Technology has transformed how successful financial institutions (FIs) do business. FIs must leverage relevant data at every stage of the lending process to improve both the borrower and lender experience. The implementation of digital verifications of income and employment (VOIE) at the beginning of the application process is key to achieving a consistent, fast, and informed loan decisioning process.
Automate workflows for consistent and fast decisions
How FIs retrieve automated VOIE during the application process is vital to remaining competitive in today’s lending landscape. Technology allows FIs to adopt an enterprise-wide, standardized loan decisioning framework based on integrated income and employment data from a single source. And, speed and consistency can make or break a deal. Banks, credit unions, and other financial institutions have accelerated their automated VOIE transformation efforts to eliminate costly and timely paper-based processes from the lending environment. Utilizing instant verification at the start of an application can free up time on tedious and redundant data requests, thereby enabling lenders to spend more time on value-added activities.
Also, digital income and employment verifications may decrease errors when determining an applicant’s ability to repay loans. Built-in decisioning criteria can create an environment where every loan decision is seamlessly backed by data, potentially reducing cost, labor, errors, and oversights. By integrating automation and decreasing reliance on paper-based VOIE reviews, digital data better allows for more confident lending by FIs, potentially meaning lower default rates on loans. Automated VOIE incorporates the FI’s view of an applicant’s ability to pay a loan into their decisioning model, possibly leading to a significant lift in customer conversion rates over traditional or paper-based models.
Extend more loans to more applicants
Some lenders only verify income and employment at funding, but implementing VOIE earlier in the application process can help lenders make informed decisions faster, thereby reducing the chance of losing the applicant to competition. VOIE minimizes reliance on consumer-provided documentation, such as W-2s and bank statements, and consumer-permissioned accounts, helping to decrease FIs’s reliance on untimely processes that lower the potential of applicant acquisition.
The lending market has become fiercely competitive, putting pressure on FIs to make quicker decisions and extend loans to applicants that traditionally may not qualify in order to grow their borrower pool. VOIE information is an innovative use of alternative data that may help lenders approve more unscorable customers — for loans that may have previously been denied. This expansion of data usage can capture more comprehensive financial strength indicators and provide increased opportunities for lending to underserved communities. VOIE technology allows every loan decision to be seamlessly backed by data, providing FIs with a more confident lending decision. FIs are increasingly mindful of improving their practices to increase efficiency, decision speed, and productivity and to enhance their customer experience.
Less uncertainty and hassle
Outdated legacy processes can leave FIs using a narrow model to provide lending decisions. When FIs make decisions with limited data, they may say ‘no’ to applicants whose larger financial picture confirms they are actually qualified for the requested loan – and to the possibility of a long-term customer. Automated VOIE decreases borrowers’ responsibility for providing paper documents to verify their work status, which can create a smoother process for both the lender and borrower and reduce the risk of future defaults resulting from any over-inflated borrower-provided income.
Utilizing VOIE at the start of a borrower’s application reduces the friction and uncertainties of decisioning that relies on paper-based processes alone. VOIE displays a more holistic view of a customer’s ability to pay bills, whether they hold traditional employment or are a solopreneur. FIs can instantly see the most up-to-date information available about applicants, with records updated every pay cycle.
While consumer-provided documents and permissioned data are viable options for verifying a borrower’s income and employment, they bring risks and challenges. Having applicants provide these documents increases consumer friction, especially if they must personally track them down.
Implementing digital VOIE during the application process can make data transfers safer and faster by removing paper-based processes that could also trigger other issues, such as the potential for over-inflated stated borrower income. Integrating VOIE into an FI’s workflow allows a direct connection to a database that transmits consumer data securely under encryption.
FIs who implement VOIE during the application process can transfer data securely, capture more accurate financial strength indicators, reach better informed lending decisions faster and, potentially, observe an increase in conversion rates on borrower applications.
Carly Peroutka is the Consumer Finance Sales Leader for Equifax Workforce Solutions, where she works closely with Mortgage, Auto, Fintech, Credit Card, and Personal Loan Lenders.