For banks, the vast benefits and formidable challenges of implementing an integrated loan origination system, (LOS) and core banking solution (CBS), with experienced systems integrators (SI) playing a vital role.
A Case for a Single Loan Origination System for Core Banking Products
• Cognizant 20-20 InsightsA Case for a Single Loan OriginationSystem for Core Banking ProductsThis paper discusses the development of a comprehensive and flexibleloan origination system (LOS) that can be readily and seamlesslyinterfaced with a core banking system to cater to the bank’send-to-end transaction processing. Executive Summary • Provide internal credit checking, credit scoring and compliance checking. Loan processing is among the most complex of a financial institution’s operations. A loan origi- • Maintain all the application details and provide nation system (LOS) is developed specially to status updates as and when required. support banks and other financial institutions’ loan application processing needs. It employs • Support document imaging and archiving for various loan application-related documents. workflow technology to control and monitor the various steps in loan processing and uses digital Benefits of an LOS imaging technology to reduce the delays and inef- Typically, when a loan application is approved, ficiencies associated with paper documents. the loan servicing is initiated in the core banking system deployed within the bank or financial There is a need for a comprehensive LOS that institution. The core banking system takes care of enables the financial institution to process the entire loan servicing process, which includes multiple loan types through a single LOS — effec- generating the disbursement and payment tively serving as a single point of origination. schedules, interest computations, posting the An ideal LOS should: accounting entries, etc. However, the applica- tion processing workflow (which varies by loan • Have a structured workflow for automatic product offerings) is not typically supported by routing of applications for different loan the core banking system. products. An LOS therefore becomes a crucial bridge • Support multiple loan products and loan types. providing the automated workflow for capturing • Support different origination channels. and processing the customer’s loan application until the loan is booked in the back-end system. • Easily interface with different external Some of the benefits of deploying an LOS that is systems. cognizant 20-20 insights | august 2012
interfaced with the core banking system are listed application is approved, these systems are inter-below: faced with the core banking system to create a loan account for further servicing and maintenance.• Provides a single integrated, Web-enabled product that caters to all the workflow require- Instead of having these multiple LOS working in ments of the bank or financial institution. silos, the current need is to utilise any single LOS• Allows the client to configure and customize which is developed such that it caters to the origi- the application workflows according to their nation requirements across all departments . needs. In a world that is becoming more automated, inter-• A single origination system for all loan products connected and intelligent by the day, IT leaders allows the bank to maintain all the loan appli- know that it is time to take a new approach to cation data in a single location. Thus, each lending. The current systems are unsustainable department of the bank can operate autono- and will have to be replaced by more powerful mously if desired but can also access all the technology. What is needed is a stronger core data for cross-selling, tracking and reporting. banking system with an in-built LOS.• Providesan in-built document management system for capturing and maintaining the list Customers Seek a Single Vendor of documents required for processing loans. Providing an Effective End-to-end Loan SolutionAn LOS ensures compliance as all loan stipula-tions and loan covenants can be easily tracked We have observed that when there are too manyand the default parameters are applied based vendors, there is often fragmentation and theon the built-in business rules. This also reduces IT landscape becomes complex. The resultantmanual reviews of loan applications. disorder and inertia poses a tough challenge for business and IT leaders at banks and financialDisparate LOS Across Products institutions. Additional effort is needed toCurrently, most banks and financial institutions mobilize a diverse set of people and stakehold-use multiple LOS catering to different depart- ers including multiple vendors. Business leadersments within the institution. are discovering that they can no longer “cost cut” their way into market dominance and areFigure 1 depicts multiple origination systems expressing renewed interest in thoughtful, well-involved in processing different types of credit planned improvements to the systems thatapplications in a bank. Post processing, once the support lending operations. This accentuates theMultiple LOS and Core Banking System Interaction Retail and Consumer Commercial Lending LOS Lending LOS Initiate Application Initiate Application Capture Product Capture Product Preference Preference Negotiate Interest Negotiate Interest & Charges & Charges Capture Collateral/ Capture Collateral/ Document Details Document Details Credit Score the Customer Credit Score the Customer Multilevel Multilevel Decision-making Decision-making Reject Approve Reject Approve Core Banking System – Lending FrameworkFigure 1 cognizant 20-20 insights 2
need for core banking solution vendors to provide • An integrated solution enables the bank toa loan origination workflow in addition to the exercise better control over the solutionsloan servicing modules provided within the core provider since it does not have to deal withbanking product. multiple stakeholders. Challenges in Developing an Integrated LOSBenefits of Consolidation While it is desirable that a single vendor offer• Singlevendor consolidation will lead to both LOS and loan-processing services, it is chal- improved customer care through an intelligent, lenging for a core banking vendor to offer both customized end-to-end loan solution. solutions simultaneously:• A single loan processing solution will allow banks to reduce credit and operational risk • Existing backlog of requirements: Core through access to (and monitoring of) a banking includes a vast array of banking func- complete, timely and accurate view of customer tionalities that change on a daily basis. This information and analysis, together with the leaves the vendor with an ever-expanding list enforcement of corporate and regulatory rules of enhancements that need to be developed and processes within the lending cycle. for the core banking product to meet market requirements. This backlog of requirements• A consolidated system will provide a complete leaves the vendor with limited resources to 360-degree view of the customer right from develop an LOS that can cater to the generic the loan application processing stage. application processing workflows and can• Banks can optimize their operational efficiency be readily interfaced with the flagship core with straight through processing (STP) banking solution. and process improvement via a single loan processing solution. • Competition and investment influenced by market competition: There is keen compe-• Banks will be able to cost-effectively create an tition in the core banking market given that agile infrastructure that can grow and change there are multiple vendors offering competi- in response to market forces. tive products. Figure 2 is a snapshot of core banking vendors that are active currently.• Banks can save on license fees for software that is replicated by the core banking system. Also, With so many competitors plying their clients with the system vendor can earn additional revenue enhanced versions of their products, vendors as and when the product vendor implements are under pressure to invest not just in product the product at various clients. enhancements but also in marketing and sales• An integrated solution eliminates or reduces initiatives. This leaves them with limited budget the need for interfaces and also reduces and resources to invest in building an LOS that staffing requirements as fewer systems need interfaces with their core banking solution (CBS). to be managed.Global Core Banking Vendors North America Europe Asia Pacific • CSC (Hogan Systems) • Budgeting and Financial Planning • i-flex • Fidelity Information • Alnova • Infosys Services • ERI • Polaris • Fiserv • Financial Objects • System Access • Jack Henry • KORDOBA • Metavante • Misys • Open Solutions • SAP • Sanchez • TemenosFigure 2 cognizant 20-20 insights 3
CBS Vendors – Product Offerings • roduct (Vendor) P • etail R • holesale W • Alnova Financial Solutions (Alnova Technologies Corp) • Hogan Systems (CSC Hogan) • OLYMPIC Banking System (ERI) • Fidelity Financial Solutions/Corebank (Fidelity Information Systems) • activebank (Financial Objects) 2 • ICBS; ITI; VISION; Fiserv VISION (Fiserv) • FLEXCUBE Universal Banking Solution (i-flex) • Finacle Core Banking (Infosys) • SilverLake System (Jack Henry) • KORDOBA-Classic (Kordoba) • Financial Technology Services (Metavante) • Midas/OPICS (Misys) • The Complete Banking Solution; The Complete Credit Union Solution (Open Solutions) • Orbi One Core (Polaris) • Sanchez Profile (Sanchez Computer Associates, Inc.) • SAP Core Banking (SAP) • SYMBOLS (System Access) • Temenos GLOBUS/Temenos T24 (Temenos) Source: Celent report, The Global Vendors of Core Banking Solutions: The Heat is On, by Christine BarryFigure 3Existing product roadmap and bandwidth These SI partners provide a multitude of pro-issues: Each core banking product has a roadmap fessional services including business processfor further growth in modules and functionalities consulting, system integration, custom applica-over a period of time. Vendors have to progres- tion development and content development andsively invest money and other resources to follow other consulting and implementation expertise.the roadmap, which hampers investments in LOS Their services can also be used to develop andevelopment. in-house loan origination front-end system focusing on best practices in addition to flexibility,Leveraging Partner Skills ease of use and adaptability.Leading core banking system vendors areprimarily manufacturers of complex software The LOS should be built with features that providerather than system integrators from consulting a high level of user parameterization to cover thefirms. They are measured and rewarded according financing requirements across various geographi-to the number of software licenses they sell, cal regions and allow organizations who use it towhich form the basis of their long-term revenue create new products and services and bring themstreams. Vendors’ activities are therefore to market very quickly.focused on sales and performance rather than The key benefits of leveraging SI partner skillsstrategic consulting, implementation and inte- include:gration services. Hence, these CBS vendors formstrategic alliances with system integrators (SI) to • Extensive domain resource pool: The SIdeliver industry-best end-to-end solutions. partners have a large pool of resources with cognizant 20-20 insights 4