At Level 0 lending automation, IT systems may be in place for loan management or core banking, but no technology platform is in place for digital lending or lending process automation. Lending is an entirely manual process for information gathering and assessment.

The loan officer processes and the underwriter decides whether to grant a loan. The person in-charge takes responsibility for processing the loan application and must review the information, work across multiple systems, bring data together and communicate with the applicant.

At Level 1 of loan automation, there are borrower/end user self-serve capabilities, such as online loan application and consent, digital onboarding, Know Your Customer (KYC) and anti-money-laundering (AML) requirements, as well as uploading of supporting documentation. However, there is no automation of back office processes, and no end-to-end integration of systems. Humans still process and assess all applications.

The loan officer remains responsible for driving the loan process, reviewing, and following up with the applicant manually. Gathering information about one or two of the five Cs of Credit can be automated at this level – parts of the process are automated but the decision making still rests with humans and is not automated.

In the lending scenario, the lending team uses a digital platform for loan management. Evidence gathering and validation, documentation processing, and interpretation are all automated. For borrowers, at this level, issuing has been digitised, with digital signatures for documents and online payments for loan drawdown. However, loan assessment is still done by a human.

At Level 2 of loan automation, the gathering of information around four or five of the five Cs of Credit can be automated, but lending decisions are still made by a human. The borrower’s user experience is digitised at this stage, however the lending team is busy filling gaps in the system and processes in the background.

At Level 3 of loan automation, there is process automation for both borrowers and lenders through the use of an integrated digital platform. The platform now also provides underwriting and decision support such as a full underwriting assessment report generated by the system, but humans still make final decisions. Some banks are already using systems at this level of automation to handle gathering data from the applicant, completing the loan application forms, and gathering documentation.

Automated loan systems can also fulfil KYC and AML requirements, client onboarding, and documentation validation. These systems automatically extract data from documents or gather data from third-party systems, and hence all the data required for an application is automatically gathered, processed and validated.

In other words, information about all five the Cs of Credit can be gathered by such systems, but credit decisions are made manually. The loan officer still performs final checks and reviews and makes the ultimate decision, but their time isn’t allocated to administrative tasks. Rather, their expertise is applied at the decision-making level only, allowing them to be more productive.

A banking system at this level of automation entails fully automated processing of applications, credit decisions, and issuing for specific types of credit applications. However, human intervention is always needed to complete the end-to-end process, for example full end-to-end processing of mortgage applications.

At this Level 4 of loan automation, all five Cs of Credit are both researched and decided upon by the system. However, more complex products would still be driven by a loan officer. Not only the process but also the credit decision is automated to a large degree.

At Level 5 of loan automation, the system itself not only gathers, processes, and validates information and data, but also makes decisions, even about complex loan products. The system learns as it goes as Artificial Intelligence does, so its decision-making constantly improves. The system is, therefore, able to assess the applicant’s credit history, debt-to-income ratio, disposable income, assets to serve as collateral, the purpose of the loan, the interest rate, and the loan amount in order to come to a decision guided by rules built into the system.

In short, Level 5 is the Holy Grail of loan automation. It includes the fully automated processing of applications, credit decisions, and issuing for all credit applications. No human intervention is needed in any part of the process e.g. personal loans or SME loans.