Loan Origination Software Market

Market Overview

The global loan origination market size was valued at USD 4.89 billion in 2022 and is projected to reach USD 13.24 billion by 2031, registering a CAGR of 10.5% from 2023 to 2031.

Loan origination software automates the end-to-end loan portfolio cycle, simplifying and improving both the application and approval of loans. Loan origination solutions offer a holistic view of borrower transactions across all channels and products within a single platform.

By centrally managing loan products, loan origination software reduces regulatory compliance risk. In addition, loan origination tools offer insight into each transaction through real-time business activity monitoring, as well as content and resource optimization through audit trails. Some loan origination tools include underwriting and rating software functionality and credit analysis. Loan origination software is often implemented through the cloud, and these solutions typically contain loan servicing software functionality or integrate with those solutions to provide a comprehensive loan management solution.

Growing demand from BFSI sector, advent of new companies in BFSI and IT sector and technology advancements are the factors propelling the market growth. However, the surge in cyber attack and breaches hinder the loan origination software market growth

Market Dynamics

Growing Demand from BFSI Sector

The BFSI sector is increasingly adopting loan origination software to increase productivity and enhance the customer experience. It is leaning toward advanced automation technologies, such as artificial intelligence, to understand consumer behavior better. AI-based loan origination software helps banks and financial institutions recognize customer choices based on their transaction history and prevailing trends, thereby improving customer engagement and building trust.

High demand for loan origination software in the banking sector for retail or customer lending, commercial, small and medium business lending, mortgage lending, and others to add flexibility and adaptability for future needs is expected to drive the market in the coming years. Credifranco, a U.S.-based Non-Banking Financial Company (NBFC), implemented Habile Technologies’ loan origination software solution in 2018 to cater to the increasing customer demand and allow users to extend loan and cancellations.

Regional Analysis

North America holds the higher CAGR and is expected to grow during the forecast period. The growth is attributed to presence of large number of leading vendors offering loan origination software that includes; Ellie Mae, Calyx Software, FICS, FISERV and Byte Software among others. Furthermore, early technology adoption among North American enterprises to enhance productivity and customers experience is also one of the factors propelling the market growth. Moreover, presence of large number of SMEs in U.S. which opts for loans for initial investment in the business also led to the development of loan origination software market.

Asia-Pacific is the fastest growing region in the adoption of loan origination software. The growth is attributed to growing adoption of advanced technology by financial institutions to enhance its productivity in emerging economies such as China, India and Australia among others. Furthermore, increasing government initiatives also led the financial institutions to adopt process automation to manage the growing customer’s engagement. For instance, Government of India (GOI) initiatives “Make in India” led to the development of many SMEs across all industry vertical which require loans for initial investment, thereby paving the way for growth in adoption of loan origination software.

Segmental Analysis

The global loan origination software market has been categorized into component, deployment mode, organization size and application.

Deployment Mode

Based on deployment mode, the global loan origination software market has been bifurcated into cloud and on-premise.

The on-premise segment for software deployment held the largest market share in 2018. On-premise software can be installed directly on users’ computers or servers, which enables them to retain the design data on their systems. Highly regulated industrial verticals, such as BFSI, are likely to adopt on-premise solutions.

Despite the high implementation of on-premise solutions, demand has observed a slight decline due to the pandemic. The segment is still expected to exhibit the highest CAGR in the upcoming years as on-premise deployment is estimated to be more profitable than cloud-based deployment for companies due to reduced complexity and complete control of systems. Increased security concerns associated with cloud-based software are anticipated to fuel on-premise software deployments.

Component

Based on component, global loan origination software market has been bifurcated into solution and services.

Solution segment is anticipated to cater the dominant market share in Global Loan Origination Software market. The current spread of Corona virus pandemic has jeopardize the economic structure and the disruption in the supply chain has caused great hindrance to the economic and financial welfare of most of the financial institutions and organizations. At this time there is a certain need of software solutions and services to overcome the difficulties and to have proper support to streamline the workflow and also to increase the cash liquidity. Mortgage loan solutions could increase the cash flow and increase the state of liquidity in the market. So, over the first half of the forecast period the market has an optimistic opportunities to garner significant traction in the market.

Organization Size

On the basis of organization size, the global loan origination software market has been segmented into SMEs and Large Enterprise.

SMEs hold a significant share of approx. 85%-90% in the current business environment. To date, SMEs have proved to be the backbone of developing and emerging markets, specifically for the Association of Southeast Asia Nations (ASEAN), contributing about 35–40% to their gross domestic product (GDP). However, economically developed regions, such as Europe and North America, are also recording a surge in the operations of SMEs. As per straits analysis, an approx. of 24 million SMEs operate in Europe, representing about 96–98% of total organization. Similarly, North America accounts for an approx. of 94–95% of SME operations when compared with large enterprises.

Application

Based on application, the global loan origination software market has been categorized into, banks, credit union, mortgage lenders, Insurance and others.

Banking sector holds the higher CAGR comparable to other sectors and is presumed to grow during the forecast period. The growth is attributed to increase in new companies and IT sector that adopt advanced technologies to compete with the leading companies. Furthermore, increase in SMEs that require instant loans for initial investment is also one of the factors propelling the market growth. As loan origination software provides the staff to manage the tasks on time, underwriting and documentation thereby eliminate the delaying of processing time. This enables banking sector to adopt loan origination software to gain customers attraction.

Impact of covid-19

The novel 2019 coronavirus has led to the temporary halt of business operations around the world. Therefore, SMEs, along with some large enterprises, have adopted the path of lending loans to sustain business operations. Consumer lending institutions are playing a vital role in response to the coronavirus outbreak. As economic hardship is intensifying, market players are exploring opportunities by introducing new developments through organic growth and diversification.

Financial institutions are under immense pressure due to regulatory frameworks. Many are likely to introduce business continuity plans to address the fast-moving and unknown variables of the pandemic. Loan originators are expected to help customers who work in hospitality and other service industries with mortgages, auto loans, commercial loans, and credit cards to secure customers’ future and build employee relationships.

Advanced technologies, such as AI, blockchain, and machine learning, incorporated in loan origination and monitoring software, are expected to steer companies and financial institutions toward their short-term and long-term goals.

Recent Developments

In December 2022, CalyxSoftware, a mortgage software provider, has integrated its cloud-based platform, Zenly, with Freddie Mac's Loan Product Advisor (LPA). Zenly streamlines the origination process for brokers, enabling them to access a borrower's credit profile and compare it with LPA's requirements.