Watch our webinar with Experian here

Having your monthly income verified, among other things, is a crucial part of the underwriting process, as it helps lenders assess whether the applicant fits their risk profile. However, even in this day and age, a lot of lenders still rely on a manual recollection system. The steps illustrated below can vary depending on the size and kind of the loan — but the common variable is the same; static financial records that show how their finances have been like up until the application submission date, without giving much away what it would be like in months and years to come.

Standard process of applying for loan

What it’s like today

  1. Manual: When applicants submit their forms, such as an income statement, existing loans, this is usually done through manual submission of scanned documents and/or electronic files (i.e., PDF).
  2. Possibility for fraud: One of the biggest challenges faced by credit institutions is fraud. As the current system relies on a manual collection of the applications’ financial data, one cannot overlook the possibility of impersonation or fraudulent attempts to provide inaccurate information.
  3. Narrowly defined: The financial data lenders typically gather provides a narrowly defined picture of the applicant’s financial well-being, making it difficult to predict how their finances might change.
  4. Time-consuming: A not fully digitalized and automated system means a longer time to assess the risk profile of the applicant. From a broader perspective, this incurs a higher cost for the lenders and an often frustrating user experience for the applicants.

…Enough said about how the current system is still stuck in an outdated process; let’s now look at how open banking can streamline the process with its capacity to access real-time data.

How it works with open banking APIs

  1. Automated: Account Information Services (AIS) API can access the applicant’s account data in real-time upon their consent. This means being able to verify income, outstanding loans, and expenditures directly from its source.
  2. Fast: By automating the process, lenders can quickly evaluate the applicant’s risk profile and applicant can get answers in a timely fashion.
  3. Accurate: Having access to the applicant’s account data allows you to make more accurate and well-informed decisions as it mitigates a possibility for fraudulent attempts.
  4. Holistic: When the data is combined with a categorization algorithm, it not only draws the applicant’s current financial picture but also predicts how it might change based on their current spending behaviors.

Experian, the world’s leading data and information services company, has partnered up with Neonomics to enable broader insights for lenders and consumers, empowering both parties to ensure a streamlined application process. Experian’s machine learning-based categorization engine takes transaction data and classifies it into predefined categories of income and expenditure, which in turn creates a holistic picture of applicants’ current financial health and its predictions.

The data provided by Neonomics is powered through the data sovereignty of consumers, who now can decide what happens to their bank account data with the revised Payment Services Directive (PSD2), also known as open banking.

Following the initial launch in Denmark, Neonomics’ Account Insights will expand into the rest of the Nordic countries. To learn more download our case paper.