Lenders today must be in-tune with the ever-changing and evolving landscape of the consumer lending environment. Consumers want fast-paced seamless transactions, as well as a fair chance in the lending approval process, which may require lenders to go beyond the traditional credit score. Utilizing alternative data sets combined to capture a more comprehensive financial view of loan applicants can help borrowers prove their creditworthiness and allow lenders to say “yes” to more loan applicants.
Four significant trends are reshaping the consumer lending environment that lenders should note to remain profitable and relevant in today’s dynamic environment.
The Way People Work is Evolving
The coronavirus pandemic expanded remote work and gave way to more “gig” or freelance opportunities, evolving what it means to earn money. It would not be out of the ordinary for a borrower to be driving for Uber or Lyft after being off the clock from a traditional day job, renting out a home on Airbnb, or spending weekends working odd jobs via TaskRabbit all to make extra cash. They may even use one of these peer-to-peer services as a primary source of income. This somewhat new way to work diverts away from consumer credit fundamentals: multi-year histories of job stability and high credit scores to identify low-risk credit applicants. Due to the complexity of today’s workforce, lenders relying on outdated loan decisioning models that don’t provide a holistic view of an applicant’s financial situation might get left behind. Layering the traditional credit score with third-party income and employment data can be a winning combination for capturing a more comprehensive view for applicants with complex employment situations, mitigating risk, and employment and income sources.
The lending industry is working to achieve broader financial inclusion to better serve a diverse mix of borrowers in a way that helps meet their unique circumstances. By leveraging technologies that provide seamless access to a greater scope of trusted and secure information, lenders can help ensure that the fair access to credit is a path on which everyone can walk, no matter the circumstances. Including third-party data and embodying the digital innovation into lending will help financial institutions (FIs) serve consumers who have historically been shut out while also adding new qualified applicants. In addition, layering data can help more consumers qualify and move from unscorable to subprime.
Fast and Easy – Real-time Convenience with Less Friction
Consumers are conditioned to quick delivery and service, and they expect similar responsiveness in every aspect of their lives, including their dealings with FIs. As a result, consumers demand a fast, flexible, low friction lending process that feels easy and convenient, forcing lenders to continue streamlining their processes and use real-time data to meet consumer expectations.
This requires the integration of automation into the lending experience. Having automated and secure technology solutions integrated during decisioning can reduce the need to request sensitive banking log-in credentials or outdated paper-based processes. The majority of customers will walk away from business transactions that inconvenience them. Simplifying as many steps as possible for both the financial institution and the consumer can drive efficiency, increase engagement and experience, and ultimately increase revenue.
The paper-intensive, time-consuming processes of the past have been shifting to digital processes, especially in response to the pandemic. This digital transformation has evolved to include more cloud-based solutions. This enables lenders to be less segmented and exist in a more holistic environment of insights and solutions that deliver a seamless digital experience.
In addition to leveraging cloud technology to make smarter, more informed decisions, utilizing cloud-based solutions also helps remove data silos, or the technical barriers between data sets. This eliminates the cumbersome process of lenders having to pull data from multiple sources to get a complete picture of a borrower. By bringing these data sources into a cloud-based environment, data can become a seamless, globally distributed data fabric, enabling lenders to combine data in new ways and unlock novel insights. Having greater visibility into a borrower’s true financial health, including income and employment status, provides a more holistic view, resulting in smarter decisions and the ability to help borrowers make wiser financial decisions, while reducing risk, default rates and improving operational efficiencies.
Cloud solutions also provide lenders with the flexibility to quickly scale up or scale down operations to better meet market demands, typically with little to no disruption or down time. This enables resources to more easily be redirected to focus on revenue-generating activities and tasks.
Meeting the needs of today’s consumers while continuing to attract new ones can be challenging, given the unique circumstances of each. Leveraging technologies can help FIs remain nimble amidst evolving consumer preferences and trends. Adopting a digital lending process that attracts a diverse group of borrowers across all generations, regardless of their credit file, as well as providing exceptional personal experiences, will likely reap the most benefits.
Alison Heller is the Sales Director, Consumer Finance at Equifax.