Skip to main content

Resource: Blog

Optimizing Data Orchestration for Application Fraud Prevention

Written by Amy Sariego on . Posted in Blog.

BLOG

Optimizing Data Orchestration
for Application Fraud Prevention

Why more data isn’t always the answer – but a more holistic approach is.

The Growing Threat of Application Fraud

The world continues to become more and more digital – and fraudsters are taking advantage by consistently finding new ways to exploit any weaknesses in technology and financial services systems. Application fraud in particular has emerged as a significant threat in financial services, with attempts (and the various types) increasing steadily. According to TransUnion’s 2023 State of Omnichannel Fraud Report, nearly 5% of digital transactions globally in 2022 were found to be possibly fraudulent (4.2% for financial services specifically), and there were over $4.5 billion in outstanding balances in the U.S. for auto loans, credit/retail cards, and unsecured personal loans, thanks to synthetic identities (which incidentally marks a 27% increase since 2020, and the highest level ever recorded). Additionally there was an increase of 39% from 2019-2022 in cases of fraud attempts in financial services, with the top type being identity fraud.

So what does this mean for financial institutions, payment providers, lenders, fintechs, etc.? It means that as fraudsters and their methods evolve, so too must the ways in which we as an industry detect and prevent it. But how? One key is data orchestration. Because with a more holistic, comprehensive view of your customers you can:

  • More accurately detect and prevent fraud, at onboarding and beyond, and;
  • Ensure that genuine, creditworthy customers don’t feel the pain while you do so

Fraud Attempts on the Rise

Fraud attempts are increasing. Rapidly. Which makes it more imperative than ever that the financial services industry gets prevention right. According to TransUnion, these are the top fraud types and their growth this year:
Fraud TypeDigital Fraud in 2022Volume Change 2019-22
Credit Card6.5%76%
Account Takeover6.3%81%
True Identity Theft6.2%81%
ACH/Debit6.0%122%
Synthetic Identity5.3%132%
** TransUnion’s 2023 State of Omnichannel Fraud Report
To prevent application fraud, financial services institutions must use various detection mechanisms, typically curated from data partners/sources, including identity verification, screening, and scoring. Identity verification involves verifying that the applicant is who they claim to be, while screening involves checking the applicant’s information against various databases, including credit bureaus and watchlists, to identify red flags. Scoring involves assessing the risk associated with the applicant based on various data points, including credit history, employment, and financial data. Looking at various data sources, including open banking, bureau data, email and social media, device information, KYC, and sanction screening can all be used to check whether a) a person is legitimately who they claim to be and b) whether they really intend to actually use the financial product in a responsible way (i.e. will they pay you back??).

More Data To Combat Fraud? Or BETTER Data?

So it’s clear that fraud prevention is critical. But if your immediate reaction is to buy all the data… think again.

From TransUnion again, “the knee-jerk response to rising data breaches and persistent digital fraud might be to increase identity verification and authentication checks. However, the transition to an always-on, digital-first customer experience, evidenced by the dramatic increase in digital transactions over the past few years, means fraud leaders must be aware of customer experience and enable the business to drive top-line growth while reducing fraud risk.”

So despite how tempting it is to just use more and more data, you need to balance that with a) the consumer experience (are you ready to add more friction to the journey?) and b) the unnecessary cost and inefficiency of buying more data than you need. Because the better you get at accessing and integrating the right fraud data, at the right time in the customer journey, the better results you’ll see:

  • Less friction in the consumer experience
  • More accurate fraud risk models
  • Increased ability to assess fraudulent activity and the intent to pay
  • More growth – because ultimately, the more adept you get at preventing fraud, the more confident you can be in your decisions, enabling sustainable business improvements across the customer lifecycle

SIDENOTE: Predictive analytics, like embedded machine learning and artificial intelligence, also helps, by automatically analyzing vast amounts of data and offering insights into patterns of behavior that may indicate fraud.

Eliminate Decisioning Silos

Traditional fraud detection methods often result in siloed environments between fraud and risk teams, leading to an incomplete view of the customer and their creditworthiness. To overcome this challenge, financial institutions need to think about adopting a holistic, end-to-end risk decisioning solution that integrates fraud and risk management. This approach enables a more comprehensive view of your customers and their creditworthiness while accurately detecting fraud by eliminating the siloed environment between your fraud and risk teams.

A more holistic, integrated view of your customers enables you to stay ahead of threats, and an end-to-end risk decisioning platform ensures you can continually improve your fraud risk models and optimize decisions as threats evolve – all right alongside your credit risk decisions. Eliminating these siloed environments offers maximum flexibility and agility at every step of your risk decisioning processes. Reduce the complexity of managing multiple online fraud detection tools and disparate decisioning systems with one unified, end-to-end solution for fraud, credit, and compliance across the customer journey. And watch your business grow as a result.

Discover more accurate fraud risk detection with a more holistic, comprehensive view of your customers.

Learn More

Did You Know?

  • KYC – 67% of corporate treasurers limit the banks they work with because of KYC-related challenges
  • AML – between $800 billion (2%) and $2 trillion (5%) of the world’s GDP is laundered globally each year
  • Mule Accounts – 34% increase in mule accounts belonging to 40-60 year olds since 2017
  • KYB – it can take anywhere from 90-120 days to onboard a corporate banking customer
  • Identity Theft – there’s a new victim of identity theft every 2 seconds
  • Account Takeover – 41,857 account credentials stolen per minute
  • SIM Swap – SIM swap fraud reports have increased by 400% in the past five years
LATEST BLOGS

Islamic Banking and Financial Services: Where Tradition Meets Innovation

Islamic Banking and ...

Islamic banking blends traditional principles with modern financial practices,
Read More
Lending to Live: Navigating the Cost of Living Crisis for Lenders in the UK

Lending to Live: Nav...

As the cost-of-living crisis in the UK intensifies, consumers
Read More
Bridging the SME Funding Gap

Bridging the SME Fun...

SMEs are essential to global and regional economies, yet
Read More
Guest Post: How generative AI is transforming due diligence

Guest Post: How gene...

The role of compliance is crucial in preventing regulatory
Read More

Enhancing Financial ...

In the fast-paced world of financial services, integrating case
Read More

What impact do decis...

The 2024 Global Risk Decisioning Survey reveals critical insights
Read More

Top 10 Banking Trend...

As the banking sector continues its transformation, we explore
Read More
provenir logo

Buy vs Build in the ...

BLOG Buy vs. Build in the UKWhy "Buy" is
Read More

Continue reading

provenir logo

Risk Decisioning Platforms in Indonesia

Written by Amy Sariego on . Posted in Blog.

BLOG

Embracing the Future:
The Rise of Innovative Risk Decisioning Platforms in Indonesia

A New Era of Credit Risk Management Unfolds

As we navigate our way into the future, it becomes evident that a significant transformation is underway in the financial realm. Projections indicate that global fintech revenue will experience a sixfold increase between 2021 and 2030, reaching an impressive US$1.5 trillion annually. Notably, the Asia-Pacific region will play a dominant role in this growth, constituting 40% of the global fintech revenue, equivalent to a substantial US$600 billion per year, as reported by Boston Consulting Group (BCG) and QED Investors.

As part of this transformation, Indonesia stands at the cusp of a financial revolution. Innovative risk decisioning platforms are reshaping the lending landscape, offering detailed insights to lenders and empowering borrowers in unprecedented ways.

These platforms harness the power of data as well as machine learning and artificial intelligence, tapping into a plethora of alternative data sources, ranging from social media activities to mobile phone usage patterns1. This approach provides a more holistic assessment of an individual’s creditworthiness, transcending beyond traditional data points.

Why does this matter? Understanding creditworthiness is pivotal to lending. It enables lenders to mitigate risk, customize loan offerings, and identify potential defaults at an early stage. Remarkably, research indicates that the utilization of alternative data can curb default rates by up to 45%.

Moreover, these platforms are democratizing access to credit. By considering alternative data and incorporating automated, AI-powered decisioning, they are enabling lenders to evaluate the creditworthiness of individuals lacking a formal credit history. This is particularly significant in Indonesia where approximately 30% of adults are financially excluded due to the absence of a credit history.

So, what fuels this trend? A combination of several key factors.

  • Firstly, Indonesia’s fintech industry is experiencing rapid growth. Technological advancements have led to the emergence of new platforms and innovative methods of delivering financial services.
  • Secondly, Indonesian banks and multi-finance companies are making substantial investments in Peer-to-Peer (P2P) lending platforms. These platforms offer new channels for loan distribution and widen the access to credit.
  • Additionally, the Indonesian government is playing a crucial role in this transformation. They have established a robust fintech ecosystem with stringent regulations and advanced infrastructure technology to facilitate SME financing.

However, as with any revolution, there are challenges to overcome. Ensuring data privacy and security is paramount, necessitating a delicate balance between leveraging rich data sources and respecting individuals’ privacy rights. As of July 2023, there is no specific data protection authority overseeing data protection in Indonesia. “However, the PDP law puts forward the role of the Government of Indonesia in actualizing the implementation of personal data protection. The PDP Law calls for the creation of a Personal Data Protection Commission (Komisi Perlindungan Data Pribadi) as the body responsible for implementing the PDP Law.”

The rise of innovative risk decisioning platforms in Indonesia signifies a paradigm shift. These platforms are revolutionizing how lenders assess creditworthiness, fostering financial inclusion, and propelling the country’s fintech industry forward. The future of lending in Indonesia is indeed promising… will you be at the heart of this exciting transformation?

The Provenir team will be attending the World Financial Innovation Series (WFIS) event in Indonesia as a Silver Sponsor! Meet us at the event, where we’ll showcase cutting-edge solutions to empower your financial journey. Book a meeting here.

Meet us at the World Financial Innovation Series event.

Book a Meeting

LATEST BLOGS

Islamic Banking and Financial Services: Where Tradition Meets Innovation

Islamic Banking and ...

Islamic banking blends traditional principles with modern financial practices,
Read More
Lending to Live: Navigating the Cost of Living Crisis for Lenders in the UK

Lending to Live: Nav...

As the cost-of-living crisis in the UK intensifies, consumers
Read More
Bridging the SME Funding Gap

Bridging the SME Fun...

SMEs are essential to global and regional economies, yet
Read More
Guest Post: How generative AI is transforming due diligence

Guest Post: How gene...

The role of compliance is crucial in preventing regulatory
Read More

Enhancing Financial ...

In the fast-paced world of financial services, integrating case
Read More

What impact do decis...

The 2024 Global Risk Decisioning Survey reveals critical insights
Read More

Top 10 Banking Trend...

As the banking sector continues its transformation, we explore
Read More
provenir logo

Buy vs Build in the ...

BLOG Buy vs. Build in the UKWhy "Buy" is
Read More

Continue reading

Consumer Duty Regulation for Credit Risk

Written by Amy Sariego on . Posted in Blog. No Comments on Consumer Duty Regulation for Credit Risk

BLOG

What is Consumer Duty Regulation for Credit Risk in the UK

What is the Consumer Duty Regulation?

The Consumer Duty Regulation is a significant regulatory framework that has been introduced by the Financial Conduct Authority (FCA) in the UK. Its primary objective is to ensure that financial services organisations prioritize and proactively work towards delivering good outcomes for their customers throughout the entire customer journey and lifecycle.

Understanding Consumer Duty Regulation for Credit Risk

The Consumer Duty Regulation is a result of extensive consultation and consideration by the FCA. It represents a key element of the FCA’s three-year plan and its commitment to raising the standards of consumer protection in the financial services industry.

To understand the regulation better, let’s delve into its origins and historical context. It is crucial to recognize that the Consumer Duty Regulation is a response to concerns raised about consumer outcomes in the industry. These concerns include issues such as mis-selling, lack of transparency, and poor treatment of vulnerable customers. The regulation aims to address these issues and create a more equitable and customer-centric financial services sector.

Core Elements of Consumer Duty Regulation for Credit Risk

Deciphering the Consumer Duty Framework: To fully grasp the implications of the Consumer Duty Regulation, it is essential to explore its structure and components. The framework consists of three cross-cutting rules and four outcome rules, each designed to reinforce good customer outcomes and promote fairness in financial services.

The three cross-cutting rules lay the foundation for the regulation. They require companies and to act in the best interest of their customers, provide products and services that meet customers’ needs, and maintain a duty of care. The four outcome rules focus on specific areas such as communications, products and services, customer service, and customer feedback.

An in-depth understanding of these rules and guidance will help credit risk professionals navigate the regulatory landscape effectively and ensure compliance.

Post-Publication Impacts and Responses

Since the publication of the Consumer Duty Regulation, there have been significant impacts and responses from the financial services industry. Let’s explore some of these below:

1. FCA’s Assessment of Consumer Duty Compliance:

Since the publication of the Consumer Duty Regulation, the FCA has been actively reviewing implementation plans and their outcomes. The FCA’s assessment provides insights into the industry’s response to the regulation, highlighting areas of successful implementation as well as those that require improvement.

It is critical that credit risk teams stay informed about the FCA’s assessment findings and align their preparations accordingly in order to meet the regulatory requirements.

2. Prioritization Strategies for Effective Compliance:

To effectively comply with the Consumer Duty Regulation, credit risk teams need to prioritize their activities. Prioritization ensures that resources and efforts are directed toward addressing areas of highest importance, increasing the likelihood of successful compliance.

Developing clear strategies for identifying and addressing compliance gaps is crucial. This may involve assessing existing processes, systems, and policies, and making necessary adjustments to align with the regulation’s requirements.

3. Collaborative Engagement with 3rd Parties:

The Consumer Duty Regulation emphasizes the need for collaborative engagement within the distribution chain. Financial services organisations must work closely with intermediaries, such as brokers and price comparison websites, to ensure that information is effectively shared and implemented.

Building strong relationships and open lines of communication with 3rd parties is essential for achieving good customer outcomes and maintaining compliance with the regulation.

Consumer Duty: The Targeted Sectors

The Consumer Duty Regulation is not limited to banking and financial services. Other sectors, such as insurance, telecoms, and specialist asset finance, are also impacted by the regulation. Understanding how the regulation affects these sectors is essential for comprehensive compliance. Let’s explore two areas of interest:
  • Sectors in Preparation for Consumer Duty
    The Consumer Duty Regulation is not limited to banking and financial services. Other sectors, such as insurance, telecoms, and specialist asset finance, are also impacted by the regulation. Understanding how the regulation affects these sectors is essential for comprehensive compliance.

    Recent developments and emerging clarity within specific sectors shed light on their preparations for the Consumer Duty Regulation. Insights from these sectors can inform credit risk professionals’ own preparations and help identify sector-specific challenges and solutions.

  • Navigating the Unique Challenges for Credit Risk Teams
    Credit risk teams face unique challenges in adapting to the requirements of the Consumer Duty Regulation. It is important to recognize these challenges and develop strategies to address them effectively.

    Some primary focus areas for credit risk teams include data quality, vulnerability considerations, affordability assessments throughout the customer lifecycle, and cross-disciplinary approaches. By focusing on these areas, credit risk teams can enhance their compliance efforts and contribute to positive customer outcomes.

Banking and Financial Services’ Focus on Consumer Duty
The banking and financial services industry places significant focus on complying with the Consumer Duty Regulation for credit risk. Let’s dive into some key areas of focus:
  • Data Quality as a Cornerstone for Compliance
    Data quality plays a critical role in achieving compliance with the Consumer Duty Regulation. Accurate and reliable data is essential for informing decision-making, optimizing product performance, and improving customer support. Organisations need to ensure that their data sources are robust, up-to-date, and capable of supporting the regulation’s requirements.
  • Spotlight on Vulnerability
    Recognizing and addressing vulnerability is a key focus area for banking and financial services. Organisations need to enhance their identification and support for customers who show signs of financial and non-financial vulnerability. This may involve developing personalized communication channels and tailored support for vulnerable customers.
  • Affordability and Customer Lifecycle
    Ensuring that customers receive tailored support when facing financial difficulty is crucial for compliance with the Consumer Duty Regulation. Credit risk teams need to assess affordability throughout the customer lifecycle and make informed decisions to provide appropriate support. This includes reviewing affordability assessments at the onboarding stage and evaluating key decision points to mitigate financial risks.
  • Workstreams and Cross-disciplinary Approaches
    Credit risk teams can benefit from organizing their Consumer Duty activities into workstreams aligned with the regulation’s cross-cutting rules. This approach ensures comprehensive compliance considerations and encourages collaboration across different business teams, such as marketing, product, analytics, data, and customer support.
  • The Increasing Knowledge Curve
    As the deadline for compliance with the Consumer Duty Regulation approaches, the level of knowledge and activity within banking and financial services is on the rise. It is crucial for credit risk professionals to stay informed about the regulation, internal communications, and rollout plans within their organizations. Increasing knowledge levels will strengthen compliance efforts and contribute to successful preparations.
  • Intermediaries and the New Emphasis

    The Consumer Duty Regulation places increased emphasis on how banking and financial services companies engage with intermediaries, such as brokers, dealers, and price comparison websites. Collaborative engagement with these 3rd parties is essential to deliver good customer outcomes and ensure compliance with the regulation. Credit bureaus also play a crucial role in the ecosystem, facilitating information sharing and supporting organisations in their engagement with consumers.
Key Focus Areas and Strategies
To ensure compliance with the Consumer Duty Regulation, organisations must focus on various key areas and develop effective strategies.

  • Demonstrating Positive Customer Outcomes

    Complying with the Consumer Duty Regulation requires a focus on demonstrating positive customer outcomes, particularly in affordability assessments. Organisations need to enhance their affordability strategies and monitor changes throughout the customer lifecycle. This includes obtaining credit bureau data to gain insights into a customer’s financial resilience and regularly reviewing their financial position.

  • Support and Vulnerability Measures

    Identifying customers facing financial difficulty and providing tailored support is an integral part of compliance with the Consumer Duty Regulation. Companies need to enhance their pre-delinquency capabilities, identify changes in customers’ payment behavior, and engage with them through appropriate communication channels. Personalized communication approaches that consider the unique needs of each customer are more likely to yield positive outcomes.

  • Product Design Aligned with the Target Market

    To comply with the Consumer Duty Regulation, organisations must ensure that their products meet the needs and objectives of the target market. This requires ongoing review and analysis of the target market and its evolving needs. Market-level data can help in product design decisions, supplementing internal data sources and ensuring fairness in product development.

  • Transparency in Identity Resolution

    Achieving transparency and control in matching consumer and commercial entities is an essential part of complying with the Consumer Duty Regulation. Organisations must ensure that their distribution strategy aligns with the regulation’s requirements and does not lead to poor customer outcomes. Transparency in identity resolution is crucial for maintaining fairness and delivering products to the intended target market.

  • Monitoring and Measuring Outcomes

    The Consumer Duty Regulation introduces new monitoring requirements to ensure that organisations regularly review and measure customer outcomes. Existing management information and data sources may not be sufficient to meet these requirements. Organisations need to establish monitoring mechanisms that provide insight into customer behavior and enable the identification of areas where the regulation’s rules are not fully met.
Supporting Your Consumer Duty Preparation
Preparing for compliance with the Consumer Duty Regulation requires comprehensive understanding and collaboration.

  • Expanding Support Beyond Banking and Financial Services

    The impact of the Consumer Duty Regulation extends beyond banking and financial services. Other sectors, such as insurance, telecoms, and specialist asset finance, are also influenced by the regulation. Understanding how the regulation affects these sectors can help in developing comprehensive compliance strategies.

  • Benchmarking Customer Outcomes

    To support companies in their compliance efforts, a benchmarking service has been introduced. This service allows organisations to assess their customer outcomes against relevant markets and peer groups. Leveraging data quality, benchmarking can provide metrics for auditing and benchmarking compliance with the Consumer Duty Regulation.

  • Connect with the Experts

    Engaging with consulting experts can provide valuable insights and guidance on the Consumer Duty Regulation. Collaboration with experts helps companies navigate the regulatory landscape more effectively and ensures a successful transition to compliance.
Conclusion:
Compliance with the Consumer Duty Regulation is of utmost importance for banks and financial services organisations. The regulation aims to raise customer outcomes and promote fairness in the industry. Key areas of focus include customer affordability, vulnerability considerations, product design aligned with the target market, transparency in identity resolution, and monitoring outcomes.

As the deadline for compliance approaches, companies must continuously update their knowledge, collaborate effectively, and adapt to regulatory changes. The path forward requires ongoing efforts to improve customer outcomes and create a fair and customer-centric financial services sector. By staying informed and embracing compliance, companies can successfully navigate the path forward and ensure positive customer experiences.

FAQs

  • What is the deadline for compliance with the Consumer Duty Regulation?

    The deadline for compliance with the Consumer Duty Regulation is 31 July 2023 for open products and services, and 31 July 2024 for closed products and services.

  • What is the deadline for compliance with the Consumer Duty Regulation?

    The Consumer Duty Regulation will require credit risk teams to review their underwriting and collections practices to ensure that they are fair and reasonable, and that they do not cause unnecessary harm to customers. Teams will also need to consider how to support vulnerable customers and customers who are experiencing financial difficulties.

    Here are some specific examples of how the Consumer Duty Regulation may impact credit risk teams:

    • Teams may need to review their scoring models to ensure that they are not biased against certain groups of customers.
    • Teams may need to develop new policies and procedures for dealing with customers who are in arrears.
    • Teams may need to provide more support to vulnerable customers, such as those with mental health problems or who are experiencing domestic violence.

  • Are there any specific requirements for collaboration with intermediaries under the regulation?

    Yes, the Consumer Duty Regulation requires organisations to collaborate with intermediaries in a way that is fair and reasonable, and that protects the interests of consumers. This includes providing intermediaries with the information and support they need to meet their own regulatory obligations.

    Here are some specific examples of how companies can collaborate with intermediaries in a way that meets the requirements of the Consumer Duty Regulation:

    • Providing intermediaries with clear and concise information about their products and services.
    • Helping intermediaries to assess the suitability of products and services for their customers.
    • Providing intermediaries with support in dealing with customer complaints.

  • How can financial services organizations ensure transparency in identity resolution?

    Organisations can ensure transparency in identity resolution by:

    • Providing customers with clear and concise information about how their personal data will be used for identity resolution purposes.
    • Giving customers control over their personal data and how it is used.
    • Allowing customers to access and correct their personal data.
    • Using identity resolution solutions that are based on fair and reasonable principles.

  • What are the consequences of non-compliance with the Consumer Duty Regulation

    The consequences of non-compliance with the Consumer Duty Regulation can include:

    • Financial penalties
    • Regulatory sanctions, such as a reduction in the scope of the firm’s authorization
    • Damage to the organisations’s reputation
    • Increased risk of litigation

  • What support and resources are available for organizations in preparing for compliance?

    The Financial Conduct Authority (FCA) has published a number of resources to help companies prepare for compliance with the Consumer Duty Regulation, including:

    • A final rules and guidance document
    • A consumer duty implementation plan template
    • A consumer duty self-assessment tool
    • A series of FAQs

    The FCA is also offering a number of workshops and events to help organisations implement the Consumer Duty Regulation. In addition, there are a number of private sector consultancies that can provide companies with support in preparing for compliance with the Consumer Duty Regulation.

Discover how to drive a better consumer experience in auto financing.

Learn More

LATEST BLOGS

Islamic Banking and Financial Services: Where Tradition Meets Innovation

Islamic Banking and ...

Islamic banking blends traditional principles with modern financial practices,
Read More
Lending to Live: Navigating the Cost of Living Crisis for Lenders in the UK

Lending to Live: Nav...

As the cost-of-living crisis in the UK intensifies, consumers
Read More
Bridging the SME Funding Gap

Bridging the SME Fun...

SMEs are essential to global and regional economies, yet
Read More
Guest Post: How generative AI is transforming due diligence

Guest Post: How gene...

The role of compliance is crucial in preventing regulatory
Read More

Enhancing Financial ...

In the fast-paced world of financial services, integrating case
Read More

What impact do decis...

The 2024 Global Risk Decisioning Survey reveals critical insights
Read More

Top 10 Banking Trend...

As the banking sector continues its transformation, we explore
Read More
provenir logo

Buy vs Build in the ...

BLOG Buy vs. Build in the UKWhy "Buy" is
Read More

Continue reading

provenir logo

Maximizing Customer Value in Financial Services

Written by Amy Sariego on . Posted in Blog.

BLOG

Navigating the Economic Landscape:
Maximizing Customer Value in Financial Services

How the right holistic risk decisioning platform enables profitability across the lifecycle

It’s more critical than ever to be at the top of your game – whatever financial services you offer. Sure competition has increased and evolved, but so have consumer expectations. With near-instant access to just about everything and an abundance of personalized recommendations (what to watch/eat/wear/buy/scroll to next), consumers expect their financial services offerings to be the same. Quick, easy, and above-all else, personalized. According to The Financial Brand, 31% of consumers will switch primary financial services providers over things like fee levels, rewards, security issues and convenience. Sixty-six percent of customers also expect companies to understand their unique needs and expectations, but only 32% of executives say they have the ability to turn data into personalized prices, offers, and products in real-time across various channels and touchpoints.

The current economic climate (really, whenever you’re reading this!) makes this personalization even more crucial. Times are tough. On top of the lingering after-effects from the global-health-crisis-that-shall-not-be-named, the world is facing high inflation and interest rates, continued supply chain disruptions, ongoing political unrest, and that R word (recession) that lingers as a topic at the (remote) water cooler. Consumer and commercial debt levels continue to climb and for many financial services customers, that means a significant shift in buying behaviors. Whether it’s needing to access more credit and increasing defaults, or putting off mortgage and auto lease renewals, the bottom line is that acquiring new customers, whatever your financial services offering, is increasingly challenging. (And we haven’t even touched on the sharp rise in competition. As Forbes puts it, “Fintech and open finance have changed the landscape across multiple consumer financial functions. In recent years, fintech startups have been challenging traditional banks and financial institutions.”)

What it all really means is that while it’s still critical to remain competitive and win new customers, it’s just as critical to retain your existing ones. And there are some key ways to do this. We’ll look at some reasons (and methods) to improve the customer experience and what your risk decisioning platform has to do with maximizing customer value across the entire lifecycle.

Enhancing the Customer Experience – and Customer Loyalty

Data-driven personalization is a key first step in optimizing the customer experience and improving loyalty. By leveraging customer data and analytics, providers can deliver personalized financial solutions that cater to customers’ individual needs, preferences, and behaviors. With a tailored services approach, providers can both attract and retain customers. For example, a provider can offer a lower interest rate to customers who have maintained low credit utilization over several consecutive months, or who have made consistently on-time payments – essentially incentivizing good behavior through personalization.

Further to that, providers can use data to make more personalized decisions across the entire customer lifecycle, including:

  • Using AI-powered intelligence to target customers with bespoke upsell and cross-sell opportunities at just the right time
  • Accurately predicting potential defaults before they happen and using advanced risk models to identify the best treatment strategies and most effective communication channels for the customers that do default (Want to read more about optimizing your collection strategy? Check out this blog.)
  • Integrating alternative and open banking data to enable customized financial solutions that align with consumers’ changing status and long-term goals, like savings accounts, retirement plans, mortgage refinances, short-term loans, etc.

Providing diverse and tailored financial products and services allows providers to better retain customers whose preferences and needs vary over time, by anticipating their needs before they do.

Holistic Risk Decisions Across the Customer Lifecycle

Managing risk decisions for financial services providers is about far more than just determining creditworthiness at origination. Often onboarding gets the most attention from decisioning solutions, but it’s only one piece of the puzzle. There are numerous other risk decisions to be made through the lifecycle of your customers – including the previously mentioned renewals/upsells/cross-sells, compliance and fraud, and of course, pre-collections/collections strategies. The issue with focusing more energy, effort, and money on onboarding solutions is that you can actually maximize the value of your customers if you also up your game with regards to those other risk decisions. And often these different risk decisions are managed in different ways, through different teams, with different data sets and risk models, via different decisioning solutions. Which makes it incredibly difficult to integrate and orchestrate a number of diverse data sources, keep track of how your risk models are performing, and manage your overall risk at a strategic level.

Eliminating disparate, siloed environments and bringing your risk decisioning into one holistic, AI-powered solution ensures optimal efficiency and effectiveness of all of your risk decisions.

AI-driven intelligence enables you to:
  • Improve your decisioning accuracy at all stages of the lifecycle
  • Maximize fraud detection and prevention capabilities
  • Predict instead of react to delinquent accounts, changing consumer behaviors, and evolving market trends
  • Personalize pricing and offers to delight your customers
  • Power financial inclusion with real-time, data-driven decisions

There is immense reward in focusing on both maximizing the value of your customers and ensuring more holistic risk decisioning across the entire lifecycle. And thankfully, they go hand in hand! Because when you have the right risk decisioning solution you can make sophisticated, AI-driven decisions across identity, fraud, and credit enable more personalized, optimized experiences for your customers. Everyone wins!

For more info on how to choose the right risk decisioning platform for your specific needs, check out our new Buyer’s Guide. It shares more insights on using AI-powered decisioning, the role data plays in decisioning success, and the key capabilities to look for in a risk decisioning solution.

Discover how AI-powered decisioning can go beyond onboarding.

Learn More

LATEST BLOGS

Islamic Banking and Financial Services: Where Tradition Meets Innovation

Islamic Banking and ...

Islamic banking blends traditional principles with modern financial practices,
Read More
Lending to Live: Navigating the Cost of Living Crisis for Lenders in the UK

Lending to Live: Nav...

As the cost-of-living crisis in the UK intensifies, consumers
Read More
Bridging the SME Funding Gap

Bridging the SME Fun...

SMEs are essential to global and regional economies, yet
Read More
Guest Post: How generative AI is transforming due diligence

Guest Post: How gene...

The role of compliance is crucial in preventing regulatory
Read More

Enhancing Financial ...

In the fast-paced world of financial services, integrating case
Read More

What impact do decis...

The 2024 Global Risk Decisioning Survey reveals critical insights
Read More

Top 10 Banking Trend...

As the banking sector continues its transformation, we explore
Read More
provenir logo

Buy vs Build in the ...

BLOG Buy vs. Build in the UKWhy "Buy" is
Read More

Continue reading

What is Banking as a Service (BaaS): Exploring BaaS Trends in 2023

Written by Amy Sariego on . Posted in Blog. No Comments on What is Banking as a Service (BaaS): Exploring BaaS Trends in 2023

BLOG

What is Banking as a Service (BaaS):
Exploring BaaS Trends in 2023

In the rapidly evolving landscape of finance and technology, new paradigms are constantly reshaping traditional banking models. One such innovation that has gained significant traction recently is Banking as a Service (BaaS). But what exactly is banking as a service? This blog takes a look at the concept of BaaS, trends to keep an eye on, and the impact it’s having on the financial industry.

What is Banking as a Service (BaaS)?

Banking as a Service, or BaaS, is revolutionizing the financial sector. It’s a method that integrates tech companies with a bank’s system via APIs. The result? These organizations can create advanced financial services. The integration happens on the provider bank’s regulated infrastructure and promotes open banking services. It’s a win-win for everyone involved. Tech firms can offer financial services without dealing with complex regulatory issues and banks get to offer services through new channels. Much like Software as a Service (SaaS) revolutionized software delivery, BaaS brings a similar shift to banking.

In simple terms, BaaS is a game-changer. It’s making finance more accessible and innovative than ever before. Essentially, BaaS allows for the offering of banking products and services through third-party distributors – which are often NOT typical banking businesses.

Understanding How Banking as a Service Works

To grasp the mechanics of BaaS, it’s essential to explore how it functions. This section delves into the intricacies of BaaS, highlighting the roles of key stakeholders, the technological infrastructure, and the underlying processes that enable the seamless integration of financial services.

When it comes to Banking as a Service (BaaS), several key elements play vital roles in making it function effectively:

  • API Integration: BaaS relies on Application Programming Interfaces (APIs) that act as bridges between banks or financial institutions and third-party organizations. These APIs facilitate seamless communication and data exchange.
  • Third-Party Utilization: BaaS opens the door for third-party entities like fintech companies, programmers, app developers, and tech organizations, regardless of their financial sector expertise. They can leverage these APIs to access banking services.
  • Enhanced Customization: What sets BaaS apart is the flexibility it offers. Third-party organizations can integrate their own features, branding, and value-added services on top of the core banking services provided by the financial institution.
  • Collaborative Innovation: With BaaS, fintech and tech companies pay for access to these APIs. In turn, the banks and financial institutions grant them access, fostering collaborative innovation. This allows these third-party entities to create innovative solutions that combine their unique features with the fundamental services provided by the bank.

In essence, Banking as a Service empowers a collaborative ecosystem where traditional financial institutions and tech-savvy organizations can join forces to offer innovative and customized financial solutions.

Benefits of Banking as a Service (BaaS)

But what exactly are the benefits of BaaS? According to Deloitte, “through integrating non-banking businesses with regulated financial infrastructure, BaaS offerings are enabling new, specialized propositions and bringing them to market faster.” 

Let’s look more closely at some of the specific benefits that BaaS offers.

1. Accelerated Time-to-Market for Financial Products

BaaS enables financial institutions and fintech companies to rapidly introduce new financial products and services to the market. By leveraging existing infrastructure and partnering with BaaS providers, these entities can bypass the lengthy and complex process of building financial products from scratch. This accelerated time-to-market allows them to capitalize on emerging trends and meet customer demands promptly.

2. Enhanced Customer Experience

BaaS empowers businesses to offer a comprehensive suite of financial services seamlessly integrated within their existing platforms. This integration provides customers with a seamless and convenient experience, eliminating the need to navigate between multiple apps or websites. From fund transfers to payments and lending, customers can access a range of financial services through a single interface.

3. Access to Expertise and Compliance

Navigating the regulatory landscape and ensuring compliance with financial regulations can be daunting. BaaS providers, often established financial institutions, bring their expertise in compliance and regulatory matters to the table. Fintech companies partnering with BaaS providers can tap into this expertise, ensuring that their offerings adhere to the latest industry standards.

4. Cost-Efficiency

Developing and maintaining a full suite of financial services requires substantial investments in technology, infrastructure, and talent. BaaS allows businesses to minimize upfront costs by leveraging the infrastructure and resources of the BaaS provider. This cost-efficiency enables startups and established businesses alike to allocate resources more strategically.

5. Flexibility and Customization

BaaS providers offer flexible APIs and modular solutions that allow businesses to customize their financial offerings to meet specific customer needs. This flexibility enables businesses to tailor their services, adapt to market trends, and respond to customer preferences quickly.

6. New Revenue Opportunities

BaaS opens up new revenue streams for traditional banks and financial institutions. By providing their services as APIs to third-party platforms, these institutions can expand their reach beyond their traditional customer base. This creates additional revenue sources while also increasing customer engagement.

7. Global Expansion

For businesses aiming to expand their services internationally, BaaS offers a streamlined approach. Partnering with BaaS providers that have a global presence can facilitate the expansion process by providing access to localized financial services and compliance expertise in various regions.

8. Innovation and Collaboration

BaaS encourages innovation through collaboration. Fintech companies and startups can focus on creating innovative user experiences and niche solutions while relying on BaaS providers for core banking services. This symbiotic relationship fosters creativity and drives industry-wide advancements.

9. Scalability

As businesses grow, their demands for financial services also increase. BaaS providers offer scalable solutions that can seamlessly accommodate higher transaction volumes and user demands without disruptions.

10. Risk Mitigation

For emerging fintech companies, partnering with established BaaS providers reduces operational and financial risks. These providers bring a wealth of experience, robust security measures, and risk management protocols to the partnership, enhancing the overall stability of the fintech ecosystem.

Discover how Provenir’s AI-powered credit risk decisioning platform can help.

Learn More

QUESTIONS

Frequenly Asked Questions

Get in Touch

  • How to Implement Banking as a Service for Businesses?

    Implementing Banking as a Service (BaaS) requires careful planning and collaboration. Here’s a general roadmap for businesses considering BaaS integration:

    • Assessment: Evaluate your business needs and objectives. Determine which financial services you want to offer through BaaS.
    • Select a BaaS Provider: Research and choose a BaaS provider that aligns with your goals. Consider factors such as their technology stack, compliance capabilities, and track record.
    • Integration: Collaborate with your chosen BaaS provider to integrate their APIs and solutions into your platform. Ensure seamless user experience and data security.
    • Customization: Tailor the integrated financial services to match your branding and user interface. Consider offering additional value-added features to stand out.
    • Testing: Thoroughly test the integrated services to ensure they function as intended. Address any issues or glitches before launching.
    • Launch and Monitoring: Launch the BaaS-powered services to your customers. Monitor usage, feedback, and performance to make refinements if needed.

  • Is Banking as a Service the Same as Open Banking?

    While both Banking as a Service (BaaS) and open banking share similarities, they are distinct concepts:

    • BaaS (Banking as a Service): BaaS refers to a comprehensive model where financial services are seamlessly integrated into third-party platforms. BaaS providers offer a wide range of banking functionalities, enabling businesses to offer financial services without the need to build their own infrastructure.
    • Open Banking: Open banking involves the sharing of customer financial data among banks and other financial institutions through standardized APIs. It aims to foster competition and innovation by allowing authorized third parties to access this data to develop new financial products and services.
    • In essence, BaaS encompasses a broader scope, providing a platform for offering a suite of financial services, while open banking focuses on data sharing to encourage innovation in financial products and services.

What Are the Future Trends for Banking as a Service?

The future of Banking as a Service (BaaS) holds exciting possibilities as technology continues to evolve. Here are some trends to watch for:

  • Personalization: BaaS providers will offer more personalized financial solutions tailored to individual customer needs and preferences.
  • AI and Automation: Artificial intelligence and automation will play a significant role in enhancing BaaS capabilities, from customer support to risk assessment.
  • Ecosystem Expansion: BaaS providers will form ecosystems of partners, including fintechs, to offer a comprehensive range of financial services.
  • Global Reach: BaaS will facilitate cross-border financial services, enabling businesses to serve customers globally.
  • Regulatory Evolution: As BaaS gains prominence, regulations specific to BaaS models may emerge to ensure consumer protection and data privacy.
  • Emergence of Niche Offerings: BaaS will support the emergence of niche financial services catering to specific industries or demographics.
  • Sustainability Integration: BaaS may incorporate sustainable finance options, aligning with the growing focus on environmental and social responsibility.

The future of BaaS is dynamic and will likely be shaped by ongoing technological advancements, regulatory changes, and evolving customer expectations. How can you take advantage of the benefits that BaaS has to offer? One of the keys to success is choosing the right technology partner. 

LATEST BLOGS

Continue reading

Auto Loan Origination: Is the Dealer Still King in 2023?

Written by Amy Sariego on . Posted in Blog. No Comments on Auto Loan Origination: Is the Dealer Still King in 2023?

BLOG

Auto Loan Origination:
Is the Dealer Still King in 2023?

In the ever-evolving landscape of auto financing, the dynamics of the auto loan origination process have shifted dramatically, thanks to the integration of fintech innovations. This transformation has ushered in a new era where data-driven decisions play a pivotal role in reshaping the automotive lending industry. In this comprehensive guide, we delve deep into the world of auto loan origination, dissecting its process, fraud detection, and the role of fintech.

What is Auto Loan Origination?

Auto loan origination, at its core, is the process through which financial institutions, such as banks, credit unions, or online lenders, create and process loans for individuals seeking to purchase vehicles. This process encompasses everything from the initial loan application to the disbursal of funds.

Understanding Loan Origination System:

A crucial component of auto loan origination is the loan origination system, often referred to as LOS. This is a specialized software platform used by lenders to manage and streamline the loan application process. The LOS ensures that all necessary information is collected, verified, and assessed in a consistent and efficient manner.

How Does the Process of Auto Loan Origination Function?

The auto loan origination process can be broken down into several key stages:

  1. Application Submission: The journey begins when a prospective borrower submits their loan application. This application typically includes personal information, financial details, and the desired loan amount.
  2. Credit Evaluation: Lenders evaluate the applicant’s creditworthiness by examining their credit score, credit history, and other financial factors. The fintech-driven auto loan origination system plays a critical role in automating this assessment.
  3. Data Gathering: In addition to credit data, lenders may gather information related to the vehicle being financed, such as its make, model, and purchase price.
  4. Decisioning: This is where fintech takes center stage. Decisioning, powered by advanced algorithms and big data analytics, helps lenders determine whether to approve or decline the loan application.
  5. Documentation and Verification: Once a loan is approved, lenders require applicants to provide documentation to verify the information provided in their application. This step helps mitigate potential fraud risks and ensures compliance with regulatory requirements.
  6. Loan Funding: After successful verification, the lender disburses the loan amount to the borrower or, in many cases, directly to the dealer.

Decision-Making for Automotive Lending with Comprehensive Data – Sources and Services

In the modern auto loan origination landscape, data is paramount. Lenders now have access to an array of data sources and services that enable them to make more informed lending decisions.

  • Credit Bureaus: Traditional credit reporting agencies provide credit reports and scores, which remain a cornerstone of the auto loan origination process. Lenders use these reports to assess creditworthiness and determine interest rates.
  • Alternative Data: Beyond traditional credit data, fintech lenders tap into various data sources, such as utility bill payments, rental history, and even social media profiles, to build a more comprehensive view of an applicant’s financial health.
  • Machine Learning: Advanced machine learning algorithms analyze vast datasets to identify patterns and trends, aiding in predicting an applicant’s likelihood of default or delinquency, and their propensity to pay
  • Fraud Detection Services: To combat potential fraud in auto loan origination, lenders employ specialized services that flag suspicious applications and activities.

Identify Potential Auto Loan Fraud with Decisioning

Auto loan origination fraud is a persistent challenge in the industry. Fraudsters employ various tactics to secure loans they have no intention of repaying, resulting in financial losses for lenders. Fortunately, advanced decisioning systems equipped with fraud detection capabilities are instrumental in identifying and mitigating such risks. These systems analyze multiple data points to flag inconsistencies, suspicious behavior, or potentially fraudulent applications.

The Evolution of Auto Financing

The automotive industry has undergone a remarkable transformation since the days of the Model T, priced at a modest $850, equivalent to approximately $20,000 in today’s currency. During that era, financing became a necessity, as few individuals had such substantial sums readily available. Recognizing the opportunity, companies like GM and Ford swiftly established financing divisions, not only boosting car sales but also diversifying their revenue streams—a stroke of genius!

For a century, auto dealerships held sway in the auto lending domain, facing minimal competition beyond their peers. Buyers would stroll onto the dealership lot, engage in negotiations over lukewarm coffee, haggle over sticker prices, and drive off in a new car, savoring the scent of fresh upholstery. Trade-ins and financing were mere formalities in the car-buying ritual.

However, as time progressed, winds of change began to sweep through the industry, reshaping the dynamics of auto financing.

The Rise of Informed Consumers

In today’s automotive financing landscape, consumers wield an unprecedented amount of information. As the saying goes, knowledge is power, and this newfound knowledge empowers buyers while challenging the traditional balance of power in the auto lending domain.

This scenario parallels a scene from Game of Thrones, where Lord Petyr “Littlefinger” Baelish engages in a tense exchange with Cersei Lannister. In this dialogue, “Knowledge is power” is asserted by Baelish, but Cersei counters with a simple yet profound statement: “Power is power.” This mirrors the contemporary auto lending dynamic, with buyers armed with knowledge seeking to assert their position in the auto financing realm.

Disrupting the Status Quo

Waiting around at a dealership in order to complete financing paperwork can be tedious. And consumers these days aren’t content to wait around for long. But when consumers express dissatisfaction with an industry, it creates an opening for innovative businesses to disrupt the status quo. Hence, competition in auto financing is growing, and dealerships are working harder than ever to secure financing alongside car sales.

The Future of Auto Finance

A peek into the future of auto financing reveals a landscape where financing can be secured with a simple click, and a new car can be delivered to your doorstep within hours, bypassing the need to set foot in a dealership.

Threats to the Dealership Finance and Sales Process

  1. Direct Lending: Direct lending has become commonplace and competitive, challenging traditional dealership financing.
  2. Aggregators: Aggregator platforms are offering transparency to buyers while streamlining the often cumbersome paperwork for dealers.
  3. Online Upstarts: Digital platforms are emerging, catering to customers who prefer an online experience over visiting a dealership.
  4. Brands Entering the Game: Car manufacturers themselves are testing the waters with direct-to-consumer financing.

However, amidst this evolution, one constant remains—the importance of technology in enhancing both business and customer experiences.

Relationships That Stand the Test of Time

In a world where relationships are the key to longevity in lending, dealers must treat their customers as equals. The hard sell, lengthy application processes, and delayed approvals no longer suffice. Customers have alternatives, and they won’t wait.

To retain their throne in auto loan origination, dealerships must offer an experience that aligns with customer expectations. In today’s digital-first world, this means a seamless and competitive experience that values the customer’s time and understanding.

Seamless Experience:

  • Streamlined Process: The finance process should be quick and easy, with minimal paperwork.
  • Rapid Decision-Making: Technology-driven decisioning can process applications in milliseconds.
  • Customer-Centric: Show customers that their time is valued by going the extra mile to simplify the process.

Competitive Pricing:

  • Industry disruptors offer personalized pricing based on advanced risk models.
  • To compete, dealerships need technology that provides quick decisioning and accurate, risk-based pricing.

The Future of Auto Loan Origination:

The story is far from over, and the throne is up for grabs. The winner will be decided by who provides the superior experience—dealers or disruptors. The battle for buyers’ attention is likely to continue, with customers ultimately determining who shares the throne in the future.

Discover how to drive a better consumer experience in auto financing.

Learn More

QUESTIONS

Frequenly Asked Questions

Get in Touch

  • How has fintech transformed auto loan origination? 

    Fintech innovations have streamlined the loan origination process, making it faster, more efficient, and data-driven.

  • What role does data play in auto loan origination decision-making? 

    Data is crucial for assessing creditworthiness, detecting fraud, and personalizing loan terms for borrowers.

  • Are traditional dealerships still dominant in auto financing? 

    Traditional dealerships face growing competition from online lenders and fintech disruptors in the auto financing industry.

  • How can dealerships adapt to the changing landscape of auto loan origination? 

    Dealerships can thrive by offering seamless, technology-driven experiences and competitive pricing to meet customer expectations.

LATEST BLOGS

Continue reading

15 Companies Setting the Trends in Buy Now, Pay Later

Written by Amy Sariego on . Posted in Blog.

BLOG

15 Companies Setting the Trends
in Buy Now, Pay Later

Within the Buy Now, Pay Later (BNPL) industry, a lot has changed since the point-of-sale loans rose to the spotlight in 2020: providers are maturing and making a pivot into profitability.  BNPL is growing across the world, expected to account for roughly 25% of all e-commerce transactions by 2026. By 2027, the market size is expected to explode to $744 billion, growing at a CAGR of 25%. BNPL is here to stay. But what that looks like is still being decided. 

Consumers and businesses alike are increasingly turning to BNPL to make purchases more manageable, from everyday needs to critical business resources. New BNPL verticals are popping up globally, covering everything from B2B credit to healthcare to groceries. 

Discover the newest trends in this rapidly expanding industry and the companies working to put them on the map.

The Trend:
BNPL stomps its way into the $125 trillion global B2B market.

  • Hokodo – Buy now, pay later is becoming increasingly popular among retail merchants, so offering payment options for B2B purchases is a unique twist. Today, B2B merchants are essentially forced into offering payment terms to their customers with outdated methods of credit management – including paper-based applications, manual credit checks and painful invoicing programs. Enter in Europe-based Hokodo, which aims to make selling to business buyers easier. Business buyers shop on selected merchant’s sites, with real-time offers of payment terms, “powered by Hokodo’s trade credit APIs.” They claim that the wrong payment options are one of the biggest reasons that B2B buyers drop out of a sales funnel – will BNPL help increase that conversion rate? Hokodo thinks so. Recently, Hokodo partnered with French marketplace-focused fintech Lemonway to power Europe’s B2B marketplaces by offering online credit. This comes as a much-needed alternative for cash-strapped businesses struggling through a worldwide capital crunch.

Also, read: What is Banking as a Service?

The Trend:
BNPL helps provide health and financial care.

  • PrimaHealth Credit – In countries without government-funded healthcare, both necessary and elective health treatments are out of reach for many. A report from Financial Technology Partners notes that only 23% of Americans can afford a medical bill of over $2000. Subprime credit scores, or individuals without any credit history at all, means significant market opportunities for BNPL services in healthcare. PrimaHealth Credit’s mission is “helping more patients say yes to treatment,” with simple, transparent payment options offered by healthcare providers at point of care. Giving people more affordable options to access the healthcare they need can always be considered a win.
  • Sunbit – BNPL isn’t just for wish-list clothes and vacations. Sunbit aims to help consumers pay for everyday items that some of us take for granted, including automotive, optical, and dental services. The organization’s model is to offer back-end services to the businesses where these essential transactions take place – like your local dentist or optician’s office or the dealership that already has your car up on a hoist. “Sunbit’s flagship product allows businesses to guide customers through the financing process, which is integrated with their own point-of-sale systems” for a more seamless customer experience. Providing payment options for services that are prone to becoming unexpected expenses is also a very forward-looking proposition: millennials are by far the age cohort that is most likely to have to use a payment plan for unexpected medical and self-care bills.

The Trend:
Forget luxury items. BNPL finds a home in Home and Lifestyle financing.

  • Deferit – As with healthcare and other medical services, there are certain essential items that we all need to pay for. Deferit, an Australian-based organization, lets customers split utility, telco, car registration or childcare bills into installments. With a vow to empower customers, including options to change payment terms, Deferit has created an easy budgeting tool for payments, eliminating interest and annual fees.
  • Flex – While we’re talking essential services, housing comes to mind. Many people face hard choices on where their money goes each month – rent or food or other essentials – especially amidst today’s economic uncertainty. There are estimates that $5 billion in late fees goes to landlords every year. Flex understands these challenges (and the stress they cause!) and aims to get you out of paying late fees by covering your rent for you and offering flexible options to pay them back, without any hidden fees or interest.

The Trend:
BNPL to face the rising need for online grocery shopping as consumers struggle with rising cost-of-living.

  • Flava – Billed as the UKs first Buy Now, Pay Later supermarket, Flava offers zero interest and an initial ‘basket’ credit of £100, which can increase to £320 per order once re-payment history is established. Offering a full range of brand-name grocery products, delivery to your door, and flexible repayment plans, Flava aims to help customers with food insecurity stock their cupboards amid economic uncertainty.

The Trend:
BNPL puts retail shopping on steroids, online and in-store.

  • Zip – One of the leaders of BNPL, Zip (formerly known as QuadPay) offers payment options for retail giants, including Apple, Amazon, Walmart and Target, as well as exclusive retail partnerships. With categories covering everything from education and pets to shoes and travel, Zip is available on a variety of platforms as well as in physical retail locations, providing you with interest-free options virtually anywhere you want to shop.
  • Simpl – Indian startup Simpl has a straightforward mission – make it easy for people to purchase what they like, when they like, with installment payment terms. In a country with complicated financial systems that often make it difficult for people to obtain credit, Simpl allows its users to buy now and pay at a more convenient time. With a full-stack, mobile-first platform for credit-based payments, Simpl enables one-click purchases and promises full transparency to its users and merchants alike.
  • Paidy – In Japan, many consumers prefer not to use credit cards for online payments, leaving massive opportunities for alternative options like BNPL. Japanese fintech Paidy allows consumers to shop at a variety of online retailers with a convenient mobile app that only requires your email address and phone number – repayments in installments can happen via bank transfer, direct debit and even in convenience stores, all by just showing the app.

The Trend:
BNPL offers more customized payment plans and features closer to legacy finance, as BNPL prepares to meet its match in legacy banking in 2023.

  • Sezzle – Sezzle offers typical installment payment plans, but also features some products exclusive to their users that they call strategic differentiators. Sezzle Up for example, lets a shopper build their credit rating by enabling the company to report payment history to credit bureaus. They’ve also partnered with Ally Bank to offer longer-term financing options, proving again that flexibility in payment options may be a key driving factor in growth.
  • Splitit – Headquartered in New York, Splitit is unique in the BNPL space in that it actually allows consumers to leverage their existing credit. By using their own credit or debit cards with its installment program, customers will see installment charges on their bills, effectively evening out cashflows. The ability to break down payments into smaller pieces without additional interest, applications or fees and build credit at the same time makes Splitit an attractive option for consumers, while being a safe option for merchants. In 2023, Splitit expanded its reach into the Asian market by partnering with Alipay to offer the eCommerce’s clients an installments option.
  • Twisto – Featuring a different ‘twist’ on BNPL, European company Twisto offers a monthly credit limit for your payments once you register with them. Shop online or in stores up to this set amount each month and then receive your invoice. Once invoiced, you can settle the full amount with Twisto or pay 10% and defer the rest to a later date. Twisto also offers return options and varying monthly plans, with features like personal finance management and family travel insurance.
  • Tymit – Different than the typical pay-in-four installment plans many BNPL providers offer, Tymit’s credit card allows you to select varying installment plans as you make your purchase – including repaying over 3 months with no interest, or even longer (up to 36 months) with transparent pricing quoted upfront. Tymit also offers Tymit Booster, a top-up credit card that allows you to build your credit score and still offers 0% interest on all purchases.

The Trend:
Resurrecting the travel industry and introducing Gen Z to air travel

  • Fly Now Pay Later – The UK’s Fly Now Pay Later has expanded into the travel-starved US market, while  increasing operations in the UK and Germany. With a mission to make travel affordable and flexible, the company is capitalizing on post-pandemic recovery by offering travel payment plans that work for everyone – destinations and customers. With an easy-to-use booking app, Fly Now Pay Later pays for your holiday with your selected travel provider, leaving you to pay them back with flexible payment options over time.
  • Uplift – Headquartered in California, Uplift’s mission is to help people purchase what matters most – in their case, travel. With international partners ranging from cruise lines and resorts to airlines and vacation package dealers Uplift hopes their buy now, pay later plans will “be the economic kickstarter needed to ignite the travel industry.” Uplift works directly with merchants to reinforce brand loyalty, offering customers a simpler way to pay for travel by selecting Uplift options at checkout, without driving consumers to their own proprietary marketplace. BNPL moves into the travel industry have their aim set on future travelers, as two-thirds of Generation Z and millennial would be more likely to take vacations if offered installment options.

These trends are only the beginning of a new, sustainable Buy Now, Pay Later. With a strong credit risk decisioning foundation, you can follow any trend without having to compromise your risk appetite. If you’re ready to rethink your BNPL technology, fortify your strategy, and pivot to profitability, explore the ebook, The Pivot to Profitability: Evolving with Buy Now, Pay Later.

Sustainable BNPL is here – is your strategy future-proof?

Learn More

LATEST BLOGS

Continue reading

The Essential Guide to Credit Underwriting

Written by Amy Sariego on . Posted in Blog. No Comments on The Essential Guide to Credit Underwriting

BLOG

The Essential Guide
to Credit Underwriting

What is Credit Underwriting?

Credit underwriting is when financial institutions (like banks, fintechs, credit unions or credit card companies) evaluate how creditworthy an individual or business is for the purpose of determining if they should be able to access credit. Typically, the credit underwriting process is kicked off when an individual consumer or a business applies for a form of credit, which could be anything from a credit card or business loan, to a mortgage or auto lease. The main objective of credit underwriting is determining how risky it is to lend to the applicant – in other words, how likely they are to pay back the loan or otherwise meet their credit obligations. A number of factors are usually considered when determining creditworthiness, including credit score, income, and debt ratio as examples. Credit underwriting evaluates the creditworthiness, but also helps determine the specific terms and conditions of the loan, including interest rates and credit limits.

What exactly is a Credit Underwriting Engine?

Sometimes referred to as a decision engine, or automated credit risk decisioning, a credit underwriting engine is a software application that automates the entire credit risk assessment process. It takes data from a variety of sources, including credit bureaus, bank statements, and alternative sources like social media profiles and utility payment info, and uses algorithms or risk models to analyze the data and generate a credit score or risk rating. This credit score or risk rating/profile is a way of determining an applicant’s creditworthiness. Based on the appliant’s overall risk profile and the parameters set out by the lender, it is then determined whether to approve or reject a particular credit application, and if approved, to set the specific terms of the loan.

In a nutshell, credit underwriting engines are computer programs that use data and risk models/algorithms to quickly assess the creditworthiness of loan applicants. They are becoming increasingly popular in the financial industry, especially among lenders who need (or want!) to process large volumes of credit applications quickly and accurately. In this guide, we will explain the key features and benefits of credit underwriting engines and offer some tips on how to choose the right one for your business.

Key Features of Credit Risk Underwriting

Some of the key features of automated credit risk underwriting processes include:

  • Data Integration: The ability to pull data from a variety of sources, including credit bureaus, bank statements, and social media presence – which is key to more holistically assessing an applicant’s risk level.
  • Data Analysis: The ability to analyze data using advanced algorithms and machine learning techniques to identify patterns and trends.
  • Risk Assessment: The ability to generate a credit score or risk rating that reflects the applicant’s creditworthiness as determined by the particular parameters set out by the lender.
  • Customization: The ability to customize the underwriting engine to meet the specific needs of the lender (which may include different criteria for a variety of product offerings, regions, etc.).
  • Real-Time Decision Making: The ability to make real-time, accurate loan decisions based on the credit score or risk rating.

Benefits of Credit Risk Underwriting Engines

Credit underwriting engines offer several benefits to lenders, including:

  • Increased Speed and Efficiency: Credit underwriting engines can process loan applications much faster than traditional underwriting methods, allowing lenders to say yes to more customers and grow their revenue.
  • Improved Accuracy: Automated credit risk underwriting processes use advanced algorithms and machine learning techniques to analyze data, which reduces the risk of human error and improves the accuracy of loan decisions.
  • Better Risk Management: Credit risk underwriting provides lenders with a more accurate assessment of the applicant’s creditworthiness, which helps them make better lending decisions and reduces the risk of defaults.
  • Increased Customer Satisfaction: Automated credit underwriting provides faster loan decisions and a more streamlined application process, improving customer satisfaction and retention.

Choosing the Right Credit Underwriting Engine

hen choosing a credit underwriting engine, it is important to consider the following factors:

  • Data Sources: Ensure you can easily integrate the data sources you need to make accurate lending decisions. Look for underwriting engines that can integrate a variety of types of data sources via a single API for maximum efficiency.
  • Customization: Look for an underwriting engine that can be customized to meet the specific needs of your business, whether it’s customer thresholds, regional differences, or your particular variety of product offerings.
  • User Interface: Choose an underwriting engine with a user-friendly interface that is easy to navigate and use, which will limit the amount of reliance on vendors or your IT team when you want to make changes to your decisioning workflows.
  • Cost: Consider the cost of the underwriting engine and make sure it fits within your budget, but be sure to factor in the increased revenue from faster, more accurate risk assessments when looking at expected ROI versus initial investment.
  • Technical Support: Can the underwriting engine provider offer technical support and training to ensure your team can use the software effectively?

A credit underwriting engine is a powerful tool for lenders looking to streamline the loan application process, whether for consumer lending or commercial credit underwriting and ensures more accurate lending decisions. They offer a range of benefits, including increased speed and efficiency, improved accuracy, better risk management, and increased customer satisfaction. If choosing the right partner seems daunting, consider the factors we’ve outlined when looking at providers. Above all else, look for a provider that can offer you seamless data integration and an easy-to-use interface so you can make changes quickly and easily as market needs and consumer demands evolve. Because if you aren’t meeting the needs of your loan applicants quickly, your competitors will.

Want More Info on the Value of Automated Credit Decisioning?

Read On

LATEST BLOGS

Continue reading

The Reinvention of Banking

Written by Amy Sariego on . Posted in Blog.

BLOG

The Reinvention of Banking

Why banks need to ensure resiliency and innovation to achieve long-term profitability

As economic stability increasingly looks like a thing of the past, what does this mean for traditional banks? With disruption after disruption in the financial services sector, it’s clear that resiliency is a must. According to McKinsey, “banks will need to become more resilient and reinvent their business models to ride out the current volatile period and achieve long-term growth and profitability.” But what does reinvention really mean? And is it possible to reinvent your business models quickly? We’re looking at some of the key challenges the banking industry is facing, and the ways that upgrading credit risk decisioning capabilities can help solve for some of these challenges.

Banking Disruptors:

Banks and the financial industry as a whole face many challenges, not the least of which includes fintechs and challenger banks. But the need to keep up with the competition is not the only obstacle banks are facing.

Evolving Regulations: Complying with various regulatory requirements is always a challenge, but it’s even more difficult when those regulations are constantly evolving. Look at the world of Buy Now, Pay Later as an example – as this non-traditional financial services offering continues to grow and shift worldwide, more and more traditional banks are sitting up and taking notice. But getting into the market can be fraught with compliance issues, which can be costly and time-consuming, and as a result, impedes your ability to innovate and respond quickly to changing customer needs.

Increasing Digitization: If the last few years have taught us anything, it’s that more things than ever thought possible can be done digitally. Customers increasingly want digital channels to meet ALL of their needs, including financial services of all kinds – whether that’s applying for credit or embedded finance enabling banking super-apps. But this requires clear investment in technology from banks to remain competitive.

Growing Competition: Speaking of remaining competitive – more than ever, new players are continually entering the market, vying for a share of the wallets of increasingly discerning consumers. Whether it’s established players with new offerings or innovative fintech startups, the landscape is changing, putting pressure on banks to reduce costs and improve offerings, while still providing frictionless experiences for consumers.

Also, read: What is Banking as a Service?

Turning Disruption into Opportunity:

But it’s not all dire. Banks can be uniquely positioned to effectively deal with these disruptors. As Siobhan Byron writes, “established banks, though still only recently starting to harness the power of digital, have a key advantage over new entrants. Their decades of institutional knowledge is difficult to build up quickly.” Banks are also in a better position to deal with market shifts than they were a decade ago – if they can leverage data analytics and automated workflows to make “better and more informed credit decisions.”

So, if you’re a bank, what can you do? Look for ways to leverage advanced technology like artificial intelligence and machine learning, automated credit risk decisioning, and data integration to improve efficiency, reduce costs, and renew your focus on customer-centric products and services.

Increase Efficiency: Machine learning algorithms can enhance your credit risk models, processing vast amounts of data quickly and reducing the time and person-power needed for risk assessments and credit decisioning.

Reduce Costs: Automating your credit risk decisioning process reduces the manual labor required, allowing you to allocate resources to other strategic initiatives that can help grow your revenue and improve the customer experience.

Enhance the Customer Experience: Focus on frictionless onboarding and customer management, with faster credit decisions, digitized processes, and more personalized product offerings (including everything from interest rates to loan terms, upsell/cross-sell offers, and even optimized collections strategies).

Improve Risk Management: Advanced analytics can enable you to identify key patterns and trends in customer behavior, ensuring more accurate risk assessments and reduced losses due to defaults and improved fraud detection.

Enable Agility: With more flexible, user-friendly decisioning technology, you can make changes to decisioning workflows quickly, respond to market shifts, meet changing consumer demands, and launch new products faster to stay ahead of your competition.

Foster Innovation: Enabling all the above points (with more automated decisioning, advanced analytics, superior data integration, improved efficiency, etc.) means you can foster a true culture of innovation. Allow your teams to focus on strategic initiatives, competitive insights, and innovative product development for customer-centric offerings that can help put you ahead of the competition.

Roadmap for Success:

The larger the bank and the more complex the systems, the more daunting it can feel to implement any changes to your decisioning software or data sources. But fear not, follow some simple steps to incorporate tech upgrades into your credit risk decisioning – and remember, it’s not all or nothing: look at decisioning solutions that can easily work alongside your existing systems and/or partners that have experience replacing legacy systems to ensure a smooth transition.

  1. Assess Current Capabilities: Evaluate your existing credit risk decisioning capabilities and identify areas where you can improve your processes.
  2. Define Your Objectives: What are your goals for upgrading your tech? Prioritize the areas that are most important for you (i.e., reducing costs with improved efficiencies, versus enhancing the customer experience with increased digitization capabilities).
  3. Select Technology Capabilities: Choose what is most critical to upgrade – is it automated risk decisioning, machine learning, data integration?
  4. Choose Your Solution: Outline a plan for integrating the chosen technology into your existing systems and workflows, with a partner that can help with timelines, resource allocations, and important milestones.
  5. Test and Iterate: Be sure your chosen risk decisioning solution offers you the ability to test workflows, refine your credit models, easily integrate new data sources, and iterate your processes – on your timeline, not theirs!

With the right technology in place, not only can you accomplish all the goals set out above, but you can more easily maximize the value of your customers across the entire lifecycle. Because with upgraded credit risk decisioning, you can more efficiently move beyond credit origination and onboarding and bring that customer-centric experience to all the financial services products you offer. As McKinsey points out, “banks that have already embedded high-performance credit-decisioning models into their digital lending have reaped three key benefits,” including increased revenue, reduction in credit losses and gains in efficiency. So, what are you waiting for?

Want more info on how to turn challenges into opportunities?

Contact Us

LATEST BLOGS

Continue reading

Top Three Mortgage Lending Trends: How to Make Smarter Credit Decisions Today to Thrive Tomorrow

Written by on . Posted in Blog.

BLOG

Top Three Mortgage Lending Trends:
How to Make Smarter Credit Decisions Today to Thrive Tomorrow

From HELOC to HELOAN, the global mortgage lending market is vast – it reached almost $11.5 billion in 2021 and – despite economic slowdowns – is estimated to grow at a CAGR of 9.5% through 2031, reaching a mammoth size of $27.5 billion. 

However, the last few years have brought the mortgage industry face-to-face with an unprecedented challenge – to digitize core functions almost overnight to tackle record levels of origination and forbearance activities. Many lenders had to expedite tech projects to provide the necessary infrastructure needed to support these new practices and accelerated digital solutions to create better customer experiences and reduce operational costs.

While the industry has found success in adopting new digital solutions, the UK still faces a housing affordability crisis, leaving consumers even more reliant on credit for mortgage originations, refinancing, and regular payments. Though there are attempts to combat the lack of affordable mortgages, like this initiative from Skipton Building Society, rates continue to rise.

Amidst these economic challenges, however, innovation and technological advancements in the industry provide opportunities for companies to adapt and succeed in this challenging environment. From better customer experiences to more accurate credit risk decisions and more financial inclusion, the industry is evolving. 

Discover the top three mortgage lending trends that can help you make smarter credit decisions today to thrive tomorrow.

Trend 1: Increased Use of Automation

Mortgage lending can be tedious for both lenders and applicants at the best of times, due to lengthy, complex processes with multiple stages. While mortgage transactions can take between six to eight weeks to close on average, consumers believe they should take no more than three. That’s why automation is a trend with wind in its sails: decisioning automation can help lenders meet borrower expectations. 

Why it’s popular

Instead of having to wait months for a mortgage, decisioning automation allows lenders to approve customers in a fraction of the time. Even the most complex processes are streamlined, saving time (and brain power) across the board. Customers benefit from approval periods that align with their expectations, while lenders expedite their workload to produce more accurate decisions, faster – freeing up resources to attract and retain customers while boosting sales volume. 

How to use it

While automation may seem intimidating to actually use, finding the right decisioning automation tech is often the biggest hurdle. Take control with flexible technology that offers drag-and-drop UI, letting you configure and reconfigure automations to reflect your changing needs, eliminating reliance on vendors and dev teams. With optimized data and integrated workflows that can layer on top of existing tech and talk to a variety of systems, automated decisioning can be as simple as clicking a few buttons.

Trend 2: Data-Driven Risk Decisioning

Credit risk decisioning is an essential element of mortgage lending, ensuring that lenders are mitigating fraud and default risk and borrowers are getting the right loan terms. For long term loans like mortgages, accuracy is essential to mitigate risk and provide competitive offers to consumers. And an increasing number of mortgage lenders are using data-driven risk decisioning to do both.

Why it’s popular

Mortgage lenders no longer have to accept uncertainty – whether it be in economic conditions or customer behavior. Accessing real-time data ensures more accurate creditworthiness assessment and lower risk for the lender. It can also help businesses grow by providing the insights needed to hyperpersonalize offers for both new and existing customers, improving competitive advantage. On-demand data can also help flag if risk profiles change, allowing lenders to step in long before missed payments or home repossession.

How to use it

The ideal way to harness data-driven risk decisioning for your mortgage lending business is to invest in a data and decisioning ecosystem in which the decisioning engine pulls real-time data on demand from a variety of data sources through a single API. The streamlined, integrated tech stack helps you better understand consumer needs across the entire customer lifecycle. Add in machine learning for evolving customer insights that will eliminate the guessing game and let you make smarter credit risk decisions.

Trend 3: Alternative Credit Scoring Models

Financial inclusion has been gaining traction in the fintech world for years, but recent global economic and political overhauls permanently changed the way we think about access to financial services. Alternative data is a central feature enabling financial inclusion initiatives for lenders across the world. No wonder 65% of credit risk/lending decision makers use alternative credit data on at least half of their credit applications. And that number is only growing, helping lenders accelerate financial inclusion by enabling the creation of alternative credit scoring models, eliminating reliance on traditional credit bureau data alone.

Why it’s popular

Traditional credit scores don’t tell the whole story, especially when it comes to thin or no-file consumers – and 71% of credit providers agree. Alternative data lets lenders access a variety of data that doesn’t come from credit bureaus, including utility payment history, employment data, geographical data, and rent payment history – data that would be especially relevant to establish creditworthiness for a new homebuyer. Mortgage lenders who use alternative data to build alternative credit scoring models can expand their customer bases without increasing risk and support financial inclusion at the same time.

How to use it

In order to build alternative credit scoring models, you need decisioning tech integrated with alternative data. The most powerful data and decisioning platforms simplify the data supply chain, pulling in the relevant data exactly when you need it to ensure more accurate decisions for every application. And don’t compromise on risk – create processes that pull in more alternative data for thin file applicants and less or none for traditionally creditworthy applicants. 

These Trends are Here to Stay

Mortgage lending is often a long, complex process that puts a strain on both lenders and borrowers. The trends we explored today help alleviate that strain, and that’s why they’re here to stay. 

From automation that improves processing speed and customer experience to data-driven risk decisioning that improves risk assessment accuracy and competitive edge through personalized offers to alternative scoring models that help lenders grow their business and accelerate financial inclusion of the under or unbanked, these trends represent the future of the industry.

Want to take these trends and run with them? Make sure your mortgage lending business is ready with our eBook, The Secret to Consumer Lending Success. Download it today!

The Secret to Consumer Lending Success

Get the eBook

LATEST BLOGS

Continue reading