Recent Federal Reserve data indicates that 61 percent of U.S. adults do not have $400 in savings on hand to cover unexpected expenses. That reflects a steady increase from 2013’s measure — 50 percent — and indicates that many Americans may need loans to deal with financial disruptions like medical emergencies or vehicle repairs.
Faster payment services could help such consumers get much-needed funds, as long as lenders can access equally fast underwriting tools. However, borrowers seeking seamlessness could face additional hurdles if their credit histories or scores become problematic.
A consumer’s credit score needs not be the sole factor in determining loan approval, though. Banks can also gauge risks by checking consumers’ recent financial histories for reliable incomes. David Evans, CEO of bank verification software provider DecisionLogic, said in a recent interview with PYMNTS that the firm’s solutions allow consumers to quickly provide data from their primary bank accounts, enabling faster loan approvals for the needed payouts.
Underwriting tools boost the confidence of both borrowers and lenders, and help the latter more seamlessly access reliable bank data that supersedes credit scores. They can also supply banks and other FIs with a better sense of borrowers’ financial histories, such as how pending transactions affect account holders’ available capital by “aggregating the [data] aggregators.”
“The same person’s bank account can look different in many ways for many reasons,” Evans said. “Our challenge … is to get as full and complete a picture of that banking data as we possibly can to mitigate those gaps and holes.”
Taking the Friction out of Lending
DecisionLogic recently announced that it has surpassed 40 million customers since launching in 2011. Its solutions focus on helping FIs issue loans to qualified applicants rather than facilitating borrower disqualifications.
“Lenders are looking to lend money because that’s how they make money,” Evans said. “They actually like spending money, so they’re looking for reasons and justifications to lend to people.”
DecisionLogic’s customers are often lenders that serve subprime borrowers. Such consumers frequently lack credit scores for lenders’ review and must instead provide their bank statements.
Borrowers must first be willing to complete the lending application process, and frictions can arise when FIs request bank histories, which force these customers to find physical copies of their statements and then visit establishments like Staples to either print duplicates or fax materials. These issues can ultimately alienate those facing short-term emergencies.
“We found in talking to lenders [that] four out of five times, a consumer [with whom] they have direct contact [and] they want to lend money to — that would probably be [qualified to lend] money to — goes away because the process has so much friction,” Evans said.
DecisionLogic’s solutions address these problems by enabling lenders to access customers’ accounts in real time and transmit recent bank statements. Applicants receive links either through emails or SMS messages that prompt them to enter their login credentials. Speedy account access can grant FIs the assessment data they need to initiate loans.
A Complete Banking Picture
Quickly receiving financial history snapshots can persuade lenders to grant loans they already want to issue by alleviating concerns about borrowers’ potential risks.
“If a person has a regular income, that’s a confidence-booster,” Evans said. “Most of the time it’s pretty simple. We have [people] who [were] paid for 90 days, they get paid regularly for the same amount each week or month, and they don’t have anything really funky going on in their bank statements. They’re likely to work out.”
Even customers’ most recent bank statements might not provide full financial profiles, Evans acknowledged. Consumer activities can shift rapidly in a day, and pending transactions might not post in time to be reflected.
“In today’s real-time world, you can literally — this morning — go and get a payday loan from a lender, get funds deposited into your bank account today, and your bank statement today — this afternoon — would look very different than your bank statement from last night,” he said.
The faster pace means lenders need the most current and updated data sources available. DecisionLogic uses solutions from financial services technology provider Fiserv, including its AllData PFM data aggregator, to completely picture borrowers’ financial histories. DecisionLogic also works directly with several banks, including Citi and Wells Fargo, to swiftly access borrowers’ information.
Real-time data tools can give lenders clearer risk projections, especially in an age when transactions hastily alter financial statements. Evans noted that many DecisionLogic customers will perform underwriting activities just prior to initiating loans, ensuring that customers’ bank statements have not changed significantly since their initial applications.
“It’s all kind of happening in real time [when borrowers seek access to payday or cash installment loans],” he said. “The person is online, on a website, applying for a loan. [Websites that have] integrated with DecisionLogic’s technology … can make the underwriting decision and fund right away.”
These data-based insights into borrowers’ financial histories can benefit all parties, as cash-strapped borrowers who may lack previously required credit scores can still access funds, and lenders do not have to deny loans to financially vulnerable users who need quick solutions for unexpected expenses.