When it comes to providing a seamless customer experience, finding the best software for your business is often like buying a new suit: one size doesn’t fit all.
The basic expectation is that a loan origination system (LOS) will improve the acquisition and loan onboarding process. Moving past that essential point, the biggest decision you are likely to face from the outset is whether to invest in a custom-fit software tailored to your business or whether to purchase a prebuilt off-the-shelf solution.
Both options come with pros and cons; a thorough understanding of the needs and resources of your lending business is crucial in finding the best fit for you.
Building custom software gives you unprecedented control over your LOS. You can make changes when you want, dictate how the software is deployed and can always control every aspect of your software. A tailored system done well can provide a truly bespoke set of features to a lender’s business.
With this kept in mind, it is also essential to take into consideration the benefits of owning a source code against the associated costs and risks— it’s often the case that the more customized control you have over your system, the more you will have to pay to maintain it.
A common misconception regarding an off-the-shelf solution is that it takes away your ability to control the product roadmap and the future development direction of your software; however, if you choose the right vendor, this need not be the case.
The best LOS software vendors rely upon user group feedback for out-of-the-box ideas, where the product roadmap isn’t the creation of a singular person, but rather a continual work in progress. New ideas are derived and developed from the people and businesses who actually use the product, rather than remaining as-delivered and running a risk of becoming stagnant.
Choosing the build route allows you to customize your LOS to your heart’s content. For example, you can adapt and tailor how the system processes decision applications, underwriting rules, contracts and many other aspects of the loan and onboarding process to the exact model required.
A key downside of developing a fully-customized in-house solution is that it can leave you highly dependent on the team or individual who designed the system. If this team were to become unavailable in the future at any point, your organization could easily end up in hot water.
As a compromise, many mid to high tier off-the-shelf loan origination platforms are, while not completely customizable, still highly flexible in terms of configuration, and can often provide all the options your business needs for the loan origination process.
To really maximize your business’ efficiency, your LOS will ideally integrate with systems and processes that are already in place.
That said, third-party integrations aren’t always guaranteed with packaged solutions, especially if you have proprietary software. When a customized solution is specifically tailor-fit to your business, you can ensure that all your systems integrate seamlessly.
Sadly, price tags for this bespoke work are often higher than specialized software vendors, which tend to have a longer list of standard integration partners.
If you have in-house LOS technology, you must also maintain these integrations when 3rd party providers make changes. Conversely, many good suppliers will maintain your loan origination software as part of the initial implementation cost.
Resource and Budget
With an out-of-the-box LOS, upfront costs are much smaller in comparison to designing your own software. The primary difference is that you won’t have to hire a team to build a system from the foundations up and to maintain it.
As a lender, it’s an unfortunate likelihood that you won’t have the expertise on hand to manage custom software without outsourcing at least some of the work. With a store-bought LOS, you can instead rely upon the experience of the software vendor to help you set up, manage, configure and maintain your system.
While there is an inevitable risk of difficulties if the vendor were to be unavailable when you need them, such as if experiencing an issue after hours, many vendors still provide ample online resources that can help you to oversee any issues until a customer service representative is available to assist.
To streamline the process of finding the best LOS fit for your business, we would suggest completing a requirements profile to create the RFIs (or RFPs) that will be sent to vendors. After you have scored vendors’ responses and analyzed the relevant figures, you can then evaluate whether there may be an off-the-shelf solution able to meet your business needs before you take further steps.
Speed to market
You will always find that a fully customized system will result in a longer implementation timeline. A tailored system often takes years to develop, test and employ. A major upside of purchasing a product from a specialized vendor is a drastically reduced timeline to go-live.
Ultimately, while canned solutions can’t be customized to your heart’s content, your ability to set up your system right away is often worth the compromise. This is especially true if you invest the time to find the system that best fits your business.
The primary benefit of custom-built software is that you can design and tweak it to meet your every need. Although this provides an invaluable edge to the efficiency of your business, some off-the-shelf software options can be just as competitive.
Many off-the-shelf solutions address the key needs of most companies in the financial industry, and at a much more affordable price point than a custom-built solution. If you search carefully, you’re likely find an industry-proven LOS solution that meets your needs and resolves your pain points.
In summary, the ideal loan origination software solution will allow you to build a scalable, profitable and secure lending business.
Though choosing between a ready-made solution and a custom piece of software is no easy choice for a business to make, ensure you give careful consideration to the long-term ramifications of choosing between building or buying an LOS system— and to which options would be most suitable in practice, not just on paper.