October 04, 2023
Tech Talk: Lending smarter with cash flow data
How leading fintech lenders are using cash flow data to offer superior credit products.
Cash flow data is the industry standard for today’s leading fintech lenders. With it, they’re able to fuel more insightful credit decisioning and gain a more holistic view of their customers. It's also become top of mind for people seeking new ways to access credit and improve their financial health.
In this Tech Talk, Nicole Casperson of Fintech is Femme leads a discussion with Michelle Boros, Credit Product Lead at Plaid, Aaron Webster, Chief Risk Officer, Global Head of Operations & LatAm at SoFi, and Rahul Vemulapally, VP Product at Oportun. They talk about the latest innovations in the credit space, how lenders are incorporating cash flow data into their existing credit models, and how it’s impacting borrowers and lenders alike.
Driving the conversation:
How cash flow data supports more insightful credit decisioning
Why a holistic view of your customers’ finances can improve their user experience and reduce risk
How AI and cash flow data can be used to optimize use cases and customize offers beyond loan decisioning
Leading fintech lenders use cash flow data to meet changing consumer expectations. [3:30] Today’s consumers are seeking a fast, seamless lending experience and they’re more comfortable and accustomed to sharing their financial data in exchange for better lending decisions. According to research from Opinium, 78% of consumers are comfortable sharing bank statements. Leading digital-first financial services companies, such as SoFi and Oportun, are meeting consumer needs for a quick efficient process using real-time cash flow data, with help from Plaid.
“You’re sharing money with your friends on Venmo. You want the same feeling…that instant, fast, and efficient experience...We’re really excited to be a part of that change and to help enable these new experiences,” said Boros.
Lenders gain a more insightful credit decisioning process using cash flow data. [5:50] Oportun, which focuses on lending to historically underserved communities, has improved the speed and accuracy of its process with Plaid. For example, when they add rent and utility bill payments to their risk models, they may reassess a consumer’s ability to pay or offer more competitive rates. All of this leads to better credit decisions and happier customers. They've also eliminated manual tasks by using standardized data fields.
“At the end of the day, as a lender, you want to have as much data as possible to accurately predict the odds of someone charging off [writing off a loan]. With limited data, your ability to predict outcomes is also limited,” explained Vemulapally.
SoFi uses cash flow to gain a holistic view of their customers’ financial lives. [8:50] SoFi uses this data to deliver on their four key priorities: 1) a fast digital experience, 2) relevant educational content, 3) a large selection of financial products, and 4) convenience, by meeting customers on their channel of choice (e.g., website, app, phone). With Plaid, SoFi can access applicant data in real-time in a digitally native way, reducing friction. The process also helps get good applicants through the door, reducing risk.
“One single link allows us to get a comprehensive picture of all their financial comings and goings. That’s not only useful from a lending perspective, it helps inform us holistically in terms of how we serve that member and help them get their money right,” said Webster.
By using standardized data, lenders can use fewer resources to integrate new types of financial data into their models. [12:30] Lenders need an easy way to make sense of the huge amounts of financial information received during the underwriting process including cash flow, payroll, and bank statement data. By taking advantage of standardized data, lenders can more easily incorporate this information into their models and use it to inform different types of underwriting.
“We’ve shifted over the last 2 years to have a suite that really focuses on standardizing income from either a bank account, an uploaded document, or a payroll connection. We’re standardizing income so that all customers can think about how cash flow can play a critical role in their business,” remarked Boros.
Consumers are more eager to share financial data when providers establish trust and transparency and explain how they’ll benefit. [15:00] While cash flow data is still nascent for many, Oportun and SoFi have found success in clearly communicating the benefits of consumer-permissioned data sharing to consumers. In the short-term, that may mean better loan terms. In the long run, it can help consumers save money with insight and offers such as refinancing. Vemulapally has seen adoption rates grow as consumers better understand how their data is being used.
It’s also important to develop trust. SoFi enhances consumer trust by clearly explaining how their data will be used and that, in some cases, data sharing links persist well into the future.
“Especially when you're thinking about a consumer or a community that’s underserved by financial services—there is a level of trust that you have to establish,” said Casperson.
Lenders are leveraging AI, just not for lending decisions. [23:00] While Artificial Intelligence (AI) can potentially improve credit underwriting, it won’t be making its debut in lending decisioning any time soon, due to regulations and the importance of a consistent and fair lending process. However, AI can be used by lenders to personalize the lending experience, reduce fraud and losses, and support post-origination products and services. For example, Oportun leverages AI to support its automated savings products.
Cash flow data and credit scores complement each other. [27:20] While a traditional credit score represents a consumer’s willingness to repay, cash flow represents their ability to repay. When lenders use both cash flow and credit scores, they gain a fuller picture of a consumer’s financial health. Loan applicants who share their data can also control the narrative.
Cash flow data offers benefits beyond better loan decisioning. [34:30] When SoFi requests cash flow data, it helps them detect fraud. That’s because fraudsters can’t easily create fake cash flow data which typically includes ACH payments. The data can also be used to optimize use cases and fuel offers for a range of financial services. That’s why Oportun always asks applicants to link their bank accounts early in the process. Boros sees lenders using cash flow data for income verification and to take a second look at applicants who may have been declined based on other data provided by the applicant or collected by the lender on their behalf.
Just get started! [43:00] Lenders can start leveraging cash flow data to gain efficiencies even if they haven’t yet integrated the data into their modeling. Starting can be as simple as allowing a consumer to share their bank data when they set up a loan payment. Start learning from the data and find value that’s unique to your credit decisioning process.
“Figure out the initial use case and build on it. It’s all about creating a better experience and also taking advantage of that data in your decisioning,” advised Webster. “If you never take that step to start to engage, start to capture the data, start to actually figure out what use cases make sense, you’re never going to make progress.”