For the past few years, financial institutions have been challenged to keep up with consumer demand for their products and services. With a steady stream of borrowers coming through the doors, these institutions didn’t have to spend much time looking for new business.
At the same time, bank and credit union executives have been ceaselessly courted by technology vendors promising them all kinds of jargon-filled new tech tools. Most of these leaders have already lost count of how many times they have heard the terms machine learning and AI.
But now things are changing. With inflation on the rise, the economy is slowing, and interest rates are rising. The current administration in Washington is refocusing its sights on fair lending and underserved markets have become prime opportunities. Unfortunately, lenders don’t have the tools they need to assess the risk of lending to these borrowers.
Does this mean that executives have to get comfortable with tech jargon? No, but it is time to introduce the financial services industry to a new partner and a new approach to consumer and auto lending.
Lending to the underserved in today’s market
Traditionally, lenders have used a single set of commercially available consumer credit scores to underwrite the risk involved in lending to these individuals. While this approach has served them well in the past, analyzing a credit score alone only reduces the pool of borrowers, leaving money on the table for lenders. In addition to losing out on potential customers, lenders find themselves in a risky position without a full picture of the borrower.
That’s because many of the underserved have either very thin credit files or no files at all. When they come into the bank for a new consumer loan or auto loan, the loan officer doesn’t have enough information to fully assess the applicant’s credit risk.
There are millions of prospective borrowers that could qualify for a consumer or auto loan if all the data relating to their ability to repay the loan was considered during the underwriting process. Our best estimates, based on our experience providing 3 million credit decisions, is that the average lender could double the number of loans they approve by leveraging alternative data.
As lenders have digitized their operations, much of the information that was previously unstructured and paper-based has made its way into online databases. Today, there is consumer data stored in many places that can now be accessed for the benefit of a lender’s underwriting team.
There is a multitude of new consumer available data that can be integrated into a decisioning platform to show a full financial picture, opposed to just a credit score. This alternative consumer credit information is the key to finding new business in today’s environment. All you need is a partner who can pull it all together for you.
Meet with one of our experts to schedule a BankAnalyze demo and learn how this product analyzes bank statements in order to automate credit decisions for consumer and auto lending. This tool will allow your financial institution to earn additional revenue and build your customer or member base to better serve borrowers.
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