The growth of data analytics in use and abilities could become a vital tool for credit unions wanting to reach out to the underserved, who often must turn to alternate lenders.
All lenders, especially online and payday lenders, need banking transaction data technology and analytics, according AccountScore, based in London with offices in the U.S. and India, which provides insights and analytics on bank transaction data for clients, typically banks and financial services companies.
Where clients already have bank transaction data they import the data into AccountScore, which provide analytics through dashboards or by API. Non-banks work with a sister company, consents.online, which obtains and stores transactions for clients and manages customers’ data permissions.
“It not enough just to put a stop to payday lenders and their bad practices, but the CU industry needs to offer a solution, too,” Donnie Price, Head of Market Development, USA, for AccountScore, said. “Data analytics on banking transaction data to verify income, ability to repay, etc. is the solution to manage this unique risk that comes with serving that segment of the population – it’s really fulfilling the CU mission and will speak volumes.”
Price detailed how adding banking transaction data to the decisioning process increases accuracy and timeliness in predicting behavior and assessing risk. “Requirements for verifying income and ability-to-repay can be dynamically assessed and verified using transaction data, speeding-up the process and drastically improving the member experience.”
Price said, AccountScore solves three credit unions problems:
- Accurately automates income verification for real estate, credit card lines, and indirect auto loans – or for any loan application.
- Accurately provide defensible ability-to-repay (affordability and disposable income calculations) insights for regulatory compliance.
- Provides credit unions with a solution to fulfill their mission to serve the underserved their communities, which also marks another box for regulatory and legislative proof.
“These advanced solutions allow credit unions to extend credit to a wider range of consumers and small businesses quickly and efficiently while ensuring they maintain responsible lending standards,” Price explained. He added, without these advanced tools and insights, credit unions will find it nearly impossible in the future to compete on efficiency, pricing and speed.
Transactional data is not always available to all financial institutions. However, the open banking movement, which through APIs, permit consumers to share financial information with third-party or digital lenders, is gaining steam around the world.
For instance, as of January 2018, UK consumers can authorize the sharing of their transactional data with authorized third parties directly from their banking institution. “The intention is that consumers will be able to better shop around for products and services by sharing their transaction data with price comparison websites and financial services providers,” Price maintained. An expected outgrowth of this sharing environment is a new wave of innovative products and services in areas such as lending and overdrafts.
Price believes, with the expected success in the UK, open banking in other geographies will follow. “Similar schemes are already in their infancy in India and Australia, it is possible to see the USA follow suit at some stage.”
In October, the CFPB, said in an announcement, “This type of consumer-authorized data access and aggregation holds the promise of improved and innovative consumer financial products and services, enhanced control for consumers over their financial lives, and increased competition in the provision of financial services to consumers.” The CFPB also released a set of Consumer Protection Principles intended to reiterate the importance of consumer interests to all stakeholders in the developing market for services based on the consumer-authorized use of financial data.
Still banking experts see open-banking in the U.S. as years away. “The signs in the U.S. are to some extent similar to those seen in the UK half a decade ago with consumers and third-party providers starting to realize the value and benefits of using banking transaction data,” Price offered.
Nevertheless, Price explained some U.S. financial institutions have decided to offer slightly similar abilities for consumers and companies to share transaction data through an API but given the size of the American market, it is not likely to be as disruptive as in the UK.
