A Case for a Single Loan Origination System for Core Banking Products


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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.

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A Case for a Single Loan Origination System for Core Banking Products

  1. 1. • 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
  2. 2. 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
  3. 3. 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
  4. 4. 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
  5. 5. rich banking industry experience and a deep • Efficient program management: The SI understanding of how the business is executed partner will have highly experienced program within different banks and regions. The and project management personnel as well as resultant banking industry knowledge can be international business and technical domain leveraged while developing the LOS. consultants.• CBS expertise: The SI partners typically have • Bandwidth availability: Sufficient bandwidth multiple resources with hands-on experience in and skilled resources will enable the SI partner several core banking products such as Flexcube, to focus on developing a comprehensive and Finacle, Silverlake SIBS, etc. This gives them a flexible LOS that can be readily interfaced with unique perspective on the core banking mar- T24 and also with other core banking platforms. ketplace and an insight into how banks can optimize their engagement to ensure that their Conclusion return on investment is assured. An LOS that is seamlessly integrated with the core banking solution is becoming a critical• LOS experience: In addition, the SI partner will requirement for banks. However, for the CBS also have experience working on different loan origination systems. This knowledge can be vendor, building such an LOS involves several leveraged for developing the LOS for the core challenges. These challenges can be overcome banking system. through partnering with system integrators and leveraging their strengths.About the AuthorsRohan Kudav is a Senior Manager with Cognizant Business Consulting. He has more than 11 years ofexperience in retail and corporate banking leading numerous core banking consulting engagements.He majored in commerce at the University of Mumbai and is an associate member of the Institute ofChartered Accountants of India. He can be reached at Rohan.Kudav@cognizant.com.Megha Bhasin is a Consultant with Cognizant Business Consulting. She has more than seven years ofexperience in the banking domain across retail and corporate banking. Megha has worked on multiplecore banking products including Temenos T24, Flexcube, Finacle and The Complete Banking Solution(TCBS). She majored in commerce at Panjab University and holds a management degree in finance fromICFAI, Hyderabad. She can be reached at Megha.Bhasin@cognizant.com.About CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered inTeaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industryand business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50delivery centers worldwide and approximately 145,200 employees as of June 30, 2012, Cognizant is a member of theNASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performingand fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. 1 Kingdom Street #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA Paddington Central Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London W2 6BD Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 20 7297 7600 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 20 7121 0102 Fax: +91 (0) 44 4209 6060 Email: inquiry@cognizant.com Email: infouk@cognizant.com Email: inquiryindia@cognizant.com©­­ Copyright 2012, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.