Consumers with poor credit and a lack of savings have few good borrowing alternatives when unexpected expenses arise. In the new Faster Payments Tracker, DecisionLogic CEO David Evans says real-time data tools could make a difference (by using cash flow as a proxy for subprime credit scores), and provide access to loans that could help fill those funding gaps.
Recent Federal Reserve data indicates that 61 percent of U.S. adults do not have $400 in savings on hand to cover unexpected expenses. That reflects a steady increase from 2013âs measure â 50 percent â and indicates that many Americans may need loans to deal with financial disruptions like medical emergencies or vehicle repairs.Â
Faster payment services could help such consumers get much-needed funds, as long as lenders can access equally fast underwriting tools. However, borrowers seeking seamlessness could face additional hurdles if their credit histories or scores become problematic.Â
A consumerâs credit score needs not be the sole factor in determining loan approval, though. Banks can also gauge risks by checking consumersâ recent financial histories for reliable incomes. David Evans, CEO of bank verification software provider DecisionLogic, said in a recent interview with PYMNTS that the firmâs solutions allow consumers to quickly provide data from their primary bank accounts, enabling faster loan approvals for the needed payouts.
Underwriting tools boost the confidence of both borrowers and lenders, and help the latter more seamlessly access reliable bank data that supersedes credit scores. They can also supply banks and other FIs with a better sense of borrowersâ financial histories, such as how pending transactions affect account holdersâ available capital by âaggregating the [data] aggregators.âÂ
âThe same personâs bank account can look different in many ways for many reasons,â Evans said. âOur challenge ⌠is to get as full and complete a picture of that banking data as we possibly can to mitigate those gaps and holes.âÂ
Taking the Friction out of Lending
DecisionLogic recently announced that it has surpassed 40 million customers since launching in 2011. Its solutions focus on helping FIs issue loans to qualified applicants rather than facilitating borrower disqualifications.
âLenders are looking to lend money because thatâs how they make money,â Evans said. âThey actually like spending money, so theyâre looking for reasons and justifications to lend to people.â
DecisionLogicâs customers are often lenders that serve subprime borrowers. Such consumers frequently lack credit scores for lendersâ review and must instead provide their bank statements.
Borrowers must first be willing to complete the lending application process, and frictions can arise when FIs request bank histories, which force these customers to find physical copies of their statements and then visit establishments like Staples to either print duplicates or fax materials. These issues can ultimately alienate those facing short-term emergencies.Â
âWe found in talking to lenders [that] four out of five times, a consumer [with whom] they have direct contact [and] they want to lend money to â that would probably be [qualified to lend] money to â goes away because the process has so much friction,â Evans said.
DecisionLogicâs solutions address these problems by enabling lenders to access customersâ accounts in real time and transmit recent bank statements. Applicants receive links either through emails or SMS messages that prompt them to enter their login credentials. Speedy account access can grant FIs the assessment data they need to initiate loans.
A Complete Banking Picture
Quickly receiving financial history snapshots can persuade lenders to grant loans they already want to issue by alleviating concerns about borrowersâ potential risks.
âIf a person has a regular income, thatâs a confidence-booster,â Evans said. âMost of the time itâs pretty simple. We have [people] who [were] paid for 90 days, they get paid regularly for the same amount each week or month, and they donât have anything really funky going on in their bank statements. Theyâre likely to work out.â
Even customersâ most recent bank statements might not provide full financial profiles, Evans acknowledged. Consumer activities can shift rapidly in a day, and pending transactions might not post in time to be reflected.
âIn todayâs real-time world, you can literally â this morning â go and get a payday loan from a lender, get funds deposited into your bank account today, and your bank statement today â this afternoon â would look very different than your bank statement from last night,â he said.
The faster pace means lenders need the most current and updated data sources available. DecisionLogic uses solutions from financial services technology provider Fiserv, including its AllData PFM data aggregator, to completely picture borrowersâ financial histories. DecisionLogic also works directly with several banks, including Citi and Wells Fargo, to swiftly access borrowersâ information.Â
Real-time data tools can give lenders clearer risk projections, especially in an age when transactions hastily alter financial statements. Evans noted that many DecisionLogic customers will perform underwriting activities just prior to initiating loans, ensuring that customersâ bank statements have not changed significantly since their initial applications.Â
âItâs all kind of happening in real time [when borrowers seek access to payday or cash installment loans],â he said. âThe person is online, on a website, applying for a loan. [Websites that have] integrated with DecisionLogicâs technology ⌠can make the underwriting decision and fund right away.âÂ
These data-based insights into borrowersâ financial histories can benefit all parties, as cash-strapped borrowers who may lack previously required credit scores can still access funds, and lenders do not have to deny loans to financially vulnerable users who need quick solutions for unexpected expenses.Â