Loan Application and Disbursement Process Digital Business Models and Processes Summer 2022 Anton Gerunov, Ph. D. Team: Adeliya Georgieva - 2EB3100073 Lora Dineva - 4EB3100124 Hristian Boyadzhiev - 0EB3100061 Valeria Marinova - 8EB310015 Velko Velkov - 6EB3100155 Introduction with context of the process The current work aims to describe the traditional process of granting a consumer non-purpose loan. The process excludes the steps of registering a pledge as such is not required for non-purpose loans. Short process and goal description The traditional process consist of the following steps: 1. the customer visits the branch 2. the banker identifies the individual and provide him documents to fill out 3. the customer fills out a request for a loan 4. the banker request a list with additional documents to be provided by the customer 5. the customer prepares the documents 6. some of the documents are obtained from governmental institutions such as NRA and NSSI 7. the customer physically brings the documents to the branch 8. the banker verifies the documents 9. the banker scans the documents 10. the banker inputs the data from the documents and the scanned documents itself into underwriting system 11. the banker prepares a credit proposal and sends it to the branch manager, as a first level of approval (or rejection) of the loan 12. branch manager reviews the application and the attached documents and either approves or rejects the request for loan 13. 13.1 if application is rejected on a first level of approval, the client is informed about the rejection and the process is over 13.2 if the application is approved by the branch manager, it continues to a second level of approval → risk officer 14. the risk officer reviews the application and make a decision 15. 15.1. if risk office rejects the application, the customer is informed about the rejection and the process is over 15.2. if the risk officer approves the application, the process goes back to the banker who prepares an agreement 16. the banker contacts the client to inform him/her about the positive decision 17. the customer visits the branch 18. the customer signs the loan agreement 19. the banker scans the document 20. the banker sends it to the division that is processing and registering the loan agreements (credit administration / operations) 21. the credit administration division reviews the agreement 22. 22.1. if some issues are identified, the agreement is sent back to the banker for revision and corrections if needed. Thus, steps 16 to 21 are repeated 22.2. if no issues are identified, the administration team registers the credit into the core banking system 23. 24. 25. the credit administration informs the banker for the successful registration of the loan the banker informs the client the client disburse the loan → end of process A formal model of the process using a UML activity diagram A critical evaluation of the process and its potential for improvement and automation The process revision starts with a critical evaluation of the workflow that will show the possible areas for improvement. The next step will be to consider different options for changes. 1. Multiple contacts with the customers The customer visits the branch a minimum of three times which costs time both to the customer and to the staff. Customer satisfaction is diminished and the processing and waiting time are increased, which in turn increases costs. Providing predefined conditions and prerequisites will reduce the necessity for two visits during the loan application. This can be considered even in a non-fully digital environment, where the information on documents and forms are available online, through call center, etc. Furthermore, the whole process could be guided through a mobile or online application that includes secure identification. The customer-facing application will reduce quality issues, because the system will have constraints on information input. In addition, documents can be collected through the same entry point for easy classification and verification with an automation solution, such as OCR. A digital platform can allow tracking and simplify the communication by connecting directly the originator to the recipient rather than going through several parties. For example, the approval or rejection on a first level (branch manager) or second level (risk officer) could be sent directly to the customer, instead of going through the banker. The last contact with the customer is the signing of the contract which can be simplified by sending it for signing with a qualified electronic signature or similar. 2. Requesting information from the customer, available elsewhere Reducing the contact with the customer and shifting responsibility for the information to them carries risks of fraud, which can be hedged by getting a majority of the information from verified sources such as Government agencies. As long as access to this information is available to the creditor, it should and could not be requested from the customer. A non automated solution might be to give the responsibility to a centralized operations unit that fills in the application of the customer based on their input and adds the results of checks from external and internal sources. This would free up the banker from operational activity and redirect their efforts to sales, however, it might lead to bottlenecks in the credit operations division and increased waiting time. The final approach will depend on the nature of the checks - their complexity in terms of execution time and required knowledge. The most efficient approach would be to build direct integration between the underwriting system and the necessary registers. Data can be requested by the system after identification of the customer and input directly for the loan approval process. 3. Approval process The approval process should eliminate the branch manager approval. The main function of the branch manager in this workflow is to filter out customers so that the risk managers do not get overloaded. Again, the specific statistics - percent of customers rejected at branch manager level will determine whether it is possible to eliminate the control. If there is a low rejection rate, it will be more efficient to remove an actor and the time associated with their actions and move directly to the risk manager. The banker will most likely not increase the rejection rate, as there is a conflict between business and risk goals. The risk scoring could be partially or completely automated. Relying on the information submitted by the customer and the one collected from verified sources, a model can decide whether to approve the loan or reject it. The process could be fully covered by the model or the rejections or approvals could be transferred to a risk manager for a final decision. This will depend on the general strategy and volume of handling exceptions and deviations from the standard workflow. 4. Contract preparation and disbursement As all other rework, the errors in the contract preparation should be addressed. The checking of the contract should certainly be done before the customer is called and signs it, to avoid dissatisfaction. Also, manual contract preparation is not suitable for front-office workers as it requires too much time and concentration. Defocusing time leads to decrease in quality. The contract preparation process should be centralized in the operations unit that receives the information directly from the underwriting system so that it performs consistently. Then it is send to the customer for signing. If the contract is signed digitally, this will free the banker and send the information directly to the booking unit. Both the contract preparation and booking into the system are activities very suitable for automation. After risk approval, the conditions of the loan are highly logical, follow internal and external rules and regulations and the parameters of the deal can be easily translated into machine understandable tasks. Conclusion The automation process would eliminate some of the duties of the bank employees and will also eliminate the amount of paper used. As well, the speed of the approval process overall should speed up. Prioritization of the improvements will strongly depend on monitoring and statistics of the current workflow, that are not described here, but are critical for cost-benefit analysis and defining next steps. Appendix A: - Suggested E2E Revision Appendix B: Team members and contributions Student Process Selection UML Modelling Process Description Process Revision Process Automation Review and Editing Adelia Georgieva ✔ ✔ ✔ ✔ ✔ ✔ Lora Dineva ✔ ✔ ✔ ✔ ✔ ✔ Hristian Boyadzhiev ✔ ✔ ✔ ✔ ✔ ✔ Valeria Marinova ✔ ✔ ✔ ✔ ✔ ✔ Velko Velkov ✔ ✔ ✔ ✔ ✔ ✔
