How Checking Account Info Can Drive Digital Lending Success

August 6th, 2019

lending-8-6-19.pngBanks can use transaction information from checking accounts to transform their digital lending experience for customers.

Banks can use digital lending to provide a direct, fully self-service experience to customers and significantly improve their delivery efficiency. It gives them a way to automate decision-making and operational processes with expanded connectivity. But they should consider three ways they can leverage transaction account information to further enhance digital lending: application automation, enhanced real-time decision analysis and ongoing credit monitoring.

Application Automation. Banks can use digital transaction information to speed up the loan application process. Technology like customer-driven digital access that links checking and transaction activity allows small businesses and consumers to quickly and simply share their digital footprint with just three or four fields and a click, compared to multi-page applications.

For example, bank customers can provide in seconds their checking information digitally, documenting identify verification, customer vitals and addresses, income or sales revenue, payments, expense analysis and trends over time. This approach offers convenience for customers and creates efficiency for the bank.

New bank customers can do the same thing with account aggregation, using their online banking credentials to share their account data. Account aggregation has become routinely successful, as providers have enhanced their offering and bank regulators have touted the benefits of customer-authorized aggregation services. Fintech lenders like Kabbage market their speed with integration to transaction accounts; now, some banks are implementing similar processes to automate a digital loan application in a few seconds.

Enhanced Real-Time Decision Analysis. Once a prospective borrower creates a digital loan application, banks can use a variety of systems to provide underwriting analysis using algorithms for automated decisions. Checking account deposit history that documents income or sales revenue and transaction details provides a much richer set of data, compared to solely credit-based systems. Trends in types of deposits by tran-code, along with payment frequency and insufficient funds activity also substantially enhance the automated decision process. More importantly, deposit activity for consumer and small business loans provides banks with significant insight into a customer’s ability to repay, something that is not captured by credit histories and simple income validation.

Ongoing Credit Monitoring. While there is a fast-growing amount of digital lending capabilities and competitors, far too often fintech companies overlook loan monitoring of originated loans as part of the digital process. Banks’ digital monitoring of transaction accounts is the most important part of an automated credit monitoring process for consumer and small business loans.

For example, a bank’s loan monitoring file for a $40,000 small business loan may have a tax return that was pulled months ago and may not resemble the current operation. The compiled financial statement provided by the client may not reflect all the latest financial condition. A guarantor’s lagging credit scores can create real risks for banks.

Checking account deposits, transactions, insufficient funds and other activity, along with loan balances, can be digitally monitored by banks, complete with alerts for immediate pattern changes. For example, if a bank sees that a borrower’s deposits have fallen by half, insufficient funds transactions are increasing, the loan balance remains flat and the guarantor’s credit score is trending downward—all revealed through automated soft-pull functionality built into the credit monitoring system—it can be alerted to potential trouble approaching. Banks can implement this digital automation of credit monitoring for existing loans as well, which is a fast-growing segment of digital technology.

Banks can make decisions about managing risk using current account transaction data far in advance of typical credit reporting tools by leveraging the transaction account data digitally. Similarly, banks can monitor consumer transaction accounts for risk changes. Banks can use digital monitoring transaction activity to enhance risk management, efficiency and compliance.

The strongest feature of digital lending is the expanded and expedited view of the customer, provided by instant integration of checking and transactional account information for banks in serving consumers and small businesses.

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Robert C. Giltner is chairman of RCGILTNER Services, a provider off-the-shelf digital lending technology for financial institutions to serve consumers and small businesses. In his 30-year career, he has founded two technology and service organizations previously serving financial institutions previously, both sold to larger organizations.