There is only one economic certainty: in any given region or industry, there will be good times and bad. It’s an obvious statement – but when it comes to finding the “right” time to invest in originations software, it’s hard for large lenders to do so. They are hesitant to invest in new software during down economies, and too busy originating loans when times are booming.
Quite often, “right now” is the right time to invest. As the global economic pendulum swings, originations software enables lenders to benefit from efficiencies in lean times and robust throughput when credit appetites return.
Originations software as a strategic asset
It’s important to take a strategic, long-term view of the software used to originate loans. Beyond its main job, originations software can significantly contribute to business success in additional ways. These include:• Operational efficiencies. In a down economy, reducing costs becomes critical. Having the most modern, up-to-date originations software in place can dramatically reduce the IT and business resources required to do business. If you move your originations software to the cloud, these savings can multiply quickly; you can shift IT resources and data center space to other areas of the business.
• High levels of scalability and agility. When negative economic cycles turn, they often change quickly, gaining momentum over the course of an economic recovery. The US auto market provides a snapshot of the importance of loan organizations’ ability to be agile in order to pursue rising demand.
For example, in March 2015, Experian Automotive reported that Americans had $886 billion in outstanding auto loans in the fourth quarter of 2014. That’s up nearly 23 percent from the same period two years ago. In June, another trend emerged: longer loans.
Longer loans, those with terms lasting 73 to 84 months, accounted for a record-setting 29.5 percent of all new vehicles financed, an 18.6 percent rise over Q1 2014 … The average amount financed and the average monthly payment for a new vehicle also increased to record heights. The average new vehicle loan was $28,711 in Q1 2015, compared to $27,612 in Q1 2014.
These developments are just two instances of why agility is required. In any industry, in the face of changing consumer demands and economic conditions, lenders need to be able to analyze potential changes and implement them quickly. Today’s originations systems can be up and running with new loan parameters or products in days or weeks, not the many months that legacy originations systems often require.
How to do it: A lesson from Southwest Airlines
For most large lenders, their originations environment comprises multiple systems from different vendors. Each of these systems requires dedicated IT staff and business analysts, each with a different skillset that can’t be readily transferred to a different originations platform.There’s a way to gain major efficiencies here, by standardizing on a single originations platform. It’s analogous to Southwest Airlines’ use of a single type of jet, a Boeing 737. Southwest’s V.P. of ground operations Chris Wahlenmaier says of the resulting cost-saving efficiencies:
Banks and other large lenders can take a page from the Southwest playbook. In a future post, I’ll talk about how some major lenders are standardizing their operations on a single originations platform, and the benefits they’re realizing as the global economic pendulum swings back and forth.“We only need to train our mechanics on one type of airplane. We only need extra parts inventory for that one type of airplane. If we have to swap a plane out at the last minute for maintenance, the fleet is totally interchangeable—all our on-board crews and ground crews are already familiar with it. And there are no challenges in how and where we can park our planes on the ground, since they’re all the same shape and size.”
