In January we were delighted to launch our latest product offering, DirectID Insights. The reception to Insights has been exceptional, and I’m delighted to have spent much of the intervening time between then and now speaking with financial services experts from across the spectrum.
Not all the time, however.
The other big focus for the team here at The ID Co. over the last quarter has been on the launch of a new Income Verification solution.
The possibilities for our Income Verification solution are enormous, and even when we were in the testing stage – working beside some of our trusted customers and stakeholders – there was a huge amount of anticipation on what it could offer.
The Open Banking Context
It's clear to all, I think now, that Open Banking is beginning to take-off. In the UK we’ve seen the bulk of the banks optimise their mobile apps for account aggregation, and some have gone much further than that.
Open Banking by itself does not solve any problems or bring about world-changing new services, but what is key is that it provides the opportunity and pathway to do just that. That’s why I’m so pleased that we’re beginning to see evidence of banks, lenders, and others go far beyond the account aggregation model.
DirectID Insights was one such example. It allows customers to share their bank account information using Open Banking to trusted third parties when it might be in their interests.
Now we have our second solution, Income Verification.
The use cases for being able to quickly and accurately assess an individual’s income are numerous, and we’ve seen interest from a range of sectors interested in utilising the solution, including banks and lenders; for mortgages and rental; those undertaking pre-employment screening; for use in industries such as collections and debt recovery; insurance and more.
The benefits of using such a tool are clear. If we take the example of a bank or lender processing a loan application; with Income Verification, the bank could, within seconds of the applicant logging into their online banking, be in receipt of their calculated income. This negates the problems that banks have had for years, which is income supplied by the applicant is prone to error or inflation. This also then ensures swift and seamless customer onboarding, removing the opportunity for the customer to apply with a competitor.
As I wrote in an accompanying piece, we recognise that banks are constantly reviewing their operational costs with a view to minimising it wherever possible. The use of our Income Verification solution has a huge impact here, allowing operators to spend less time speaking to customers on the phone, assessors spending less time analysing documents, and financial crime teams spending less time investigating potential fraud.
After operational costs, the next big advantage of our solution is that responsible lending decisions can be made that uses both a sound basis and execution of that basis. Income Verification means that vague terms such as “looks correct” can be removed from the process.
Finally, the need for customers to have years and years of financial history behind them in order to apply for credit may be behind them as Income Verification allows banks and lenders to assess each applicant on their respective merits, including what their monthly income is. This applies equally to those newly arrived in the country who may have thin credit files.
Design and Implementation
To be able to offer the comprehensive suite of benefits that Income Verification has, has been the work of many months of work, with our Product team categorising and analysing thousands of bank statements, before building six unique algorithms that give a calculation of an applicant’s income.
Before any of this work was even carried out however, we carried out an extensive range of interviews to find out what the gaps were in the current range of products to ensure that we could fill them. As well as our stakeholders and board members, our current customer base was very patient in answering our questions and I’m indebted to the input that they were able to provide.
One of the biggest complaints with products available today is there is an over-reliance on two factors. The first is the use of bureau data which as we know is dated even before it arrives with an institution and as I’ve discussed above, closes the gap for those that do not have comprehensive credit files. The second was that there were too many flags such as “looks close” which does not give any confidence in the result.
Several of the banks that we spoke to were unhappy with the information provided to them only covering the last three months. They commented that this short timeframe is not long enough to give an accurate or detailed overview of an applicant’s income history. For that reason, we’ve built our Income Verification solution to gather the last twelve months of income. This allows for any slight variations to be accounted for, and further gives enhanced confidence to our final income score.
As I alluded to above, the operational costs for banks and lenders in assessing a loan can be enormous. These are routinely not helped when the information provided by the applicant is mistakenly or deliberately incorrect. The time taken to correct these mistakes, usually by speaking to the applicant, can be considerable. But by using Open Banking, we cut through the opportunity for error, by accessing data directly from the banks.
Perhaps most importantly, we’ve given banks and lenders the opportunity to assess each applicant based on their true income history, rather than what can be called a best-guess scenario. The need for banks and lenders to be responsible in their lending practices is more critical than ever, with the FCA demanding that they be able to justify why a decision was made. With the use of Income Verification, a decision can be reached and justified with confidence.
Income Verification, therefore, poses the next generation of utility for Open Banking. And with this development, we have perhaps the first use case where it is banks and other financial institutions that are the direct beneficiaries. As we’ve discussed, this is not to the detriment of consumers, indeed, Income Verification will help to streamline and speed up the customer onboarding process, giving consumers a far better customer experience.
The benefits to banks, lenders and others are immense. The removal of outdated bureau data to be replaced by immediate up-to-date and accurate income assessment allows for responsible lending. The ability to offer a view of up to a year means that income can be determined over a period of time, better reflecting the true nature of an applicant’s income. Finally, the operational cost savings that Income Verification can provide will ensure its continued veneration.