How data aggregation can shake up credit decisioning

Though data aggregation has already made its mark on financial management apps, the potential for even greater contributions to the financial industry still remains

financial tech fintech money credit
Thinkstock

Pretty soon, there could be an app for this, that and just about everything in between.

The number of active apps is expected to surpass 5 million by the end of 2020—that’s about a 70 percent increase from 2016. Among the most popular apps are those that focus on personal finance. Apps such as Mvelopes and YNAB are helping take the mystery out of money management. Though nearly seven out of 10 millennials believe they have plenty of financial know-how, only 8 percent demonstrated as much during a survey from the National Endowment for Financial Education.

That’s where financial management apps can make all the difference. By alleviating some of the stress associated with tracking financial information across several different accounts, these apps are helping consumers get more out of their money than ever before.

The financial data aggregation and insights used to power it all is now taking on a new frontier: credit decisioning. From reduced lending fraud to an enhanced customer experience, data aggregation is transforming credit decisioning as we know it. Here are a few of the key advantages of this digitally driven credit decisioning process.

Knocking out fraud

Doctored documents are always a key concern throughout the lending process—and it’s an uphill battle for lenders. From 2016 to 2017, mortgage fraud risk increased more than 15 percent. With data aggregation, however, such concerns are fading.

Through data aggregation, the required data for financial verifications, such as assets or income, is permissioned by the consumer but comes directly from the financial institutions. This eliminates risk introduced when documents are exchanged in a physical or electronic format. After all, how easy is it to alter a few numbers on an electronic document? And when there are multiple financial accounts across financial institutions, the review can be complex and the opportunity for error or alteration is multiplied.

Additionally, the data from aggregators is provided in real-time ensuring the most accurate view of the current financial health of the borrower.

Boosting efficiency

In today’s digital age, consumers crave speed. But as it stands now, the lending process is far from quick. It takes an average of 44 days to close a loan. Data aggregation aims to change that. Through aggregation, access to financial data happens at digital speed and eliminates the traditional paper chase.

Fannie Mae has noted that automated data validation services through its Day 1 Certainty program can save up to 12 days for a single validation. That is a dramatic time savings, and for lenders each day saved translates to dollars driven to the bottom line.

For mortgage lending, an added benefit is eliminating the often required second request. In the origination process, it may be required that verification for things such as assets and income be done more than once due to the passing of time between the first verification and the loan closing. With a digitally driven process, the lender can quickly and easily refresh the data without burdening the consumer and introducing yet more time into the process.

Continued innovation

In today’s era of digital disruption, innovation is the lifeblood of business, and credit decisioning is no exception. Those who embrace a digital process will emerge winners who deliver better experiences, improve profitability and take market share. Those who don’t? Well, there’s a long history of what happens to such organizations.

Whether it’s slashing the amount of time spent chasing information, meeting the needs of borrowers more quickly, or even reducing the fraudsters, data aggregation is an innovation platform that will propel forward-thinking organizations.

Though data aggregation has already made its mark on financial management apps, the potential for even greater contributions to the financial industry still remains. Consumer expectations are only going to grow, and we’re undergoing a seismic shift where the consumer has more control in the purchasing process than ever. Lenders will need to adapt to this changing market and rapidly embrace the benefits of digitally driven processes.

And just like in financial management, consumers will expect an app-like experience.

This article is published as part of the IDG Contributor Network. Want to Join?