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The Future of Loan Origination Software: Industry Trends to Watch in 2023

Digital progress is in full swing, leaving no business sector intact to the quick digitalization and digital transition pressures. The same goes for the lending business, which faces many challenges for automation, risk minimization, and loan origination cycle shortening. 

This is what loan origination software (LOS) can do for a business of any scale and specialization, be it mortgage, consumer lending, brokerage, credit union, or any other financial services provider. 

Statistics presented in the figure below show that the LOS market is growing on a global scale, with promising forecasts for 2027.

The Future of Loan Origination Software_ Industry Trends to Watch in 2023_3_ABLE

This article will walk you through the origins of LOS in the lending industry to clarify its use cases and business benefits. 

We also present the top trends for loan origination software to watch in 2023 to make your lending business more efficient, competitive, and automated.

Current State of Loan Origination Software 

There’s always a steadily rising demand for loans for various purposes – buying a new house, paying for tuition, or financing business expansion. 

Thus, the global digital lending platform market size has been enjoying notable growth in the past years, especially given the high barriers to getting a loan from a regular bank. All segments of the digital lending market are expanding, including the LOS sector.

Digital Lending Platform Market Size By Component_ABLE

There’s solid evidence for the cloudless prospects of the LOS industry, with the global LOS market valued at $3.9+ billion in 2021 and the anticipated CAGR for 2022-2030 at 10.73%. 

This gives us the loan origination software market forecast for $9.5 billion by 2030 – a rapid increase that not many digital market sectors can boast of.

Global Loan Origination Software Market_ABLE

Limitations of Existing LOS Products

Such fast growth and market expansion are impossible without embracing the hottest digital trends driving other markets forward. 

By embracing the innovations in loan origination technology, businesses can address some of the existing limitations of LOS available to date, such as: 

  • Lack of customization. Many LOS products available in the modern software market are plug-and-play versions with a limited spectrum of adjustments. They can hardly be fine-tuned to meet your unique business goals. 
  • Limited scalability. Existing LOS systems are rarely meant to process high-volume loan applications and are pretty limited in scope.  
  • Integration challenges. It’s hard to find a truly omni-platform LOS product that integrates smoothly with other software infrastructures. 
  • Poor data analytics. Without modern AI and ML functionality, LOS systems are limited in their data processing potential. 

Security risks. Not all loan origination software providers can address regulatory compliance, user data protection, and cybersecurity threats at the same time. 

Business Benefits of Adopting a LOS  

The future of lending technology is determined by how well the market players will manage to embrace technology trends in loan origination and adopt them in cutting-edge LOS solutions. 

Attaining technical superiority in the LOS use promises many business benefits, including: 

  • Increased competitiveness. Lending businesses that embrace modern technology, get data-backed analytical insights, and automate their operations are doomed to success in this highly competitive market. 
  • Ability to address evolving customer needs. Flexibility and responsiveness are the key benefits of cutting-edge LOS solutions equipped with the latest tech innovations. 
  • Better regulatory compliance. It’s easy to address compliance and regulations in loan origination with innovative technology tracking regulatory changes and sending timely alerts for software optimization to avoid penalties. 

Robust data analysis and risk management. One of the loan origination software benefits is the ability to generate masses of data that can be used for an accurate and nuanced analysis of lender behavior, trend identification, and risk management.

Key Trends in Loan Origination Software 

Adapting to changing loan origination practices is imperative for businesses to stay relevant and competitive. In other words, the digital transformation in loan origination is unavoidable, and businesses should keep pace with the changes to survive. 

Here are the top loan origination trends to watch and follow in 2023 and beyond. 

Artificial Intelligence and Machine Learning in Loan Origination Systems

AI in loan origination is quickly gaining popularity and becoming one of the hottest loan origination software trends

Artificial intelligence tools greatly help loan providers because they can process and validate documents and data from borrowers and provide concise data-backed insights into applicants’ creditworthiness. 

Sophisticated machine learning algorithms can be efficiently trained to analyze borrower profiles and assign credit risk scores based on multiple data sources, giving a smarter assessment of credit risks.

Due to these benefits, AI/ML has found the following applications in LOS: 

  • Conversational AI chatbots
  • Intelligent document automation (IDA) 
  • Robotic process automation (RPA) 
  • ML for credit scoring 
  • ML algorithms for fraud detection

Examples of AI-Powered Loan Origination Systems 

We have carefully curated a list of the top loan origination systems that incorporate AI technology in their features. From this selection, we have identified the key functionalities of these systems. In this resource, you can discover the range of features available in AI-enabled loan origination systems.

  • ABLE Platform – AI-powered decision-making algorithms and advanced scoring system, fraud detection, churn reduction, and bad debt curation. 
  • Zest AI – AI lending models, lending insights, control over credit scoring, and risk predictions.
  • LenddoEFL – advanced analytics, alternative data usage, risk modeling. 
  • Turnkey Lender – proprietary AI-driven tool, ML algorithms, deep neural networks, advanced decision engine.
  • Tavant VELOX – AI-driven approach to loan data, ML algorithms, inconsistencies identification, process automation tools, and automated rules triggered to create decision-ready digital loan files.

Personalization and Customization 

Customer experience in loan origination is the key benchmark of business effectiveness, as 80% of business revenue usually comes from returning customers, not new ones. 

Investing in personalization is not a whim or premium-level service today. It’s a must for reputable businesses wishing to enjoy a stable market presence and customer trust and loyalty.

The benefits you get from customizing LOS systems are:  

  • Improved user experience. Users enjoy a better experience with lending businesses when they see custom-tailored loan options and personalized application settings on their resources. Besides, customized LOS can cater to specific population groups and respond to their unique needs. 
  • Better risk assessment. Customization of LOS can help businesses perform more nuanced evaluations of borrower data and make data-backed decisions based on their individual risk profiles. 
  • Higher customer satisfaction. Borrowers are generally more satisfied with personalized loan application procedures and relevant options that remove friction from the lending process.  
  • Higher conversion rates. Customized LOS products can offer more suitable loan conditions to borrowers with proper regard to their financial capacity and creditworthiness, thus increasing the likelihood of signing a loan contract.
  • Faster loan application turnaround. Automation of loan application procedures speeds up all routine processes and ensures applicants get a decision quicker.

Examples of Existing Personalized Loan Origination Software Products 

Here is a list of existing LOS solutions that allow reasonable customization of settings to ensure greater satisfaction and conversion: 

  • Blend – advanced data analytics use for personalized loan offerings, deeply customized lender experience. 
  • Habito – digital mortgage broker utilizing AI to process borrowers’ information and provide personalized offers.  
  • Upgrade – provider of personalized loans and credit lines for different borrower categories, personalized loan options based on every individual applicant’s financial circumstances.
  • Avant – provider of branded credit products, personal loans, and credit cards to meet individual financial goals; direct lender with no brokerage fees.

Low-Code/No-Code Development 

Using low-code and no-code LOS solutions is one of the industry’s best practices for loan origination system setup. This approach can help a business improve the loan origination cycle in many ways: 

  • Quick digital channel setup. It’s easier for lenders to create apps with the help of visual interfaces and pre-made, configurable components, thus saving time and resources on lending business setup. This approach speeds up all operations and allows faster time to market and loan confirmation. 
  • Little coding experience needed. Low-code and no-code development make it easier for business owners with limited coding knowledge to participate in the programming process. They can create and change work processes and loan origination rules, speeding up the programming iterations and adjusting to quickly changing business requirements in real-time. 
  • Seamless integrations. This coding approach facilitates frictionless integrations with existing systems and data sources, such as credit scoring services, customer databases, and credit bureaus. 
  • Business and IT team collaboration. Low-code platform modeling simplifies the interactions between business and IT teams, ensuring alignment between technical processes and business goals. A proper match is achieved between the tech knowledge and experience of IT experts and the business acumen of the lender’s team.
  • User experience improvements. Low-code and no-code development solutions allow the creation of intuitive and convenient interfaces, automate document generation, and perform status updates in real-time. It improves the processes’ transparency and minimizes the risk of errors compared to manual operations.

Examples of Loan Origination Systems Created with Low-Code Development Approaches 

Here is a list of LOS products embodying the best low-code enterprise capabilities:  

  • ProcessMIXlow-code solution ProcessMIX allows easy customer onboarding, credit decision-making, monitoring, collection and recovery, retention and cross-selling, AML and anti-fraud. 
  • ABLE Origination – low-code loan origination system with preconfigured features, product catalog, personal offer calculation, and customer document recognition.
  • Ellie Mae Encompass – a LOS provider with low-code development functionality; visual workflow designer, configurable rules engine, and form builder tools for businesses; minimal coding knowledge required. 
  • Calyx Point – a LOS following low-code development principles; user-friendly interface and extensive customization options for loan application forms; automated workflows for easy management of the loan origination process on the business side.
  • BytePro – a LOS with enhanced loan origination capabilities, flexible workflow designer and rule-based automation; a convenient and business-friendly visual form builder; customized application forms that match any business requirements.

SaaS, Loan Origination System as a Software – Subscription Model 

Cloud-based loan origination systems are an affordable and flexible solution that many lending businesses, especially small companies, start to embrace in 2023. 

Besides being functional and business-friendly, they are helpful in streamlining loan origination workflows and bring end-to-end automation in loan origination process

There’s nothing to fine-tune or do manually. SaaS software offers ultimate process standardization and represents functional, plug-and-play products.

SaaS solutions are gaining wild popularity in the loan origination software market, and that’s for a reason. Business benefits of this approach to setting up your loan origination system are numerous: 

  • Scalability. SaaS products allow infinite scaling of business infrastructure depending on the changing business needs. Cloud-based solutions allow easy access to software even in peak demand periods. 
  • Cost-effectiveness. Businesses avoid software and hardware acquisition and maintenance costs by using SaaS software on a subscription basis. 
  • Robust security. Cloud software providers take proper care of their servers’ security, employ end-to-end encryption, and follow strict access control and disaster recovery procedures to keep their clients’ operations safe. 
  • Enhanced collaboration. The software’s location in the cloud allows quick borrower-lender collaboration in real-time, without downtime or geography-related access limitations.
  • Faster deployment. The cloud provider’s capacity allows quick deployment of the lending app and prompt introduction of updates and new feature additions to the existing software.

Examples of SaaS Loan Origination Software 

Examples of SaaS loan origination software you may consider are as follows: 

  • ABLE MFI – SaaS retail lending and microfinance software, a complete toolkit for loan origination and management, solutions for retail lenders and microfinance organizations. 
  • Finastra Fusion Loan IQ – cloud-based LOS provider with syndicated, commercial, and structured loan functionality support, end-to-end loan lifecycle management, real-time data and analytics. 
  • Lendstream – cloud-based lending software for personal and business loans, support of loan origination, underwriting, and servicing features, easy third-party API integrations. 
  • Juris Origination – SaaS product for commercial lending services, end-to-end loan lifecycle management, from origination to servicing; customizable workflows and reporting tools.
  • LoanLogics – SaaS solution for mortgage lending, full automation of loan origination and underwriting procedures, compliance tools, and documentation management.

Blockchain 

Blockchain can be justly called the future of loan origination technology. It brings many essential loan origination process advancements, especially in the field of mortgage lending, where proper document management is key. 

It is easier for businesses to strengthen regulatory compliance in loan origination software with blockchain-powered solutions.

Other benefits of integrating LOS with blockchain include: 

  • Security. Blockchain operates as a decentralized, immutable ledger, allowing universal public access to records. It is a secure place to store borrower data and loan information that cannot be changed, removed, or otherwise manipulated. 
  • Transparency. Since most blockchain ledgers are public, anyone can access data about specific loans and conduct an accurate audit of loan-related transactions. This transparency is also helpful in the loan application and approval process tracking. 
  • Efficiency. Blockchain allows document processing and underwriting automation, ensuring that the loan application process goes smoothly and quickly. 
  • Lower costs. No intermediary oversight and low administrative expenditures make the overall loan origination process more cost-effective.
  • Smart contract technology. Smart contracts are automated, self-executing pieces of code that automate all loan-related procedures, from borrower-specific interest rates and conditions to loan covenants and repayment delay penalties.

Examples of Blockchain-Powered LOS Systems 

Examples of loan origination software 2023 utilizing blockchain technology are as follows: 

  • Symbiont – enterprise blockchain platform Assembly™, next-gen financial markets infrastructure, rigorous regulatory compliance tools, smart contract building functionality for lending businesses.  
  • Figure Technologies – provider of Provenance blockchain-based solutions for loan origination, equity management, banking, and payments services; lending software for individuals and institutions.
  • Bitbond – bank-grade asset tokenization and digital assets technology for lenders, ERC20 token generator for Ethereum-based lending resources, stablecoin issuance for on-chain payments.

Mobile Apps for the End User 

Mobile loan origination solutions are rising in demand together with the broader transition to mobile-first software products. In the times when everyone has a smartphone, providing an opportunity to get a loan with a couple of clicks is a grand competitive advantage. 

It’s fairly regarded as one of the key trends in loan origination software focused on enhancing the services’ usability and improving customer satisfaction and user experience. 

Mobile lending apps are rising in demand because of: 

  • Accessibility. Users with smartphones enjoy greater convenience and flexibility by accessing loan products at their fingertips.  
  • Better UX. Mobile apps are designed with intuitive interfaces and UX in mind, so borrowers find it easier to navigate the apps and complete the loan application process faster. 
  • Faster loan processing. Smartphones are equipped with cameras and GPS tools, which may speed up documentation, identity, and location verification for a quick loan decision. 
  • Increased engagement. Mobile apps allow real-time updates on the status of loan applications or approaching repayment dates via push-up notifications and alerts. Such engagement tools boost user conversion and contribute to higher application completion rates.
  • Competitive edge. Lenders with user-friendly, convenient apps have higher chances for user conversion due to a unique competitive advantage and better lending experience.

Examples of Mobile LOS Apps 

These are the mobile-friendly LOS products available in the market today: 

  • Kabbage – a digital lending platform with small business loans, a mobile app allowing quick loan applications and account management from mobile devices. 
  • OnDeck – a provider of small business loans, a mobile app for loan applications and status checks, and user-friendly account management. 
  • SoFi – personal loans, student loan refinancing, mortgages; mobile app with application features, loan status tracking, and account navigation on a mobile device. 
  • Rocket Mortgage – digital mortgage lender specializing in home loans, mortgage applications via a mobile app, document uploads, and loan status tracking.
  • LendingClub – peer-to-peer lending features, personal loans, mobile app for loan applications, viewing of application statuses, and account management.

Challenges to the Adoption of Loan Origination Software Trends 

Despite the appeal of innovative and functional loan origination software features that cutting-edge solutions promise for businesses, there are still significant bottlenecks in their adoption.

Resistance to change

Many businesses are slow in business modernization, and many find it hard to adapt to quickly changing market conditions. It is especially relevant to large-scale corporations with complicated corporate processes, taking it too long to change.

However, small-scale businesses and startups are more agile and responsive in this regard, so they possess a unique competitive advantage in utilizing the latest LOS trends and gaining a fair share of the competitive lending market. 

Concerns about security and privacy

Adopting a new digital solution is always risky, as modern tech solutions often come with untapped cybersecurity loopholes and vulnerabilities. 

It is essential to partner only with trusted software providers and consider only well-protected LOS products with solid security and privacy guarantees.

Cost and time to implement new software

Transitioning to a new LOS may be financially challenging and take a toll on critical business resources. In this case, businesses should start with more affordable and flexible options like SaaS to try the new features of LOS systems and then advance their operations further. 

Conclusion 

Here you go with the main industry trends in loan origination software every forward-looking lending business should know and adjust to. 

As you can see, the hottest trending aspects in LOS development are personalized products built with AI, ML, blockchain, and mobile-friendliness in mind. 

These changes promise greater efficiency, security, end-to-end process automation, and more data-backed and smart assessment of borrowers’ creditworthiness. 

With these changes knocking at every lending business’s door, we can expect their adoption in mainstream use in the near future, with many of them becoming the new normal in the digital lending market.

FAQ

What are the emerging trends in loan origination software for 2023?

The top interesting trends in the digital lending market in 2023 relate to the advancement of business performance, efficiency, speed of loan application processing, automation of loan-related processes, and large-scale user experience enhancements. 

These gains are attained with the help of AI, ML, blockchain, and SaaS technology implementation in the existing and new LOS solutions.

How is Artificial Intelligence (AI) transforming the loan origination process?

AI plays a critical part in improving loan origination processes due to its ability to collect, categorize, and make sense of big data. AI algorithms can be fine-tuned to analyze borrower information and issue personal conditions for loan terms and credit risk assessment. 

Besides, AI systems offer more nuanced predictive modeling and can assess credit risks more smartly than traditional balanced scorecard approaches. They consider a larger set of predictive data and project the borrowers’ financial capacity using not only historical data.


What role does automation play in loan origination software?

Automation is vital for lending businesses, as it helps speed up the tedious processes of document collection and verification and removes the risk of human error from this procedure. 

As a result, lenders can process large sets of documentation quicker and more precisely, making a loan decision quicker and improving customer experience. Accurate work of automated processes also minimizes the risks of erroneous credit risk assessment and protects businesses from bad loans.


What are the benefits of adopting cloud-based loan origination systems?

Cloud-based LOS products are flexible and cost-effective, ideally matching the needs of small businesses that want to enter the market quickly and spend little money on their LOS setup. 

SaaS products meet all business goals and provide extensive scalability and rigorous security protection, so they are a good plug-and-play solution for various use cases.


How can loan origination software enhance the customer experience?

Many modern LOS products are uniquely tailored with the customer experience in mind. They offer a wide variety of personalization tools and settings that can give a unique feel to users. Businesses employ loan terms personalization to produce only relevant loan offers and increase the chances of user conversion. 


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