The rise of fraud in income submissions
As consumers scramble to find financing in this constricted market, there has been an increase in the amount of fraud tied to income reporting. According to a recent article from Forbes, certain consumers are resorting to desperate measures, such as submitting counterfeit pay stubs or inflating their income, in an attempt to qualify for loans.
The article goes on to note that this is even more prevalent in particular geographies and for self-employed and gig workers who have to meet more stringent requirements to get approved for a loan. A strong digital lending presence and the ease of creating synthetic identification and other documents are other important contributors to the rise in false income submissions.
Risk officers turn to alternative data to help fight fraud
One way lenders may be able to reduce the incidence of fraud in income reporting is to use alternative data to provide a more complete profile of the applicant. By leveraging consumer-permissioned access to up-to-date account and cashflow information, lenders can avoid asking applicants to deliver a bank statement or stub.
Alternative data such as deposits from payroll, contract work, and investments can be used to augment or enhance an existing credit file. Attributes such as total cash balance, daily balance, and sum of deposit transactions can be added to round out your overall understanding of the applicant’s financial situation.
When this wealth of information is synthesized, lenders can gain a more holistic understanding of consumers, rooted in their behavioral patterns. These tiers of data contribute to the establishment of a data-centric strategy that may help reduce the potential for fraudulent activities.
More holistic data in one easy file
Consumer-permissioned alternative data offers insights that go beyond the surface, painting a more clear picture of creditworthiness rooted in genuine behavioral patterns.
Envestnet® | Yodlee® Credit Accelerator groups transaction level and account level data for decisioning, underwriting, and other verification processes that require confirming consumer income, expenses, assets, and asset sourcing across checking, savings, investment, and other holding accounts. By using consumer permissioned access to these accounts, Credit Accelerator may eliminate the need for consumers to provide static statements and paycheck stubs that may be out of date, difficult to review, or potentially fraudulent.
Credit Accelerator income data looks at net income by category, including recurring and non-recurring payroll, investments, benefits, and recurring counter deposits that may qualify as income. It also provides sums and averages, projects net annual payroll income, and can provide a pre-tax gross income estimate range.
Advantages of using Credit Accelerator for income verification and cash flow underwriting include:
- Can be more cost-efficient than manual verification and traditional sources
- Provides recent deposits at present and up to 365 days of historical
- Improved match rate of direct-to-payroll sources and faster than manual verifications
- Allows lenders to verify numerous sources of income
- Provides a more up-to-date view of consumers’ assets, liabilities, and expenses
Meeting new lending needs with alternative data
Lenders may be able to gain a more holistic view of a person’s true creditworthiness beyond traditional credit reporting by using alternative data sources. According to a recent State of Alternative Data in Lending report, 74% of lenders believe traditional credit report data does not paint the most complete picture of consumer credit worthiness, with 59% now turning to various forms of alternative data in their underwriting process to fill the gap.
Lenders incorporating alternative data have the potential to widen credit availability to the millions of Americans without a credit score. For example, an individual lacking a credit report's loan repayment history may consistently settle other recurring expenses or charges. These payment records might indicate to certain lenders whether a person is likely to keep their promise to repay debts.
Tapping into the future of lending data
Consumer-permissioned alternative data empowers lenders to access vital insights from a diverse array of data sources, ranging from geolocations to social media interactions. This facilitates prompt and precise assessments of fraud risks in real-time and enables lenders to expand past traditional methods and into emerging markets.
With innovative solutions like Envestnet | Yodlee Credit Accelerator, a new era of inclusivity and accuracy emerges, helping enable lenders to prevent fraud while empowering individuals to access the credit.
To learn more about how to leverage alternative data to create competitive offers, help minimize risk, and serve more consumers, visit: https://www.yodlee.com/credit-accelerator.