult to access and analyze for better decision-making and risk management. They had attempted to build workarounds, which added to the complexity of the architecture.

Security vulnerabilities: Outdated security protocols in legacy systems left the system vulnerable to cyber-attacks and data breaches, posing compliance risks.

Outdated UI/UX: The user experience was not optimal, to say the least, and the employees and customers found the interface difficult to navigate, leading to frustration and decreased productivity.

Poor reporting and analytics: The legacy system lacked robust reporting and analytics capabilities, making it difficult for decision-makers to gain valuable insights into loan performance and customer behavior.

High maintenance costs: Legacy systems required ongoing maintenance and upgrades, which were turning out to be expensive and resource-intensive. Moreover, dependence on specific vendors for maintenance and support was driving up costs.

Loss of innovation: The old application and its architecture hindered the adoption of new technologies and innovative solutions, putting the institution at a competitive disadvantage.

Compliance challenges: Keeping up with evolving regulations was becoming difficult with limited automation and data visibility.

Talent acquisition: Attracting and retaining skilled IT professionals to manage legacy systems was challenging, as new talent was more inclined to work with organizations that worked with new technologies to further their careers.

Negative customer experience: Inefficient workflows and outdated interfaces in legacy systems led to poor customer experiences and were negatively impacting the institution's brand loyalty. Customer experience was a major concern as the client had lost a substantial portion of the market share to new entrants.

Data migration challenges: Moving data from legacy systems to modern platforms can be a complex and time-consuming process that requires careful planning and execution. Though the client's business team was desperately looking for solutions to modernize the applications and migrate them to the cloud, their IT team lacked the experience and expertise to do so.

The business team had been actively looking to partner with technology companies that could shoulder the responsibility of modernizing the application and successfully migrating it to the cloud. Moreover, they wanted a partner who could ensure their existing business operations were not affected during the process.

Agile Soft Systems' Solution:

Agile Soft Systems embarked on a transformative journey of application modernization and cloud migration for our client. Our team strategically used the Strangler Fig Pattern to ensure our development efforts don't jeopardize the day-to-day operation of the business.

For the cloud platform, our client decided to go ahead with Amazon Web Services. Outlined below are the technologies we employed for specific aspects of the application.

Application Processing:

Frontend Development:

Technology: React.js

We built responsive and user-friendly interfaces for borrowers using React.js. This allows them to submit loan applications through online portals or mobile applications with ease.

Backend Development:

Technology: AWS Lambda (Serverless), Node.js

Serverless backend functions were developed using AWS Lambda and Node.js to handle application submissions, validate data, and manage user interactions.

Database:

Technology: Amazon DynamoDB

Our team used DynamoDB for our database to store and retrieve borrower information, application details, and loan purposes, ensuring scalability and low-latency access.

API Gateway:

Technology: Amazon API Gateway

We set up API Gateway to manage and secure the communication between the frontend and backend, allowing for seamless integration.

Credit Risk Assessment:

Machine Learning:

Technology: Amazon SageMaker

Our developers leveraged SageMaker for building, training, and deploying machine learning models that help the client's team perform credit risk assessments based on historical data and borrower information.

Data Processing:

Technology: Amazon EMR (Elastic MapReduce)

We used EMR for processing and analyzing large sets of financial data efficiently for risk assessment, incorporating Apache Spark.

Document Management:

Document Verification Services:

Technology: AWS Textract

Textract was implemented for Optical Character Recognition (OCR), so that we could efficiently extract and verify information from documents, including proof of income, identification, and collateral details.

Cloud Document Storage and Management:

Technology: Amazon S3

We utilized S3 buckets for storage and management of documents, ensuring security, easy scalability, and accessibility.

Automated Underwriting:

Rules Engine:

Technology: AWS Step Functions

Step Functions were implemented to orchestrate automated underwriting processes, integrating with a rules engine for assessing creditworthiness based on predefined criteria.

Decision Management System:

Technology: AWS Lambda, AWS DynamoDB

We used Lambda functions and DynamoDB to manage decision outcomes, store relevant information, and ensure flexibility and scalability.

Workflow Automation:

Business Process Management (BPM):

Technology: Amazon Simple Workflow Service (SWF)

Our team implemented SWF for modeling and automating end-to-end loan approval workflows, integrating document verification, credit checks, and stakeholder communication.

Messaging Queue:

Technology: Amazon SQS (Simple Queue Service)

Amazon's SQS was implemented to facilitate communication between various stakeholders and components of the loan origination process.

Common technologies used:

Cloud Platform:

Technology: Amazon Web Services (AWS)

We hosted the entire solution on AWS for scalability, security, and easy integration of various cloud services.

Containerization and Orchestration:

Technology: Docker, Amazon ECS (Elastic Container Service), Amazon EKS (Elastic Kubernetes Service)

Our developers containerized application components with Docker and used ECS and EKS for efficient container orchestration.

Authentication and Authorization:

Technology: Amazon Cognito

We utilized Cognito for secure user authentication and authorization, ensuring data protection.

Logging and Monitoring:

Technology: AWS CloudWatch, AWS X-Ray

Our team utilized CloudWatch for logging and monitoring application performance and X-Ray for tracing and analysis.

Continuous Integration/Continuous Deployment (CI/CD):

Technology: AWS CodePipeline, AWS CodeBuild

Our DevOps team implemented CodePipeline and CodeBuild for automating the CI/CD pipeline, ensuring quick and reliable updates.

Security:

Technology: AWS WAF (Web Application Firewall), SSL/TLS

We implemented WAF for protection against web exploits and used SSL/TLS for secure data transmission.

This comprehensive AWS-based technology stack ensures a scalable, secure, and efficient Loan Origination System, leveraging the latest cloud services and technologies.

Business advantage

By modernizing the LOS application and leveraging cloud technology, our client has gained a revolutionary advantage. Our transformative endeavor has considerably increased our client company's agility and competitiveness.

Our client was able to speed up loan approvals, which includes efficient document management, automated underwriting, and optimized workflows. This not only means faster processes for borrowers, but it also positions our client as an industry leader, ready to navigate the changing world of financial technology with greater efficiency and innovation.

Agile Soft Systems has experience and expertise in building cutting-edge software solutions for banking and financial institutions around the globe. We invite you to contact us for a consultation and to discover how we can elevate your organization's capabilities and drive success in the digital era.