Digital Lending Dilemma: should we always just automate everything?

20th January 2022 - 12 min read

Lending digital dilemma - should we always automate

The benefits of automation are something we all have heard – a lot. It is true. For banks, lenders and FIs, there are significant benefits of automation. We should know we have been delivering them and preaching about them for years. But should we just automate everything all the time?

Well, borrowers want simple and fast, and FIs want efficiency and accuracy – automation delivers on all of these. The significant benefits for both the lender and the borrower make it challenging to argue against automation.

So it may come as a surprise when we say there are instances where manual processes have their place in modern lending. In fact, for most financial institutions setting up some manual processes can be advantageous.

Whilst Näktergal is all about automating processes, reducing costs and improving service through digitisation, in this article, we look at the other side of the coin and the times when you should go old-school.

The advantages of a fully automated lending system

A fully automated lending system involves very little manual oversight. With minimal human intervention, the system handles most applicants from application to payout and even repayment. A digitised approach to lending diminishes the cost of processing each application by cutting down on manual processing, reducing the error rate and enhancing accuracy.

For consumers, automation means improved decision times, faster time to cash, and fully automated application processes. The result is better customer and employee experiences, with the opportunity to generate higher application volumes at a lower risk.

Automation is an absolute must to scale a lending business efficiently. Yet, not every loan application is standard, and not every customer fits into a neat little box. In these instances, a fully automated lending system can struggle. In the real world, there are some downsides to automation.

The advantages of manual processing in lending

Firstly, we should clarify that when we speak about manual processing here, we’re not talking old-school paper and pen, but more using a system with manual inputs rather than having an end-to-end, integrated approach.

With that out of the way, excluding the regulatory requirements preventing the automation of everything in lending, there are good reasons not to automate everything all the time.

The advantages of manual processes in lending: identifying redundancies

In many cases, we’d say a manual process is the first thing you should think about when switching systems or setting up a new product. 

It is particularly insightful to map out the entire lending flow and all the processes involved, especially for lenders that have been up and running for a while. The practice of mapping out the flow is valuable as it immediately highlights redundant tasks and processes that exist purely to prevent human errors. 

Manual processing is a great way to scope out the requirements of a system and understand the bottlenecks that may occur. Watching the process in action through manual intervention helps understand each task’s purpose, and it becomes almost intuitive to identify what should be automated.

It is also much easier to make changes to a manual system in the light of experience when developing a product or just as a way to make things better.

The advantages of manual processes in lending: time to market

Time to market can be vital in launching a new lending product or market. Getting a fully automated system up and running takes time (especially if building it from scratch). It will cost money and tie up many people in the project (for self-build systems, the costs and time required are often significantly underestimated). In this instance, manual processing could be the fastest way to launch.

As the first step on a company journey, it is the quickest method of getting to market (aside from buying a standard product). It also gives the business time to build up cash and experience to set up automation in the meantime.

Manual processes can be set up quickly and don’t require many resources to get going. A manual approach to lending doesn’t even need many developer hours to build. Fewer resources, less time and standardised software all mean that the cost of setting up an initial manual system can be much lower than a fully automated and integrated system.

Manual processing allows the company to launch, test, revise, and relaunch products rapidly, only moving to automation once they know that they have a winning offer for their customers.

Self-building a manual system to get started fast is a story we’ve heard a hundred times. Whilst it can be a great stepping stone to building a better, more automated system, this is not a recommended approach that will work in the long term. There are numerous difficulties with these set-ups. Most commonly, keeping track of information, contracts, payments etc., becomes increasingly tricky. Moreover, the manual input required will be significant even with just a few applications per day. To top it off, as the business scales, these challenges only grow too.

The advantages of manual processes in lending: proof of concept for investors

Proving your product works and, more importantly, that real live people will buy it is a crucial step on the road to getting funding. Most companies require external investment, and having a proof of concept system in place helps significantly with this. Even when applying for a permit, having a system already helps.

Processing loans manually in the early days is a great way to prove to potential investors that the product is worthwhile and that people will buy. It isn’t necessary to have an automated, integrated system that links with brokers, comparison sites, and affiliates from the word go. Instead, developing a minimum viable product (MVP) and showing investors you have a business that is trading, even if it is not at significant volume, will get you a long way towards securing initial rounds of investment.

Once new funding is in place, the business can scale up and implement new automated systems.

The advantages of manual processes in lending: proving sales channel

When an agreement to collaborate with a partner is made, how do you know it will bring in the level of sales you expect? How can you ensure a new advertising platform will bring in high volumes? The reality is, it is tough to know until you start using them. So, spending vast sums of money integrating a new broker site right away might not be the smartest move.

Instead, kicking off with a more manual approach to handle sales allows you to determine if the investment required is justifiable. Processing manually in the early days also gives you an overview of the types of applicants you will receive from the broker.

The advantages of manual processes in lending: edge cases

Any company that prides itself on being agile and responsive to customer needs has to have a way of coping with applications that are out of the ordinary and yet still profitable.

When it comes to lending, there are an almost infinite number of edge cases and applicants that, whilst they should qualify for a loan, don’t precisely fit the mould. In these situations, having human intervention from an experienced manager who can look at all of the circumstances and then progress the case through underwriting is a considerable advantage.

So a robust and straightforward manual process in place means more flexibility. For those edge cases, manual inputs and overrides mean a credit handler can make the decision themselves.

The advantages of manual processes in lending: manual inputs

Sometimes a manual way to put in data is needed—for example, lenders whose primary sales channel is cold-calling or snail mail. Or even when a customer will call to adjust the terms or update their information just before completion. A fully automated approach with no manual override doesn’t work in these examples. There needs to be a simple way for information to be updated.

It is helpful to have a way to manually process loans, even when you have an automated front-end. So credit handlers can add information into the system.

The advantages of manual processes in lending: new product testing

When it comes to launching an unproven product or in a completely new niche, testing a more manual version can save a lot of money and headaches before investing in integrating and automating everything.

The manual version provides a benchmark to determine whether the new product has potential. If the product takes off and proves to be successful, then the investment in automation is more compelling.

Automation is the goal - but manual along the way has benefits

Automation has its perks. For the most part, automation is the best option because it speeds things up, reduces costs, provides a better customer experience and makes life easier for credit handlers. But automation isn’t always the answer.

Sometimes manual makes sense. A manual process can save valuable resources, particularly for lenders, just launching or testing the waters with something new. Manual processing is quick to set up, flexible, and can prove concepts and products so that the investment case for a later automated system is much stronger.

However, for high volumes or the long term manual has significant disadvantages. We would always recommend investing in a lending system like ours once the lay of the land is understood. We are experts in lending; the team has done this for decades. We can have you good to go with a standard product very quickly.


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Of course, automation wins for us. For anyone looking to launch a scalable lending product automation is the only way to go. However, there are times and instances where manual isn’t the worst idea e.g. proof of concept, new product testing and edge cases. 

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