Advantages of digital data collection methods for loan underwriting
Underwriting loans is a critical part of the lending business, and data collection methods have a significant impact on the accuracy and efficiency of this process.
Loan underwriting begins with collecting data on the borrower, including information on their employment history, incomes, debts, and assets. This data is used to determine the risk of default and to set the loan terms.
Without accurate data, loan underwriters cannot make sound decisions. This can lead to defaults and damage the lender's reputation and finances. It also negatively impacts key KPIs such as loan loss ratio and delinquency rate.
The problems with manual data collection methods in loan underwriting
Unfortunately, the way lenders have traditionally collected borrower data is inefficient and error-prone.
Manual customer data collection methods have multiple drawbacks:
- PDF-based application forms and manual data entry are slow and often result in inaccurate data.
- In-person and phone interviews are time-consuming.
- Paper forms can be lost or completed incorrectly and depend on manual data entry
- Collecting data from third parties such as employers and landlords is a slow and manual process.
For underwriters who review hundreds or even thousands of loan applications, these problems snowball into all-around inefficiencies.
A manual data collection process is not only time-consuming, but is also prone to errors. Data entry, with no verification layer steps, has an error rate as high as 4%. Source
For loan underwriting, inaccurate data can mean the difference between an approved and denied loan. Customer experience is also negatively impacted, as the loan officer’s time is spent on data entry rather than relationship building and loan analysis.
Methods of digital data collection for loan underwriting
Data collection methods can be broadly divided into two groups: manual and digital.
Commonly used manual customer data collection methods include:
- PDF forms: Customers fill out PDF forms and email them to the lender or upload them to a customer portal.
- In-person or phone interviews: Loan officers conduct in-person or phone interviews with customers and key the data into the internal systems.
- Paper forms: Customers fill out paper forms, which are then scanned and inputted into the system. This method requires manual data entry, or relies on OCR technology.
Inevitably, the methods that require manual touchpoints are time-consuming and error-prone.
In contrast, digital data collection methods provide a more efficient way to collect customer data for loan underwriting.
Customer-facing data collection requires a digital UI used to interact with the customer, while other methods pull data from third-party systems such as databases and public records. The data is automatically populated into the Loan Origination System (LOS)
- Web-based application forms: Web-based application forms are digital versions of paper loan applications. They can be completed and submitted online, and the data is automatically populated into the LOS. However, they are not as user-friendly as native digital application experiences.
- Text messages/chatbots: Customers can text or chat with a loan officer to provide data.
- Digital data intake journeys: Customers provide data through digital interactive UIs accessible on digital channels such as a website, mobile app, or customer portal. These digital experiences are often more user-friendly than web-based application forms as they are designed specifically for digital channels such as mobile devices and tablets.
- API integrations: APIs collect data from third-party systems such as databases and public records. Those do not require a customer-facing UI.
Benefits of digital data collection for loan underwriting
Digital data collection methods offer a more efficient and accurate way to collect data for loan underwriting. Digital data collection methods such as digital data intake forms can greatly reduce the risk of errors while also increasing efficiency:
- Eliminate manual data entry: digital application forms can be easily integrated with the LOS.
- Increased accuracy: With digital data collection methods, loan underwriters can be sure that they are collecting accurate information. This is because digital data can be verified at the point of entry.
- CRM and LOS integrations: This method pulls customer data from the lender’s internal systems automatically. This eliminates the need to ask the same questions multiple times and also helps to keep the data up-to-date.
- Validation at the point of entry: Data is validated at the point of entry via validation rules, integration with internal systems, or using API and third-party data sources.
- Better customer experience: Digital data collection methods can help loan officers spend more time on relationship building and loan analysis rather than data entry. This can lead to a better customer experience.
- Seamless collection of third-party data: Lenders can simplify data collection from third parties such as employers and landlords.
- Reduced processing time: Digital data collection methods can help reduce the time it takes to underwrite a loan.
- Improved compliance: Digital data collection methods can help improve compliance with regulations such as the KYC and BSA/AML regulations.
The importance of UI for digital customer data collection
Digital data collection methods can help loan underwriters collect accurate and up-to-date information while also providing a better customer experience.
However, not all digital data collection methods are created equal. To ensure a successful digital customer data collection experience, it is important to choose a digital data collection method designed with UX/UI design best practices in mind: easy to use, visually appealing, and responsive to the needs of digital customers.
Transitioning from manual to digital
The transition from manual to digital data collection methods can be daunting, but it doesn’t have to be.
Here are a few tips to help make the transition:
- Start with a pilot: When transitioning to digital data collection methods, it is often helpful to start with a pilot program. This will help you test different digital data collection methods and find the one that works best for your organization.
- Train your staff: Once you have chosen a digital data collection method, it is important to train your staff on how to use it.
- Implement digital data collection methods gradually: When transitioning from manual to digital data collection methods, it is often helpful to implement them gradually. This will help you avoid any disruptions to your business and give you time to adjust to the new system.
- Try the no-code approach: No-code digital data collection platforms can help you transition to digital data collection methods quickly and easily. These platforms allow your team to create digital forms and workflows without relying on IT departments while ensuring that UI is top-notch.
Digital data collection methods offer many benefits for loan underwriting. By choosing a digital data collection method with a quality UI, you can ensure that your data is accurate and up-to-date while also providing a better customer experience.