Testing Lending Application

Traditionally, a bank’s lending of money has been considered as an important source of finance to itself. The bank as a purveyor of credit is also one of the beneficiary on the returns of its lending. This feature has made banks and financial lending entities invest in implementing the best lending application to launch their products in the market instantaneously.

In general lending applications broadly consist of origination, management and collection sub-systems. Each of these comes with its own unique features. A well laid out approach to critical functions across these modules is the success story behind an uneventful lending project rollout.

In our experience in the lending space we have had with various clients we have implemented some of the key best practices when doing an exhaustive testing. This is driven by the domain expertise and understanding the significance of the various components of the lending application landscape (as shown below) and ensuring the test prioritization on the critical parameters.

testing-lending-application

Origination sub-system
  • Workflows: are intricate in functionality and have various sub-features branching from it
    • It is suggested that the setup should align to the business process followed in the financial institution without any deviations
  • Scoring and rule engines: critical functionality for the financial institution for
    • 100 % coverage of validation of rules and verification in both positive and negative business scenarios for underwriters’ confidence
  • Dedupe check:
    • Strong understanding of the logic in which the dedupe functionality is designed
    • Extensive tests to be performed on the best permutation and combination to ensure validation on different data sets
Management & Collections sub-system

Management & Collections sub-system : The different maintenances that can be carried out on the disbursed asset all through its life-cycle in line with the business rules forms the major part of testing. Attra’s approach considers generation of repayment schedules and closure of long-term assets, a common concern of business users.

  • Computations:
    • With heavy dependency on disbursed asset, testing needs to thoroughly validate the areas of intensive calculation with respect to interest and penal charges.
    • Few such examples of calculative functionality are repayment schedule generation, EMI calculation and allocation logic (split of EMI amount towards Principal, interest and charges) rescheduling, and NPA computation
    • Since interest and charges are key revenue sources for any financial institution, Attra’s test approach focuses on these validations with inbuilt PMT calculators
  • Interfaces Lending system is one that interacts with a host of other applications and there is a high volume of data exchange that happens both online and offline across various processes.
    • Testing in any lending project should be treated at par with the core lending functionality
    • Few key interfaces are core-banking application, General ledger, blacklist database, document management etc should be considered in testing
    • Channels like internet, call center, mobile etc.., which forms a part of interfaces are also suggested to be considered for testing
  • Delinquency management is closely inter-wined with risk management and hence requires a robust escalation workflow and predictive analysis to avoid future bad debts
    • Collections sub-systems testing should focus around allocation queues, escalation matrix and diarizing features
    • Testing the information displayed in the dashboards and data reflected in its various reports should also be considered
  • MIS reports validation especially in a lending application should be prioritized as an independent project with dedicated testing phase if possible
    • Reports are widely dependent on the usage with heavy customization, and hence due coverage should be given for all the scenarios to be tested
    • Further reports generated from the application as well as from an independent source like a data warehouse with analytics etc requires different validation techniques and should be designed in that manner
Parameter set-up

Parameter set-up enables the sanctity of any application and in lending application where contribution to the financial aspect of banking is immense, parameters play a huge role in the veracity of the application

  • Erroneous parameters can lead to financial loss in production and hence the set-up itself needs to be validated even before testing can commence
  • Attra has a proven process as a part of its test process wherein the entry criteria to testing is to ensure precise parameter set-up