There’s little doubt consumer lending solutions have changed over the past decade. Before the Great Recession, consumers were required to manually fill out loan applications listing assets, income history and other factors that helped the lender make determinations about an applicant’s creditworthiness. Despite this seemingly thorough process, problems were bubbling to the surface. Due to risky lending practices by financial institutions in the years leading up to 2008, this behavior eventually led to the greatest downturn in the U.S. economy since the Great Depression.
Since then, several converging factors have helped shape the current lending landscape. The Dodd-Frank Wall Street Reform and Consumer Protection Act were designed to remove conflicts of interest and required financial institutions to act in a more responsible manner when it comes to verifying and validating a consumers’ ability to repay their loans driven by the rise of Big Data and improved financial analytics.
How Do Loan Processing and Lending Work Today?
Big Data and data analytics have emerged as major disruptions to the lending industry. Today’s digital platforms now allow consumers to shop a variety of financial institutions and loan solutions, each competing for the consumers’ business. They’ve also sped up the time to loan funding, increasing competition in the marketplace all while protecting the lenders through better default prediction capabilities.
What was once a laborious process involving paperwork for income verification and other qualifying factors is now a click away. Thanks to predictive data analytics, lenders can more easily make data-driven decisions about prospective borrowers—often in seconds. By tapping into enhanced data sets, lenders can augment applicants’ profiles to yield lower risks in loans, credit lines and other lending decisions. This translates to quicker, more efficient loan origination and servicing without added risk. Lenders can also use data analytics to verify and validate a borrower’s employment, income, and assets quickly and easily which allows the lender to more easily market the loan to the secondary market.
How Envestnet | Yodlee Helps with Lending Solutions
Envestnet | Yodlee enhances lending solutions by providing critical insight to lenders in a number of ways. Because traditional credit risk reporting is narrowly focused on past payment history, it often gives lenders a limited view of a customer’s true financial condition. This is a game-changer for the more than 180 million consumers with thin or non-existent credit files and for those who are not scoreable, invisible or subprime borrowers.