The lending process is one of the service pillars of every bank and financial institution. Lending services support financial organizations and allow them to calculate high ROIs. Banks, NBFCs and other financial institutions offer various types of loans to their customers at an interest rate fixed by the organizations. Lending processes before were all about heavy paperwork, which caused unnecessary delays, confusion, and burdens of handling tons of papers and documents of customers. Since technology has taken over, the lending process is more consolidated, organized, and systematic. IT companies and service providers have developed and introduced various Loan Origination Systems (LOS) to support the loan application processing based on specific requirements by banks and financial institutions.
Loan Operating System is a technology-driven process. It controls and monitors the workflow of loan processing and reduces the delays and inefficiencies of handling paperwork. Loan application processing workflows are the most critical feature of the loan origination system. The loan applications monitoring starts at the initial stage and continues till the process is approved. The loan origination system also allows performing the work steps at different locations at the time, maintaining control of flows. Business analysis is also a pivotal stage for loan application.
The process workflow of Loan Origination System:
The approval process of loan origination system goes through many stages. The origination process varies from lender to lender, manual and automatic. Under the whole process loan origination system is responsible for everything that occurs from pre-qualification to loan approval and disbursement. The process workflow in LOS is same as the conventional process. There are only seven stages that are critical components of the loan origination process:
- Loan eligibility:
The first stage is pre-qualification stage of the loan origination process, where the borrower must submit important identical documents to the lender such as ID proof, address proof (Aadhar, Voter ID, Pan card), current employment information including salary slip, credit score, bank statement, and previous loan statement to verify the customer profile for loan eligibility. After thorough credit verification and validation of the customer documents, the lender determines if the customer is eligible for availing the loan. After approval, the borrower can move to further process.
- Loan application:
It is the second stage of the loan origination process. Under this stage, a borrower files the loan application through online submission of their documents as most of credit companies and financial institutions are following the new technological paperless process.
- Application processing:
Processing the loan application is the third stage of the loan origination system. Under this stage, the department receives a submitted application and reviews for its accuracy and completeness. If the application is incomplete, it is returned to the borrower for completing the missing information. The funding is to some corporate sector business analysis is compulsory.
- Credit Underwriting:
Credit underwriting is the fourth stage of loan origination process. This stage begins if the application is completed. Each credit department takes into consideration a variety of different components such as the credit score of borrowers, risk scores, and many more. Due to the technological changes, this process is now automated with the help of a rule engine and API integrations with credit scoring engines in LOS.
- Credit decision on loan process:
It is the fifth stage of the loan origination system. This stage begins after the results received from the underwriting process stage. Under this process, the application is approved, denied, and sent back to the borrower or originator for additional information. The certain information which is not matched with the rule engine set will be changed according to the parameters fixed. The changed parameters can be in the form of the reduced loan amount or increased interest rates.
- Quality analysis:
This is a critical step as the lenders analysis the application a final time before loan disbursal. Under this process, the application is sent to the quality check team for analyzing the critical variables of the application and comparing with internal and external rules.
- Loan disbursement:
It is the last stage of the loan origination system. Loan disbursement process starts after checking if all necessary documents are submitted and undergone the requisite quality check. Most of the loans are sanctioned after the documents are signed, but some loans like second mortgage loans, business loans, loans against property, and many more require additional time for legal compliance reasons.
Why is it important to test different LOS Workflow?
It remains a focus for financial organizations to improve the LOS workflow in the current market scenario. An organized LOS workflow improves customers’ experience and return on investment. With digitalization of LOS workflow, it has become essential for organizations to test different LOS platforms. Systems must undergo thorough functional testing (user acceptance testing, UI/UX testing, integration testing, regression testing, and more) and non-functional testing (performance testing, security testing, data migration testing and more) process to perform without any technical errors. Let us see the importance of testing different LOS workflows,
- Data entry and verification – Maintaining data integrity and security are the focus of any organization. By testing the LOS workflow, a team can ensure that the data entry process is verified. They can further ensure that there is no misleading or missing information that is mandatory for the process.
- Underwriting – The LOS workflows testing improves credit underwriting. The team can easily access the customer data and information to validate their eligibility and decide whether to accept the risk of lending to a particular person or company. Testing the LOS workflow allows the team to make credit-related decisions quickly and easily.
- Disbursement – Testing the LOS workflow facilitates the disbursement process. After the system carefully analyses the information and the credit approves lending to a particular customer, the disbursement process becomes extremely easy and seamless.
- Post Disbursement – After the loan is disbursed, the system still tracks the loan application process. The system actively validates information like tenure, moratorium, calculated interest rate and more. Testing the LOS workflow process enables post disbursement process.
- Reports – A system has the reports used for various decision-making purposes. LOS workflow testing ensures that the report generation is quick and error-free. The testing process also allows the extraction of an accurate report from the system whenever needed.
Testing the LOS workflow is equally important as testing the Loan Management System. Following is the process flow that is validated during the LMS testing.
- Loan onboarding
- Loan Repayment
- Loan Servicing
- Delinquency and NPA processing
The credit decision is the main feature of every loan process. The system analyzes the information of customers, which helps the lenders make the right credit decision to accept the risk of lending to a particular person or company. A customer portfolio is beneficial to evaluate the capacity of the borrower. It is also important to mitigate the lending risk, and the organization must have the risk management system ready to help revaluate the customer profile. LOS workflow testing validates the system’s capacity to handle the end-to-end lending process.
Reduced turnaround time is an important criterion to test LOS workflows. Hence, the loan origination system is tested to check the system’s response time and the quality of the process. Since the loan originating systems are updated frequently with information, testers must run regression tests to ensure that the frequent changes are not damaging the system performance. Testers must also frequently write functional test cases and test data to incorporate the functional changes in the system. Designing Migration test cases prior to execution is a critical step for a team because it ensures that the system performance remains unaltered during the data migration process.
Yethi’s experience testing different LOS workflows
Yethi’s testing approach is based on complete business analysis. We understand your business strategy, direction, and objective of technology transformation and identify the role of individual processing engines within the bank’s overall IT Architecture. We also make a considerable effort to understand your system integration requirements and the impact parameters.
We build a thorough test strategy and plan to ensure that we meet all your testing requirements. We also design functional test cases based on test data, regression test pack, and migration test cases to test execution. We manage the defects by defect categorization, metrics reporting, and test closure report with an enhancement analysis report for future reference. We also measure the scope of regression and execute the regression scenarios.
Yethi’s fifth-generation codeless test automation solution, Tenjin validates your LOS by automating the testing process. Its intuitive features and the Robotic UI discovery engine work flawlessly across multiple applications. It is a fast and scalable test automation platform that ensures high system quality through end-to-end testing.