Optimizing Lending Decisions with Critical Insightsolutions.yodlee.com/rs/789-EJH-884/images/EB... · Optimizing Lending Decisions with Critical Insight 9 “People are frustrated

Optimizing Lending Decisions with Critical Insight

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Optimizing Lending Decisions with Critical InsightHow to get the risk info you need to make the most strategic lending decisions.

E B O O K

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RISKINFO

Table of Contents

Lending Data: Challenges and Opportunities 3

Lending Challenge #1: Limited View 4

Lending Challenge #2: Credit Invisibles 6

Lending Challenge #3: Proof of Income 8

Lending Challenge #4: Outdated Information 10

Using Consumer Permissioned Data in Credit Decisions 12

Envestnet | Yodlee Risk Insight Solutions 14

Risk Insight Solutions 16

Conclusion 18

© 2017 Envestnet | Yodlee.™ All rights reserved. Technology protected by one or more U.S. Patents or Patents Pending. Use subject to license terms. May include materials developed by third parties. Yodlee and the Yodlee Logo are trademarks or registered trademarks of Envestnet | Yodlee in the U.S. and other countries. All other trademarks mentioned in this document or website are the property of their respective owners.


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Lending Data: Challenges and Opportunities

Lenders traditionally rely on credit report data to make risk decisions that can profoundly affect their own business as well as the lives of the consumers applying for loans. But what happens when a lending report doesn’t reflect the applicant’s true financial capabilities? And what about the credit invisible consumers who have no credit file or can’t be scored with traditional models? In the following pages, we’ll discuss the four challenges lenders face when relying on traditional credit reports and how to augment credit reports to include alternative consumer data for the best risk decisions.


Lending Challenge #1:

Limited View

CREDITREPORT

690INCOMEASSETRENTAL

PROPERYCREDITCARDS

CARLOAN

RENT


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Traditional credit reports provide a summary view of certain types of liabilities as well as past payment behavior on those liabilities. While proven to be predictive of future risk, credit reports often provide a limited view of the consumer’s actual financial condition.

Solution By combining traditional credit reports with additional data on assets, income, and non-credit recurring expenses like rent and utilities, a more complete picture can emerge.

“Given the weight placed on national credit bureau scores, many consumers and small business owners are not likely to receive loans from a financial institution. Many of them, however, have the cash and earnings to repay loans without difficulty.”1

1 “Optimizing Credit Risk for Increased Lending Profitability.” https://www.yodlee.com/resources/whitepaper/optimizing-credit-risk-for-increased-lending-profitability/

CREDITREPORT

690INCOMEASSETRENTAL

PROPERYCREDITCARDS

CARLOAN

RENT


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Credit Invisibles

FICO

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Approximately 58 million consumers in the US either have no credit file, or have insufficient information in the file to generate a credit score. Called the “Credit Invisibles” by the Consumer Financial Protection Bureau (CFPB), these range from millennials just entering the workforce who are often distrustful of traditional credit sources to recent immigrants who have not yet had an opportunity to establish credit. These consumers are often difficult to approve due to a lack of risk information.

Solution Using consumer permissioned asset, income, and expense information, a profile can be created that can be used for better risk decisions in underserved markets.

A 2015 FICO study shows that some 25 million U.S. consumers – about 10 percent of the adult population – were “credit invisible”, not having credit history with a national credit bureau.

FICO

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“Infographic: Expanding Credit Opportunities.” LinkedIn SlideShare. July 09, 2015. Accessed May 15, 2017. http://www.slideshare.net/FICO/%EF%AC%81co-alternative-datascoreinfographic4106in.


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Proof of Income

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INCOME?TRANSFERS? NON-INCOME

DEPOSITS?


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“People are frustrated by… the fact that consumers – not creditors – bear the burden to prove the accuracy of credit information.”2

2 Harney, Kenneth R. “New Bill Seeks Changes to Credit Reporting, Scoring.” June 2, 2016. http://www.chicagotribune.com/classified/realestate/ct-re-0605-kenneth-harney-column-20160602-column.html

When working to approve a loan, lenders often have limited direct access to employers, are forced to rely on dated information such as tax returns, or require the consumer to produce documentation which can be fraudulently altered. While consumer permissioned transactional data can provide insight into the actual income received by a consumer from all sources, the wide variability in transaction descriptions from different data sources can make it challenging to distinguish between income, non-income deposits and transfers.

Solution The ideal solution would provide consumer permissioned access to transactional data, verify consumers’ income, assets, and liabilities, and accurately separate out non-income and transfer deposits.


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Outdated Information

20052005


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When lenders deny loans based on credit reports containing outdated information, consumers can be needlessly hurt. Alternatively, lenders can end up taking on more risk than they anticipated when new loans and other obligations don’t show up on credit reports.

SolutionUp to date data obtained from multiple sources such as banking accounts, investments, credit cards, and loans, is critical for the smartest and safest risk decisions.

“Erroneous or outdated negative items on your credit report can be deal killers — or at least deal delayers — when you’re trying to purchase a house and get a mortgage.”3

3 Harney, Kenneth R. “New Bill Seeks Changes to Credit Reporting, Scoring.” June 2, 2016. http://www.chicagotribune.com/classified/realestate/ct-re-0605-kenneth-harney-column-20160602-column.html

20052005

Copyright © 2016 Envestnet | Yodlee.™ All rights reserved.


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Using Consumer Permissioned Data in Credit Decisions

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4 Pratt, Christine, “Alternative Lenders Undermine Financial Inclusion.” March 17, 2017. https://www.americanbanker.com/opinion/alternative-lenders-undermine-financial-inclusion

“Aite Group research among traditional lenders shows that the use of trended and alternative payments data to shore up traditional credit data has improved inclusion rates and portfolio performance.”4

Consumer permissioned data is defined as transactional and account level information accessed through the explicit permission of a consumer directly from a data source. When consumers permission lenders to tap this data, lenders can gain visibility into assets, income, and expenses at every institution where the consumer transacts. Factoring in this data can provide a far more holistic, comprehensive, and verified view of a consumer’s financial picture than one provided by credit reports alone.


Envestnet | Yodlee Risk Insight Solutions


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“With the introduction of Envestnet | Yodlee Risk Insight Solutions, we are enhancing the lending process by offering a broader range of data coupled with a flexible calculation engine.” ”Terry McKeown, Practice Manager, Credit Analytics at Envestnet | Yodlee

Envestnet® | Yodlee® Risk Insight Solutions are designed to use consumer permissioned data specifically for credit and lending use cases within an FCRA compliance framework.

By combining access to transaction level data from over 15,000 data sources, proprietary data enrichment and machine learning algorithms, as well as a flexible rules based calculation engine, Risk Insight Solutions deliver comprehensive, powerful reports that can be used throughout the lending process.


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Risk Insight SolutionsEnvestnet | Yodlee Risk Insight Solutions are based off up-to-date information obtained directly from consumer permissioned access to one or more data sources and can include information on banking accounts (DDA, savings, money market, etc.), investment (brokerage, retirement, 401(k), etc.), credit cards, and loans. While reports are similar in some ways to the reports issued by a traditional credit bureau, they are different in the scope of information provided as well as how they’re delivered (as a JSON data package, and/or a PDF document, and/or an HTML based on-screen display.)

Reports can contain:• Transactional Account Insight • Expense Insight

• Verification Insight • Pre-Qualification Information

• Asset Insight • Mortgage Asset Verification Insight

• Income Insight

Step 1: Borrower applies for a loan with a lender

Step 2: Request for report(s) can be seamless and embedded in the application �ow, or requested by a loan of�cer at a later point

Step 3: The borrower is engaged to begin the Risk Insights �ow. If the borrower is not online, The Risk Insight solution engages the borrower through email or SMS

Step 4: Credentials gathered for all requested accounts available via web and/or mobile

Step 5: Based on lender con�gurations, reports are created and are avaliable by JSON data feed, API, HTML, and/or PDF

Process steps

1. Borrower Applies for a Loanwith a Lender

4. Credential ExperienceCredentials gathered for all requested accounts, available by web/mobile

5. Report DeliveryBased on con�gurations

3. Engage BorrowerIf the borrower is not online, the solution engages the borrower through email or SMS

2. Request ReportThe lender places an order for one spec�c, or set of reports


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Risk Insight Solutions collect financial data sourced directly from financial institutions. This information can include:

Container Definition # of Account Descriptive Elements

Descriptive Element Examples Transaction Detail Elements

Bank Savings, checking, money market, certificates of deposit

24 Current balance, available balance, interest rate, interest earned, term and maturity

Transaction ID, posting and transaction dates, description, amounts

Card Secure, unsecured, charge cards

25 Running balance, amount due, total credit line, available credit, total cash limit, available cash


Investment Brokerage, IRA, 401(k)

109 Type, total balance, cash balance, holding details including symbol, quantity, price and value

Transaction ID, posting and transaction dates, description, quantity, price, amounts

Loan Mortgage, automobile, student, personal

67 Loan type, term, origination & maturity dates, original & current loan amounts, interest rates



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Conclusion

Alternative data is the future of lending. Insight into a consumer’s assets, income, and expenses when appended to traditional credit reporting opens credit markets to otherwise underserved consumers like the “credit invisibles” – and it helps lenders close more loans with confidence in their risk decisions.

We invite you to take the next step and learn more about how to leverage consumer permissioned data to qualify, decision, underwrite, and manage your portfolio by contacting Envestnet | Yodlee today.

How can I learn more?

• Download the whitepaper: Risk Insight

• Download the brochure: Risk Insight

For more information, visit: www.yodlee.com.

https://www.yodlee.com/resources/whitepaper/risk-insight-whitepaper/

https://www.yodlee.com/resources/data-sheet/envestnet-yodlee-risk-insight-suite-2/

https://www.linkedin.com/company/yodlee-interactive

https://twitter.com/yideveloper

https://www.facebook.com/Yodlee

Global Headquarters: 3600 Bridge Parkway, Suite 200, Redwood City, CA 94065T: +1 650 980 3600, www.yodlee.com

© 2017 Envestnet | Yodlee.™ All rights reserved. Technology protected by one or more U.S. Patents or Patents Pending. Use subject to license terms. May include materials developed by third parties. Yodlee and the Yodlee Logo are trademarks or registered trademarks of Envestnet | Yodlee in the U.S. and other countries. All other trademarks mentioned in this document or website are the property of their respective owners. Yodlee 712 07/17

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Optimizing Lending Decisions with Critical Insightsolutions.yodlee.com/rs/789-EJH-884/images/EB... · Optimizing Lending Decisions with Critical Insight 9 “People are frustrated