Verification Platform Puts Data Portability to the Test in the Lending Space

As the debate over consumer data privacy moves from the living room to the board room to meeting rooms on Capitol Hill, more firms are seeing the business potential of data portability.

Use cases run from loan applications to switching banks — and far beyond into new forms of digital marketing powered by data targeting and segmentation.

As things stand now, consumer’s financial data is decidedly nonportable. When they want access, they not only have to pay for data that’s theirs but also take legal responsibility for it. Consumers applying for loans or switching banks typically don’t want such hefty obligations.

Kirill Klokov, CEO at Citadel API, calls this “a nasty problem,” and his company is working to fix it.

“The one thing that bothers me as a consumer [is that] when you apply for a loan today, you have to wait for the bank to [contact] the intermediary, which partners with the payroll company, and then a bill for $50, $60, $100 will be passed along right to you,” he said.

“It’s quite amusing that as a consumer, I give you permission to access my data, you access my data, and then you give me a bill for it,” he told Karen Webster.

Citadel’s solution is to remove intermediaries, letting its payroll application programming interface (API) work behind the scenes to port data wherever the consumer wants to send it as part of a free and frictionless process.

“Our team is laser-focused on user experience,” he said. “I’ve built my career in product. It’s really easy to get stuck in architecture and thinking about how to build the best system, but really what we should be caring about … is how do we build the best user experience?”

Citadel API partners with financial institutions (FIs) and payroll firms, providing an online portal where consumers log in and give permission to share data when and where they want it. Citadel doesn’t store or monetize consumer data in any way, Klokov said.

“It’s consumers’ data, and from my perspective, consumers should do whatever they want with that data.”

See also: Data Portability And Liability: A Game Of ‘Three Dimensional Chess’

It’s All About Permission

A typical scenario for Citadel is a consumer applying for a loan. “The lender needs to verify your income and employment, and we will on your behalf log into the payroll provider, extract the data, normalize it and return it back to the company that needs it instantly. It’s a very transparent, efficient process,” Klokov said.

Many of Citadel’s lender clients white label its solution, so the API operates in the background from a consumer’s view, although they must agree to a joint privacy pact between Citadel and its partners.

Permission is the name of the game, and the stakes are getting higher all the time.

While the U.S. is now playing catch-up with the EU and other governments that have already enacted strict data security laws, Klokov said the way Citadel addresses data permission and sharing avoids any potential regulatory pitfalls by relying solely on consumer consent.

“You can regulate [data sharing], but you can also change the approach,” he said. “Our approach is completely consumer consented. If the consumer wants to get a better loan — and that’s what I keep thinking about all day long with our clients who are primarily lenders and background screening companies — how does get the consumer get … a better auto loan, a better mortgage and so forth? The approach that we took is very transparent.”

He said that “even though regulation is going to happen [in the U.S.], we just come with a very different view of the solution. It’s transparent and consumer-friendly.”

See also: Data Sharing, XaaS Target SMB Financing Efficiencies

Portable Data Opening New Doors

Enabling consumers to share their income and employment data with lenders and others can create new use cases that open up the underwriting process in more consumer-friendly ways. This has major potential for the underbanked — as well as the large number of people without the best credit histories who’ve held for some time.

“Verification of employment and income changes the dynamic for folks who don’t have a credit history,” Klokov said. “If for whatever reason you’re underbanked, or you don’t have the best financial discipline but you have a good job, why can’t you get a good loan? You should be [able to].”

By deducting loan payments directly from paychecks before they goes into a bank account, “you can take a small cut from the paycheck and then send back to the main account that they have the bank account. As a result, you can provide consumers a much better deal in terms of APR.”

Easily switching banks is another relevant use case. Referring to President Biden’s July executive order calling on the Justice Department and Federal Trade Commission to crack down on anti-competitive practices, PYMNTS’ U.S. Open Banking Tracker® noted, “The rule aims to allow consumers to switch banks with more ease,” adding, “Federal officials are therefore placing more emphasis on how data is being shared among banks, particularly how it is being made available to consumers.”

That touches on one of Citadel’s other core services — the easy switching of direct deposits.

All of this points to a future of consumer data ownership where all players win.

“I think we’ll go away from companies trading data behind your back to a situation where you would have solutions like ours and other solutions that are consumer permission, and you’ll eventually have your own repository of data that you can port over from one place to another, share with one click, and if you don’t want to share the data anymore, you can take it back.”

Get the Tracker: The U.S. Open Banking Tracker®