Lenders often struggle to incorporate consumer-permissioned bank linking into their application experience. That’s no surprise. Generally, lenders aim to streamline their application process as much as possible. Asking the customer to log into and connect their third party bank account is a significant hurdle—one that often leads to applicants abandoning or erroring out of the application. Though the success rate of this process has improved dramatically in recent years, thanks to the proliferation of open banking and technical advancements like Plaid Layer, it is still less than 100%. Although most lenders would love additional insight into the income, savings, spending, and cash flows of would-be borrowers (and the ability to use predictive attributes and scores like Prism’s Insights and CashScore®), concern over adding “friction” to the application experience can sometimes be a roadblock.
This should not be the case.
Over the past several years, lenders have developed effective strategies to obtain consumer-permissioned bank connections and utilize all the benefits of cash flow underwriting without suffering any lost applications. Here are three popular approaches:
- Dynamic Second Look. Cash flow data can be used effectively to reveal high-quality, low-risk borrowers that lack credit history, or for whom credit history does not tell the whole story. Instead of communicating a decline decision to these applicants, lenders are introducing an additional step in the process where applicants are prompted to link their bank account and provide more information in support of their creditworthiness. Since these applicants would have otherwise been declined, any additional accepted applications are incremental to the existing approval process. We’ve seen lenders successfully approve upwards of 20% of these applications with this approach, without making any changes to their standard approval process!
- Progressive Offer Improvement. While cash flow data has been shown to be helpful in underwriting just about any type of borrower (even those with high credit scores), it’s often not required to make an initial offer. But with the benefit of cash flow data, underwriters can gain the increased visibility and confidence to provide more credit, better offers, and more tailored terms where warranted. In these cases, sophisticated lenders are introducing consumer-permission bank linking as an optional step that the applicant can take after they've already been approved. By connecting an account and sharing bank data, applicants can further demonstrate creditworthiness and qualify for a better product or better offer. It’s a win-win for borrowers, who want to share more data so they can qualify for better terms, and for lenders, who can use that data to improve their decisions. Borrowers that don’t want to share are not required to do so.
- Credit Line Increases and Downstream Benefits. The application process is not the only time that cash flow data can be useful in credit risk management. Indeed, cash flow data provides a real-time look at borrower financial health, and is quick to indicate changes or problems on the horizon. Lenders are better positioned to offer their customers credit line increases, product upgrades, or breaks on rate with the additional visibility and predictive power that cash flow offers. Once the customer relationship has been established, lenders can give customers the option to connect a bank account to be considered for a credit line increase, a break on rate, or other ongoing benefits. Customers are often willing to share in these cases in light of the potential benefits and the comfort of their established relationship with the financial provider.
It’s easier than ever for consumers and SMBs to access and share bank account data. With the strategies described above, lenders can obtain that data with no negative impact to their existing application approval rate. And thanks to tools like Prism Data’s CashScore v4, lenders can obtain more predictive and analytical value from bank account data than ever before.
If it’s not clear already, there’s never been a better time to add cash flow underwriting to your credit risk toolset. Reach out to us at Prism Data to find out how!
