LOAN ORIGINATION SYSTEMS

CEB TOWERGROUP RETAIL BANKING & CARDS PRACTICE October 2012 LOAN ORIGINATION SYSTEMS Technology Analysis Abstract* Craig Focardi Senior Research Director, Retail Banking and Cards Practice Vendor Assessment and Quantitative Teams *For full copies please contact Peter Johnson at CEB TowerGroup 1

RETAIL BANKING & CARDS PRACTICE Executive Director Aaron Kissel Practice Manager Joanne Pollitt Senior Research Director Craig Focardi VENDOR ASSESSMENT TEAM Managing Director Jaime Roca Project Manager Magda Rolfes Research Analyst Phung Phan QUANTITATIVE INSIGHT TEAM Project Manager Carolina Valencia Research Analyst Ben Fieselmann COPIES AND COPYRIGHT As always, members are welcome to an unlimited number of copies of the materials contained within this handout. Furthermore, members may copy any graphic herein for their own internal purpose. The Corporate Executive Board Company requests only that members retain the copyright mark on all pages produced. Please contact your Member Support Center at +1-866-913-6450 for any help we may provide. The pages herein are the property of The Corporate Executive Board Company. Beyond the membership, no copyrighted materials of The Corporate Executive Board may be reproduced without prior approval. LEGAL CAVEAT CEB TowerGroup has worked to ensure the accuracy of the information it provides to its members. This report relies upon data obtained from many sources, however, and CEB TowerGroup cannot guarantee the accuracy of the information or its analysis in all cases. Furthermore, CEB TowerGroup is not engaged in rendering legal, accounting, or other professional services. Its reports should not be construed as professional advice on any particular set of facts or circumstances. Members requiring such services are advised to consult an appropriate professional. Neither The Corporate Executive Board Company nor its programs are responsible for any claims or losses that may arise from a) any errors or omissions in their reports, whether caused by CEB TowerGroup or its sources, or b) reliance upon any recommendation made by CEB TowerGroup. 2

EXECUTIVE SUMMARY TECHNOLOGY ANALYSIS SCOPE & METHODOLOGY In response to feedback from our membership, CEB TowerGroup developed this technology analysis product to identify key components of a consumer finance loan origination system (LOS) technology investment decision and effectively compare vendor technology products. Consumer loans may include automobile, credit card, home equity, mortgage, personal and student loans. The basis of our process comes from the knowledge that investment decisions revolve around the benefit to the end user and enterprise of a technology rather than the feature set alone. The geographic scope of this technology analysis covers the Asia, Europe, Latin America, Middle East/Africa and North America regions. The report inclusion criteria require vendors to be present in at least two different countries in two different global regions. In this way the survey focused on the needs of financial services institutions (FSIs) interested in an LOS that they can deploy in one or more countries to meet their market expansion, risk management and IT spending goals and objectives. The report also indicates the global service coverage for vendors to enable FSIs to evaluate vendors not only on the quantitative rankings but also on other qualitative factors specific to their requirements for that region. FSIs should also note that LOS vendors may have a solution that is more customized for a given country and region, and may be a better solution for that region than the quantitative rankings may indicate. This technology analysis is tailored to reflect the needs of the end user to diagnose the technology attributes most important to a financial institution, and to effectively identify vendor products that align with the firm s end user and enterprise needs. To that end, CEB TowerGroup conducted a series of interviews and surveys with financial services executives, industry experts, and vendors regarding loan origination system technology. We then applied our LOS diagnostic anatomy and proprietary five point rating system to this research to evaluate and score each vendor s LOS. CURRENT MARKET & FUTURE INVESTMENT Consumer lending growth will remain weak in industrialized countries. Consumers in industrialized countries face a prolonged period of uneven economic recovery that continues to depress retail spending and sap loan demand. However, some recent indicators have emerged, including stabilizing home prices and falling unemployment in the US and firmer policy commitments in the EU, that point toward a tentative (if still anemic) recovery in developed country lending. Emerging economies will account for the majority of global consumer lending growth. As industrialized countries struggle with high unemployment, austerity and mounting debt, developing countries have become the primary source of global economic growth. Rising income and favorable demographics will lead to rapid growth of the household consumption in emerging economies, greatly increasing demand for consumer credit. Differing credit growth trends across global regions are driving variations in lenders business strategy and IT investments. To process historically unprecedented application volumes, lenders in high growth markets are investing in core system improvements with a focus on increasing automation. Their counterparts in slow growth markets will respond to ongoing business challenges by restructuring IT systems for continuous process improvement and increasing investment in data analytics for optimizing strategy and decisioning. 3

EXECUTIVE SUMMARY VENDOR LANDSCAPE AND RANKINGS Loan Origination Systems support the processing of consumer loan applications from the initial application through underwriting to final funding in the core accounting system. The selection process centered around those vendors with mature products, globally recognized innovation, and multiple large-scale installations with major financial services institutions. In particular, this report looks at multi-country, enterprise-level loan origination systems that support both retail consumer and mortgage credit products. Therefore solutions that target a single country market or exclusively focuses on consumer loans or mortgage loans were not featured. This report also focused on vendors supporting conventional loans but also asked vendors to identify their ability to originate Islamic loans. This technology analysis includes ACI Worldwide, CGI, CRIF, Experian Decision Analytics, FICO, Fiserv, HCL, Infosys, ITS, Nucleus Software, Oracle, Path Solutions, Polaris, SAP, TCS, Wipro Gallagher Solutions, and Zoot. By combining our qualitative and quantitative data from interviews with industry experts, financial institutions and vendors, CEB TowerGroup identified 23 attributes that define a best-in-class loan origination system. These attributes are grouped into four categories that highlight a firm s user and enterprise needs. Vendor rankings are based on our proprietary five point rating scores on each of the 23 best-in-class attributes. The top vendors were designated as best-in-class performers based on their composite scores in each of the technology categories below. BEST-IN-CLASS TECHNOLOGY CATEGORIES Banking executives investing in loan origination technology should use the Technology Anatomy on page 20 to select the vendor that best aligns with their firm s needs and business objectives. Vendors are listed in alphabetical order. SALES AND APPLICATION includes those attributes that support the rapid go-to-market strategy of retail loan products. Leaders include CRIF Credit Framework, Experian s Transact SM, Oracle FLEXCUBE, and TCS BaNCS LOAN DECISIONING includes those attributes that leverage data to manage risk and improve lending performance. Leaders include CRIF Credit Framework, FICO s Origination Manager, Infosys Finacle, and Nucleus Software s FinnOne CAS LOAN PROCESSING includes those attributes that streamline workflow and automate application management. Leaders include CRIF Credit Framework, Nucleus Software s FinnOne CAS, Oracle FLEXCUBE, TCS BaNCS, and Wipro Gallagher Solution s NetOxygen ENTERPRISE SUPPORT includes those attributes that influence the enterprise s tactical fit and strategic alignment with the vendor. Leaders include CRIF Credit Framework, Experian s Transact SM, FICO s Origination Manager, Infosys Finacle, and Oracle FLEXCUBE 4

TECHNOLOGY ANALYSIS OVERVIEW Mission Statement: CEB TowerGroup technology analysis process provides a customer-driven, transparent, and unbiased review designed to drive informed business decisions. Current Market: Provides a view of industry and customer changes, and best practices for technology investment and implementation. Technology Analysis Presentation Roadmap Current Market Market Drivers: Assess changes in the industry and customer behavior Future Investment Spending Forecasts: Benchmark global LOS IT spending in key technology areas Vendor Landscape List of Players: Identify key technology firms and their products Product Ranking Best-in-Class Products: See the top products based on our anatomy categories Future Investment: Forecasts IT spending and identifies emerging technologies and innovations. Vendor Landscape: Provides an overview of key vendors, product features, and market position. Product Rankings: Highlights best-in-class attributes and shows a comparative perspective of leading products. Case Study: Learn how a leading bank leveraged its LOS to transform lending processes Emerging Technology Landscape: Pinpoint emerging technologies and innovations Diagnostic Anatomy: Choose your investment priorities with our proprietary framework Feature Audit: Compare the relative feature offerings by vendors Ranking Methodology: Review the key components of an investment decision Vendor Profiles: Understand the key differentiators between products Source: CEB TowerGroup Research 5

Current Market Future Investment Vendor Landscape Product Rankings 6

A DIVERGING WORLD As industrialized countries struggle with high unemployment, austerity and mounting debt, developing countries have become the primary source of global economic growth. Average GDP Growth Percentage Change Year-over-Year, 2011 2015P 7.8% 7.3% Advanced Economies Emerging Economies 7.9% 7.9% 7.9% Emerging economies are forecasted to achieve more than three times the average growth rate of advanced economies from 2011-2015. 1.4% 1.5% 1.9% 2.3% 2.5% By 2015, emerging economies will account for more than half of the global economy on a purchasing power parity basis. 2011 2012P 2013P 2014P 2015P Share of Global GDP Advanced Economies In PPP, 2005 2015P Emerging Economies 2005 2010 2015P Craig Focardi Sr. Research Director Global economic growth and consumer lending are becoming increasingly dependent on consumer spending by moderate and middle income consumers in Africa, Asia, and South America. 59.7% 59.7% 40.3% 40.3% 53.1% 53.1% 46.9% 49.6% 48.2% 48.2% 51.8% 51.8% Source: IMF World Economic Outlook, CEB TowerGroup Research 7

THE NEW GLOBAL CONSUMPTION CLASS Rising income and favorable demographics will lead to rapid growth of the household consumption in emerging economies. Although many developing countries already have sizeable middle classes, these groups still only account for a minority of their overall population and have high potential for enlargement. Household consumption in emerging markets is projected to increase by $1.2 trillion annually from 2012-2016, 70% more than in advanced economies. By 2016, emerging economies will account for over 40% of global household consumption, almost double the share from 2008. Household Income Distribution by Market (USD PPP) Proportion of Households (Percentage), 2011 Russia Brazil China India Egypt Indonesia Increase in Household Consumption Average Annual Increase in Billions USD, 2012-2016P 1.7X $708 1% 3% 9% 12% $1,204 13% 19% 19% 25% More than $1,000 per Month 34% Number of Households (Millions), 2011 50% 53% More than $2,000 per Month 61% Share of Global Household Consumption Percentage of Global Total, 2012 2016P 23% 42% 28.2 11.7 24.8 10.8 176.8 66.6 102.1 37.0 2.4 0.5 5.0 0.6 Emerging Economies Developed Economies 77% 58% Developed Economies Emerging Economies 2008 2016 P Source: Credit Suisse, MasterCard, CEB TowerGroup Research 8

HIGH POTENTIAL FOR GROWTH IN EMERGING MARKETS While both industrialized and developing countries have similar rates of household borrowing, a vast portion of the consumer credit market in developing countries remains informal. Consumers Who Received a Loan Within the Past 12 Months Proportion of Households (Percentage), 2011 40% 34% 27% 28% 25% 31% 42% Loan from Financial Insitution Loan from Family or Friends Loan from All Sources 31% Consumers in developing countries are 2-5 times more likely to obtain credit from family and friends than through financial institutions. This is because less than half of consumers in emerging markets have any relationship with a financial institution, while less than 10% have any credit relationship. This unbanked population represents a potentially massive growth opportunity for global financial institutions. 9% 8% 8% East Asia & Pacific Eastern Europe & Central Asia Consumers with Accounts at Financial Institutions Percentage of Adult Population, 2011 14% Latin America & Caribbean 5% Middle East & North Africa 14% Deposit Account Credit Card Account Mortgage 91% 12% OECD 1 55% 45% 39% 51% 7% 16% 18% 18% 4% 2% 2% 2% 4% 24% East Asia & Pacific Eastern Europe & Central Asia Latin America & Caribbean Middle East & North Africa OECD 1 Source: IMF Financial Access Survey, CEB TowerGroup Research 1 Organization for Economic Development and Cooperation: Group of major industrialized countries 9

TAILOR STRATEGIES TO MEET SPECIFIC BUSINESS CHALLENGES Positive and negative business trends in different global regions are driving variations in lenders business strategy and IT investments. Lenders in high growth markets are focusing on core system improvements to effectively handle rising loan volumes and improve customer service. Lenders in low growth markets are restructuring IT systems for continuous process improvement and analytics to improve sales performance. Across all global regions, retail lenders are responding to rising credit defaults and regulatory burdens through strategic enterprise risk management. Business Drivers: Strategic Response: Low Income Growth Continuing High Unemployment Consumer Balance Sheet Deleveraging Mounting Public Debt Concerns Reduce processing cost Tailor financial products Implement credit lifecycle management Low Growth Markets Ongoing Credit Risks Growing Regulatory Burdens Competition for Prime Borrowers Improve credit risk management Streamline regulatory and compliance processes Invest in data & analytics High Growth Markets Fast Growing Loan Volumes High Customer Service Expectations Modernize IT infrastructure Align channels and processes Add risk management controls Source: CEB TowerGroup Research 10

A HIGH VALUE, MODERATE RISK INVESTMENT FOCUS Viewing consumer loan origination systems as a major source of competitive advantage, global banks are increasing investment in the technology. Forty-one percent of respondents say their firm plans to adopt or replace its existing commercial loan origination systems by 2016. Almost half regard loan origination technology to be of very high value. Seventy-two percent see only little to moderate risk associated with installing a new loan origination system. Due to its importance, almost half of respondents stated that their firm plans on increasing investment in the technology. Current LOS State at Global Banks Percentage of Respondents, 2012 29% Have It, Replacing 12% Adopting 5% Does Not Have It 54% Have It, Not Changing N=99 N=64 Risk Perception of LOS at Global Banks Percentage of Respondents, 2012 9% Very High Risk 19% High Risk 28% Low Risk Value Perception of LOS at Global Banks Percentage of Respondents, 2012 2% Somewhat Low Value 48% Very High Value Future Spend on LOS at Global Banks Percentage of Respondents, 2012 21% Significantly Higher 13% Moderate Value 38% Somewhat High Value 12% Decrease 44% Moderate Risk 26% Somewhat Higher 41% No Change N=57 N=34 Source: CEB TowerGroup Research 11

Current Market Future Investment Vendor Landscape Product Rankings 12

FORECASTING TECHNOLOGY SPEND BY REGION Regional growth will be strongest in the developing regions where a small but growing middle class will accelerate its consumer spending. Regional Forecast of Loan Origination Technology Spending In Millions USD, 2011(E) 2015(P) $10,000 North America Asia Pacific Europe $1,400 Latin America and the Caribbean Middle East and Africa North American spending growth will remain steady due to a strong economy in Canada and consolidation of multiple loan origination systems by lenders in the United States. European loan origination spending will flatten as its economies weaken and consumers pull back from credit financing. $9,000 $8,000 $7,000 $6,000 $1,200 $1,000 $800 $600 Region Definitions $5,000 2011 E 2012 P 2013 P 2014 P 2015 P 2016 P $400 2011 E 2012 P 2013 P 2014 P 2015 P 2016 P North America USA and Canada Europe Asia and Pacific Latin America Middle East and Africa Includes Western, Central and Eastern Europe Includes Australia and New Zealand Includes Mexico and the Caribbean Includes Turkey and all African and Middle Eastern countries Regional Spend In Millions USD 2011 E 2012 P 2013 P 2014 P 2015 P 2016 P 5 Year CAGR North America $7,921 $8,396 $8,789 $9,175 $9,611 $9,999 4.8% Asia and Pacific $6,196 $6,629 $7,079 $7,559 $8,074 $8,622 6.8% Europe $6,438 $6,055 $5,926 $5,961 $6,415 $6,995 1.7% Latin America $941 $1,010 $1,083 $1,161 $1,246 $1,336 7.3% Middle East and Africa $556 $597 $640 $686 $735 $788 7.2% Source: CEB TowerGroup Research 13

EMERGING TECHNOLOGIES IN LOAN ORIGINATION Promising emerging technologies for consumer loan origination technology include: Origination Fraud Analytics Price Optimization Tablet-Based Origination Emerging Technology Matrix ROI Potential vs. Technology State, 2012 High Origination Fraud Analytics Price Optimization Technology Workflow Impact Minimal Definitions ROI Potential Front-Office Tablet-Based Applications Paperless Account Origination Cloud-Based Origination Tech Moderate ROI Potential: Measures the relative returns an institution can expect to receive from an investment in the technology Technology State: Measures the technology s level of development Low Consumer Facing Tablet-Based Applications Medium High Workflow Impact: Measures the level of change the technology will have on current operations and processes Market-Ready Technology State In Pilot Source: CEB TowerGroup Research 14

PREVENTING FRAUD THROUGH PROACTIVE DETECTION Emerging origination fraud detection methods calculate the likelihood of fraud by combining multiple data sources with analytic models to produce a predictive application fraud score. Generated through statistical analysis of proven fraud indicators, predictive fraud scores have proven remarkably accurate at identifying potential origination fraud with low false positive rates. Data gathered by a leading vendor from multiple banking clients revealed that while applications that scored under 550 formed only 4% of total applications, they accounted for 72% of positive fraud cases. The latest fraud detection methods can not only determine an application s fraud risk, it can also predict the specific type of fraud that the application might be. Source: LexisNexis, CEB TowerGroup Research Fraud Analytics Score Illustrative 380 300 High Fraud Risk 400 500 600 700 800 900 Moderate Fraud Risk Fraud Type Score Illustrative Suspicious Activity Manipulated Identity Stolen Identity Synthetic Identity Low Fraud Risk 999 0 1 2 3 4 5 6 7 8 9 New Account Fraud Rate by Score Band Percentage of Confirmed Fraud in Each Score Band Score Band 300-349 350-399 400-449 450-499 500-549 550-549 550-599 600-649 650-799 800-849 850-899 900-949 950-999 5.6% 2.8% 1.5% 0.7% 0.3% 0.1% 0.1% 0.0% 0.0% Preventing Origination Fraud Through Predictive Analytics Origination fraud (including loan and deposit products) accounts for 27% of the $17 billion identity fraud related losses incurred by US financial institutions annually, with the loss per case averaging $4,000. Yet as a percentage of total new accounts originated these cases occur infrequently, at a rate of only around 1.3%, making them difficult to detect. Traditional applicant verification methods like standard Know-Your-Customer (KYC) techniques often rely on a single data source, such as a credit bureau report or internal black/white lists. Fraud detection systems that rely on such data cannot effectively manage evolving threats or recognize emerging fraud patterns. On average, 40% of origination fraud cases are not detected. At a mid-sized lender this loss can translate to over $7 million annually. Emerging origination fraud detection methods offered by leading vendors detect origination fraud by combining information from a variety of sources (credit bureaus, public records, government data, consortium data) with analytic models to predict the likelihood of fraud in real time. During origination, applicants information can be sent to the vendor in real time. The incoming data is checked against the source system files and sophisticated algorithms to determine a fraud score, which measures the likelihood of risk based on information matching and other factors chosen from best practices. Financial institutions can use the fraud score to automate decisioning, or open a case for further manual investigation. Cum % Fraud Cum % All Apps 33% 1% 46% 1% 57% 2% 65% 3% 72% 4% 83% 7% 88% 11% 95% 23% 100% 49% 100% 93% 100% 100% 100% 100% 100% 100% 10.8% 19.5% 32.4% 58.9% 72% of detected fraud cases are caught in only 4% of all applications 15

Loan Demand MOVING BEYOND RISK-BASED PRICING Price optimization strategies enable lenders to factor borrowers' response to loan pricing and the elasticity of demand into their own pricing model to maximize constraint-based objectives as defined by the financial institution. These objectives could include account volume, market positioning, return on equity or return on assets, and ultimately, profit margin. Successful price optimization strategies involve offering the "right" price to individual customers by segment, product, market, and channel, thereby enabling a lender to be more customer focused in setting its prices. Source: CEB TowerGroup Research Loan Demand Curve Illustrative Zone of Indifference Typical Price Optimal Price X Understanding consumers price elasticity of demand enables institutions to maximize the profitability of new loans without serious impact on overall demand and competitiveness. Loan Rate A More Refined Approach to Pricing Price Optimization Workflow Process 1) Analysis & Data Analytics Data Mining, Customer Segmentation, Macroeconomic Analysis, Competitive Positioning, Demand Forecasting 2) Optimization & Strategy Selection Business Rules, Strategic Goals, Trade-off Analysis, Scenario Selection 3) Price & Strategy Deployment Multiple Channels, Negotiation, Front-line Service Agents 4) Monitor, Review, & Calibrate Forecast Vs. Actuals, KPIs, Revised Strategy, Re-analyze, Re-model Instant Feedback Loop As the consumer credit industry continues to reel from the effects of high unemployment, depressed housing markets, and ever stricter regulatory constraints, lenders are realizing how crucial pricing strategy is to remain competitive. Just a few basis points on a portfolio of multibillion dollars, pounds, or euros can have a significant impact on an institution's bottom line or cash flow to fund higher capital requirements. Many consumer lenders in the United States, Europe, and other developed markets continue to use a variety of traditional approaches to credit pricing from simple competitive market pricing to the more sophisticated risk-based or adjusted riskbased approach to pricing. Many banks even still approach pricing from a "one-price-fits-all" perspective that assigns one price to all customers or a group of customers, regardless of risk, channel of origination, or other factors that may differentiate customers' price elasticity. Institutions that utilize profit-based pricing approaches seek to maximize their lending margins by offering acceptable price points for every customer, meeting customers' expectations, and enabling price negotiations at the point of sale. Early adopters of profit-based pricing noted strategic, financial, and operational benefits, making the argument for moving to such a pricing approach seem obvious today. Among the benefits were 10 20% increases in profit margins and improved net present values, process improvements such as greater consistency in the pricing process, and the ability to respond to the market more accurately and on a more timely basis. 16

MAXIMIZING RETURN ON MOBILE TECHNOLOGY INVESTMENTS Despite the meteoric adoption of tablet computers by consumers and businesses, financial institutions have yet to develop coherent strategies to take advantage of this emerging channel. Enterprise purchases of tablet computers are expected to grow by nearly 50% per year from 2011 to 2016. Yet in a recent CEB TowerGroup survey of financial institutions, only 35% of respondents say their institution will have plans to use tablets by the end of 2013. While customer-facing tablet applications will be valued by consumers as indispensible account management tools, CEB TowerGroup does not view mobile devices as a practical loan origination channel. The best deployment of tablet technology will be in the front office as an interactive sales and data visualization tool or as an application onboarding platform for field loan officers. Source: Vertic, CEB TowerGroup Research Enterprise Purchases of Tablet Computers In Millions of Units, 2011 v. 2016P CAGR = 48% 13.6 96.3 2011 2016P Tablet Use at Global Retail Banks Percentage of Respondents, 2012 65% No Plans to do so in 18 months Finding the Right Application for Tablet Computing in Retail Loan Origination 27% Plan to in 18 months Following the path of online banking a decade before, banks are experimenting with transforming the tablet platform from a purely service-oriented channel into a sales pipeline. While leading financial institutions now provide customers the ability to apply for deposit accounts on their tablet apps, few if any yet offer any loan origination capabilities. The reason behind this is two-fold. First, the tablet s error-prone touch interface would not be ideal for inputting the large amount of personal and financial information that a credit application requires. Secondly, most consumers still view loan origination as a sensitive and complex activity more suitable for a face-to-face meeting with a loan officer where they can receive individualized advice and support. Beyond relatively simple loan products like credit cards, CEB TowerGroup does not envision consumer-facing loan origination capabilities becoming a common feature of tablet banking applications, at least within the near term. A more valuable deployment of tablet-based loan origination is at the branch for front office sales staff. Beyond the novelty factor, tablets loaded with data visualization tools enable sales staff to interact more closely with customers and present them graphical information with simulated loan terms and repayment schedules. Banks can also provide tablets to consumers, allowing them to browse loan products or enter basic information while they wait for service. For emerging market banks, where the branch footprints tend to be smaller and loan officers more mobile, tablets provide a safer and more secure method of gathering customer information from the field than paper applications. N=64 17 8% Yes

Current Market Future Investment Vendor Landscape Product Rankings 18

MAPPING THE LOAN ORIGINATION VENDOR LANDSCAPE ACAPS (1985) Loan Origination Vendor Systems By Date of First Active LOS Deployment 1 Transact SM zoriginate CRIF Framework Origination Manager Standalone LOS LOS is a standalone, coreagnostic product Component LOS LOS is a component or module of a larger core or universal banking platform that can be sold on a standalone basis CapitalStream NetOxygen ACI Account Origination 1995 2000 2005 2010 Oracle FLEXCUBE Intellect LOS BaNCS Ethix Credit FinnOne CAS SAP CRM Aperio imal Finacle Selecting Featured LOS Vendors CEB TowerGroup identified vendors for this analysis based on expert opinion, product maturity, size of installations, and technological innovation. 1 Date of first active deployment is the year in which the solution featured in this report began supporting credit origination processes at a financial institution. Technology providers may have deployed other LOS before this date, that was not accounted for in this timeline. 19

Loan Decisioning LOAN ORIGINATION SYSTEMS DIAGNOSTIC ANATOMY 1 Geographic Capability The system provides multilingual and multicurrency capabilities to support consumer lending in all regions where the bank operates. 23 Vendor Collaboration The vendor effectively identifies and aligns technology implementation to enterprise needs. 22 Technology Innovation The vendor possesses a proactive strategy to incorporate innovative technology and strategies into its product development roadmap. 21 Product Maturity The vendor possesses a mature product with a growing market share and client base. 20 Product Deployment The vendor offers multiple options for deployment of the technology. 2 Lead Management Users can identify and manage the sales process for eligible prospects for loan products from both existing customers and external prospect lists. Enterprise Support 19 3 Multichannel Application The system can support the initiation of loan applications from all the lender's service delivery channels. HOW TO USE ANATOMY Product Customization Users can create new or customize existing loan products across all channels without need for extensive coding or programming. Sales and Application 4 5 Product Matching Users can capture prospects' financial profile and preferences to automatically identify the most suitable loan product. 6 Product Support The system supports the origination of a diverse range of consumer loan products from a single user platform. The anatomy is designed to assist financial services executives better assess and prioritize components of their technology investment. As you take this anatomy, please consider your firm s business strategy and current technology maturity. Modularization The vendor can sell the system in separate modules, with discounts on software packages. 1. Rate the impact of each attribute to your business and your firm s effectiveness on a 1-5 scale using the grading scale below and tally the results using the scorecard on page 21. 2. Map the results on the scorecard on page 22 to identify areas that are most important, but where your firm is least effective. Attribute Grading Current Effectiveness 18 User Interface The system possesses an intuitive and configurable user interface with dashboards and built-in workflow logic to guide users. 17 Loan Documentation The system provides a broad range of loan documents that are automatically generated during workflow processes. Potential Impact Fraud Management The system provides a range of tools including customer verification (KYC), real time notifications, and analytics to identify and prevent fraud. 15 External Data Capture The system can communicate with all required third party databases to automate the collection of customer information. 7 Analytic Reporting The system provides a broad set of tools including analytics reports and dashboards to deliver insight into production, exposures, and risks. 5 = Superior Capability We or our vendor offer this regularly, 5 = Very High Impact Our firm considers this attribute mission critical systematically, and at the highest standard. when performed at the highest standard. 4 = Strong Capability We or our vendor offer this regularly and systematically. 3 = Adequate Capability We or our vendor offer this regularly but in an ad hoc manner. 2 = Marginal Capability We or our vendor offer this irregularly and in an ad hoc manner. 4 = High Impact Our firm considers this attribute highly important when performed at the highest standard. 3 = Moderate Impact Our firm considers this attribute moderately important when performed at the highest standard. 2 = Low Impact Our firm considers this attribute somewhat important when performed at the highest standard. 1 = Weak or not at all We or our vendor do not do this at all. 1 = No Impact Our firm does not consider this attribute important when performed at the highest standard. Loan Processing 16 Source: CEB TowerGroup Research 14 Error Reduction The system possesses dynamic checklists and interactive business logic that identifies and prevents manual errors and omissions. 8 Business Rules Engine The system provides a robust and configurable rules engine that automates decisioning processes. 9 Collateral Management The system provides dedicated tools to capture collateral information (home, auto) including asset value and insurance coverage. 10 Compliance Management Users can collect, store, analyze, and access comprehensive data for compliance purposes, and provides configurable reports and audit trails. 11 Credit Risk Management Users can accurately rate credit risks with a wide range of analysis tools to improve credit decisioning and risk management. 12 Loan Pricing Users can leverage predictive models that analyze the potential risk and profitability of new deals in order to optimize loan pricing. 13 Enterprise Content Mgt. Users can capture, store, and manage electronic documents and files stored in the financial institution's document warehouse. 20 20

DIAGNOSTIC ANATOMY SCORECARD Score Your Technology Needs With the Anatomy Scorecard. Financial services executives should complete the scorecard using the loan origination anatomy diagnostic tool. Attribute Categories Alignment Attributes Potential Impact Importance of Improvement 1. Geographic Capability 2. Lead Management Sales and 3. Multichannel Application Product Support 4. Product Customization 5. Product Matching 6. Product Support Loan Decisioning 7. Analytic Reporting 8. Business Rules Engine 9. Collateral Management 10. Compliance Management 11. Credit Risk Management 12. Loan Pricing Loan Processing 13. Enterprise Content Mgt. 14. Error Reduction 15. External Data Capture 16. Fraud Management 17. Loan Documentation 18. User Interface Enterprise Support 19. Modularization 20. Product Deployment 21. Product Maturity 22. Technology Innovation 23. Vendor Collaboration Source: CEB TowerGroup Research 21

POTENTIAL IMPACT DIAGNOSTIC ANATOMY SCORECARD Map Your Technology Needs: Financial services executives should map their attribute scores from rating their impact and effectiveness on the Anatomy Scorecard. 5 =Very High 4 =High 3 = Moderate 2 =Low 1 =No Impact 5 = Superior 4 =Strong 3 = Adequate 2 = Marginal 1 =Weak CURRENT EFFECTIVENESS Source: CEB TowerGroup Research 22

FEATURE AUDIT DEFINITIONS Feature Applicant Verification Application Monitoring Automated Decisioning Automated Task Assignment Business Intelligence Tools Collateral Management Credit Risk Scoring Document Generation GUI for BPM Islamic Lending KYC/AML Tools Lead Generation Loan Pricing Management Dashboards Multichannel Origination Multi Currency Multi Language Operational Reporting Prequalification Rate Quotes Definition The system integrates with external databases to automate the verification of customers personal and financial information The system allows both internal users and loan customers to track the real time status of applications. The system utilizes robust business rules and engines analytics to provide automated approval/denial of certain types of loan applications. The system can automatically assign new tasks to the appropriate sales person at the branch or contact center. The system provides integrated business intelligence tools such as advanced analytics and reporting capabilities to provide business insight. The system provides tools to capture collateral value and insurance information. The system utilizes robust business rules and analytics engines to automatically score loan applications based on risk of default. The system provides a native loan document generation tool, which includes standard compliant documents and templates The system provides a graphical user tool to manage and edit business processes, which can be operated by a non-technical business user. The system supports the origination of Islamic loan products. The system provides tools to support know-your-customer and anti money laundering compliance. The system can identify and generate a list of prospects for loan products based on eligibility requirements. The system utilizes business rules and analytics engines to automate the pricing of loan products. The system provides management dashboards with a configurable, graphical views and configurable Key Performance Indicators (KPIs). The system can accept applications from multiple channels (in branch, online, contact center, mail, mobile, etc.). The system supports multiple currencies. The system supports multiple languages. The system provides a reporting engine to track the workflow and sales pipeline for different loan products. The system can prequalify applicants for different loan products based on multiple criteria, such as relationship or financial status. The system can provide accurate, real-time quotes for loan products based on customer eligibility requirements. Feature Type Standard Native Feature Premium Native Feature Premium Third-Party Feature Definition The feature is standard to the solution and is offered as an out-of-box functionality of the base product. The feature is part of an optional module to the solution developed by the vendor, and is offered for an additional fee on top of the base price. The feature is part of an optional module developed by a strategic technology partner, preconfigured to seamlessly integrate to the solution, and is offered for an additional fee on top of the base price. Source: CEB TowerGroup Research 23

Product Support Features Analytic Features Process Features FEATURE AUDIT Features FICO Origination Manager % of Vendors Offering as Standard Feature Feature Type Definition Application Verification 65% Application Monitoring 94% Standard Native Feature The feature is standard to the solution and is offered as an out-of-box functionality of the base product Automated Decisioning 94% Auto Task Assignment 94% Collateral Management 94% Document Generation 76% GUI for BPM 82% KYC Tools 53% Lead Generation 71% Premium Native Feature Premium Third-Party Feature The feature is part of an optional module to the solution developed by the vendor, and is offered for an additional fee on top of the base price The feature is part of an optional module developed by a strategic technology partner, preconfigured to seamlessly integrate to the solution, and is offered for an additional fee on top of the base price. Prequalification 94% Business Intelligence 12% Credit Risk Scoring 76% Loan Pricing 76% Management Dashboards 65% Operational Reporting 88% Rate Quotes 88% Islamic Lending 53% Multichannel Origination 94% Multi-Currency 88% Multi-Language 76% 24

Geographic Coverage Non-Bank Lenders Banks and Credit Unions 2011 KEY STATISTICS Company Type: Public HQ: Minneapolis, MN Founded: 1956 Employees: 2,150 Revenue: $619.7 Million Clients by Asset Size <$1B $1B- $10B Asia Pacific Europe $10B- $50B Latin America Middle East and Africa North America $50B< Primary Target Market Secondary Target Market Source: FICO, CEB TowerGroup Research ORIGINATION MANAGER FICO Company Overview Founded in 1956, the Fair Isaac Corporation (FICO) is a pioneer in the development and application of decision management solutions, most notably the FICO Score. The FICO Score has become the industry standard measure of consumer risk in the US. FICO s businesses are organized into 4 primary segments: ubiquitous scoring services, applications for decision management, tools for decision management, and professional services. Seeking to expand its service offerings, in 2012 FICO launched the FICO Merchant Monitor Solution, which limits merchant-related risk to banks and acquirers. It also acquired Entiera, a provider of SaaS-based marketing platforms, and Adeptra, a firm specializing in mobile customer engagement and risk intervention. Product Overview FICO Origination Manager is a modular core-agnostic LOS that consists of three primary modules for process management, decisioning, and data acquisition to support the end-to-end credit origination lifecycle. The solution utilizes FICO s Blaze Advisor business rules management engine to drive the automation behind workflow processes, as well as its Decision module for advanced risk management and business process optimization. Version 4, the latest update to Origination Manager, includes enhanced support for SOA and internationalization. Originally marketed towards top-tier banks, FICO has expanded the solution s footprints to also serve regional and community banks around the world. Product Demonstration Highlights: Business Rules: Origination Manager s business rules engine, Blaze Advisor, provides a graphical user interface that enables business users to author rules using a variety of methods (e.g. rule sets, tables, trees). Rules can then be tested under multiple scenarios and assumptions to benchmark their performance against specific goals before deployment. Credit Risk Management: FICO s Decision Module provides out-of-the-box credit scoring models based on FICO s risk parameterization that can be deployed as a standalone or benchmark for the institution's proprietary models. Additionally the module enables users to build their own models through by analyzing historical data. Product Matching: FICO Origination Manager can provide prospective borrowers with a list of suitable loan products based on pre-screen models which provide an in-depth analysis of their initial application. The pre-screen model can also be configured to determine a preliminary risk score, potential profitability, and cross-sell potentials. CEB TowerGroup View: Among the solutions covered in this report, FICO Origination Manager stands out for its advanced statistical modeling techniques and analytical approach to credit decisioning and risk management. This is of course not surprising, when the solution has been developed by one of the industry s most experienced providers of predictive analytics and optimization technologies. Particularly noteworthy is the solution s brain, the Decision Module, which provides clients with the same tools used by FICO s modeling teams. The module s flexible parameterization allows analysts to create models that can optimize goals such as risk, profitability, or customer retention through multi-scenario analyses of past and current data. With the assistance of the intuitively configurable business rules engine, Origination Manager can easily facilitate the automation of most credit origination processes or minimize the need for review when manual oversight is required. 25

Current Market Future Investment Vendor Landscape Product Rankings 26

CREATING OUR BEST-IN-CLASS PRODUCT RANKINGS Phase 1 Utilizing qualitative and quantitative data, CEB TowerGroup identified 23 attributes that define a Best-in-Class Loan Origination System, which are grouped into four categories. Categories: Sales and Application Those attributes that support the rapid go-tomarket strategy of retail loan products Loan Decisioning Those attributes that leverage data to manage risk and improve lending performance Attributes Loan Processing Those attributes that streamline workflow and automate application management Enterprise Support Those attributes that influence the enterprise s tactical fit and strategic alignment with the vendor Phase 2 Recognizing that all attributes are not equally important, CEB TowerGroup divides them into tiers to reflect their level of importance as mission critical, strong priority or differentiators. Mission Critical Strong Priority Product Differentiator Geographic Capability Product Support Multichannel Application Product Customization Product Matching Lead Management Business Rules Engine Compliance Management Credit Risk Management Analytic Reporting Collateral Management Loan Pricing External Data Capture Error Reduction Fraud Management Loan Documentation User Interface Enterprise Content Management Product Maturity Vendor Collaboration Modularization Technology Innovation Product Deployment Phase 3 Certain products are recognized as Best-in- Class after scoring each product based on its performance at an attribute level. Best-in-Class Sales and Application Best-in-Class Loan Decisioning Best-in-Class Loan Processing Best-in-Class Enterprise Support Source: CEB TowerGroup Research 27

RANKING MATRIX Overall, high performing vendors exhibited excellence in multiple categories. Product Leaders are the top scoring products in a given category and are chosen based on the differentiation in scoring in a particular category. Sales and Application includes those attributes that support the rapid go-to-market strategy of retail loan products. Loan Decisioning includes those attributes that leverage data to manage risk and improve lending performance. Loan Processing includes those attributes that streamline workflow and automate application management. Enterprise Support includes those attributes that influence the enterprise s tactical fit and strategic alignment with the vendor. Sales and Application Loan Decisioning Loan Processing Enterprise Support Vendor A Product A 3.7 3.3 4.3 3.8 Vendor B Product B 3.6 4.2 3.5 3.9 Vendor C Product C 4.8 4.7 4.8 4.7 Vendor D Product D 4.7 4.6 4.1 4.8 FICO Origination Manager 4.5 5.0 4.5 4.7 Vendor E Product E 4.2 4.4 4.5 3.5 Vendor F Product F 4.2 4.6 4.3 4.2 Vendor G Product G 4.6 4.7 4.0 4.8 Vendor H Product H 3.8 3.4 3.9 3.1 Vendor I Product I 4.5 4.7 4.7 4.1 Vendor J Product J 5.0 4.3 4.7 4.6 Vendor K Product K 3.5 3.9 3.8 3.6 Vendor L Product L 3.4 3.6 4.2 3.4 Vendor M Product M 4.5 3.1 4.3 3.6 Vendor N Product N 4.8 4.2 4.8 4.0 Vendor O Product O 4.0 4.6 4.7 4.2 Vendor P Product P 4.4 4.5 4.1 4.3 = Best-in-Class in Anatomy Category Ranking Methodology Vendor rankings are based on our proprietary 5-point rating system for each of the 23 attributes in our loan origination diagnostic anatomy (see page 31). Source: CEB TowerGroup Research 28

SELECTING BEST-IN-CLASS VENDORS Best-in-Class Product Rankings Normalized Scores, 0.0 1.0 Scale Best-in-Class Products 1.00 Vendor C Vendor B FICO Vendor B Vendor A Vendor H Vendor B Vendor I Vendor C Vendor H Vendor F Vendor D Vendor A Vendor B FICO Vendor D Vendor I 0.75 0.50 Vendor A Vendor H Vendor L Vendor E FICO Vendor N Vendor G Vendor D Vendor G Vendor F Vendor E Vendor N Vendor C Vendor I Vendor J Vendor N Vendor G Vendor L FICO Vendor O Vendor D Vendor E Vendor K Vendor C Vendor E Vendor F Vendor G Vendor H Vendor I Vendor J Vendor K Vendor M Vendor A Vendor F Vendor P Vendor M Vendor N Vendor P Vendor O 0.25 0.5 1 1.5 2 2.5 3 3.5 4 4.5 SALES AND LOAN LOAN ENTERPRISE APPLICATION DECISIONING PROCESSING SUPPORT Vendor L 29

BEST-IN-CLASS ACHIEVEMENTS FOR FICO FICO Origination manager received a Best-in-Class rating for Loan Decisioning and Enterprise Support. Loan Decisioning includes those attributes that leverage data to manage risk and improve lending performance. Enterprise Support includes those attributes that influence the enterprise s tactical fit and strategic alignment with the vendor. Category Loan Decisioning Enterprise Support Scoring Analysis The Origination Manager Application Processing Module that controls the storage of application data provides full reporting through SAP Business Objects which is included in the license price. Utilizing FICO s market leading Blaze Advisor business rules engine, Origination Manager automates decisions made at the point of origination by applying standardized credit policies and business strategies across all applications. Origination Manager s Decision Module applies advanced analytics to individual customer-level credit decisions in order to maximize goals, as risk management and profitability. FICO s Origination Manager is a modular system, comprising a business process manager, a decisioning engine and an integrator to facilitate seamless integration into disparate IT systems. First shipped in 2002, Origination Manager combines product maturity with cutting edge optimization technology to effectively serve a large and growing list of financial institutions. FICO is one of the most globally-focused LOS vendors active today, with a strong distribution of financial clients across all five regions covered in this report. Source: CEB TowerGroup Research 30

Loan Decisioning LOAN ORIGINATION SYSTEMS SCORING METHODOLOGY 1 Geographic Capability The system provides multilingual and multicurrency capabilities to support consumer lending in all regions where the bank operates. 23 Vendor Collaboration The vendor effectively identifies and aligns technology implementation to enterprise needs. 22 Technology Innovation The vendor possesses a proactive strategy to incorporate innovative technology and strategies into its product development roadmap. 21 Product Maturity The vendor possesses a mature product with a growing market share and client base. 20 Product Deployment The vendor offers multiple options for deployment of the technology. 2 Lead Management Users can identify and manage the sales process for eligible prospects for loan products from both existing customers and external prospect lists. Enterprise Support 19 Modularization The vendor can sell the system in separate modules, with discounts on software packages. 3 Multichannel Application The system can support the initiation of loan applications from all the lender's service delivery channels. 18 User Interface The system possesses an intuitive and configurable user interface with dashboards and built-in workflow logic to guide users. Product Customization Users can create new or customize existing loan products across all channels without need for extensive coding or programming. Sales and Application 4 17 Loan Documentation The system provides a broad range of loan documents that are automatically generated during workflow processes. 5 Product Matching Users can capture prospects' financial profile and preferences to automatically identify the most suitable loan product. Scoring Methodology Fraud Management The system provides a range of tools including customer verification (KYC), real time notifications and analytics to identify and prevent fraud. 6 Product Support The system supports the origination of a diverse range of consumer loan products from a single user platform. To arrive at a vendor ranking, CEB TowerGroup developed a proprietary scoring metric outlined by the attributes within this anatomy that highlights the major elements of an enterprise investment decision. This metric assumes that every element is not equally important, and therefore assigns a higher level of importance to those attributes critical to a branch sales and service platform. The remaining attributes are then divided further into two tiers to reflect their level of importance, highlighted below. Tier 1 Attributes Mission Critical Geographic Capability Product Support Business Rules Engine Compliance Management Credit Risk Management External Data Capture Product Maturity Vendor Collaboration Tier 2 Attributes Strong Priority Multichannel Application Product Customization Product Matching Analytics Error Reduction Fraud Management Loan Documentation User Interface Modularization Technology Innovation Loan Processing 16 Source: CEB TowerGroup Research Tier 3 Attributes Product Differentiators Lead Management Collateral Management Loan Pricing Enterprise Content Mgt. Product Deployment 15 External Data Capture The system can communicate with all required third party databases to automate the collection of customer information. 7 Analytic Reporting The system provides a broad set of tools including analytics reports and dashboards to deliver insight into production, exposures and risks. 14 Error Reduction The system possess dynamic checklists and interactive business logic that identify and prevent manual errors and omissions. 8 Business Rules Engine The system provides a robust and configurable rules engine that automates decisioning processes. 9 Collateral Management The system provides dedicated tools to capture collateral information (home, auto) including asset value and insurance coverage. 10 Compliance Management Users can collect, store analyze and access comprehensive data for compliance purposes, and provides configurable reports and audit trails. 11 Credit Risk Management Users can accurately rate credit risks with a wide range of analysis tools to improve credit decisioning and risk management. 12 Loan Pricing Users can leverage predictive models that analyze the potential risk and profitability of new deals in order to optimize loan pricing. 13 Enterprise Content Mgt. Users can capture, store and manage electronic documents and files stored in the financial institution's document warehouse. 31 31 31

Scoring Metric Anatomy UNDERSTANDING OUR SCORING METHODOLOGY CEB TowerGroup develops a unique and proprietary scoring methodology that highlights the key priorities for an executive s investment decision. Every vendor product featured in this report is scored on against each of the 23 attributes outlined in the LOS Diagnostic Anatomy on a standardized1-5 scale. We calculate the weighted average of a product s attribute scores in each of the 4 categories of the anatomy to arrive at an overall category score. Sample Technology Analysis Internal Anatomy Scoring Guide Illustrative Category Sales and Application Loan Decisioning Attribute Title Lead Management Analytic Reporting Attribute Definition SCORE 5 Users can identify and manage the sales process for eligible prospects for loan products from both existing customers and external prospect lists. The system can generate its own prospect lists and identify eligible customers with parameterized segmentation tools; also supports cross-selling and product bundling during credit applications. The system provides a broad set of tools including analytics reports and dashboards to deliver insight into production, exposures and risks. The system provides a full set of business intelligence tools including customizable static pipeline reports, ad hoc reports and customizable dashboards as a native feature of the solution. 4 3 The system can generate its own prospect lists and identify eligible customers with parameterized segmentation tools.. The system can identify eligible customers through analysis of downloaded prospect lists. The system provides both canned reports and tools to generate ad hoc reports, but does not include management dashboards. The system provides only canned reports with no ad hoc reporting capabilities or management dashboards. 2 The system can upload system data to third party lead management systems. The system can upload system data to third party analytics software. 1 The system provides no inherent lead generation capabilities. The system provides no analytics functionality. Source: CEB TowerGroup Research Attribute Score: 5.0 3.0 32

33