Instant tenant background verification transforms screening

Fintech solutions streamline the rental verification process by verifying identity and income in seconds, helping increase rental access and reducing fraud.

December 20, 2024

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Michael Goodwin

Michael is on Plaid's Credit team, where he focuses on new markets for Plaid's suite of credit products. He's worked in fintech since finishing his MBA in 2017 and is excited about enabling more equitable access to financial services.

Traditionally, the tenant screening process has been manual and time-consuming. It often requires prospective tenants and property managers to meet in person, make copies of identity and employment documents, and then wait 5-7 days for the rental tenant screening process to be completed. 

More recently, tenant screening services have sped up the process, but the data collection process is often opaque and may use erroneous or outdated data that renters have no way to refute.  

Innovations in the fintech industry are accelerating the leasing verification process by giving proptech companies and property managers direct access to information about potential tenants' monthly income, identity, and overall risk. This offers benefits to both businesses and consumers. Below, we'll explore four benefits of leveraging fintech for online, instant tenant screening.

1. Speed up verification and fill units faster 

When performed manually, the tenant application process can take days or even weeks. Prospective tenants have to gather paper identity and proof of income documents, like W-2s and social security cards, which leasing agents must then verify—all while units sit empty. If some documents aren't accepted, the applicant may have to return home and bring new documents on a different day. 

The average rental is vacant for 32 days between rentals, due in part to how long it can take to process applications and verify proof of income. Thanks to fintech solutions, the application and income verification process is now simple and fast. 

In most cases, income can be verified nearly instantly with tools that connect bank accounts for income and identity verification. This helps renters get into homes faster and reduces the amount of time properties sit empty. 


2. Reduce fraud with online tenant screening 

In addition to being time-consuming, the rental application process is also rife with fraud, as bad actors may alter documentation that impacts the rental decision. In fact, one in eight rental applications today is fraudulently altered. This makes it challenging for companies and property owners to make informed decisions about prospective tenants. 

Instant identity verification helps reduce the risk of fraud by providing rental companies with fast and reliable identity verification. It works by comparing uploaded documents (such as a driver's license) with trusted databases and government records. Additionally, using selfie identity verification can reduce the risk of synthetic identity theft and improve Anti-Money Laundering (AML) compliance. 

Verifying proof of income through fintech solutions also helps reduce the risk of fraud by providing more reliable and accurate income information. When landlords and property managers can view bank and cashflow data, they can ensure applicants' reported income matches what they actually earn and put in the bank. This dramatically reduces the risk that an applicant can use a forged document to get approved for a house or apartment rental. 

By leveraging both instant ID and income verification, property managers and property technology (proptech) companies can reduce the risk of fraud by ensuring the information they collect is accurate.

3. Expand rental access

Traditionally, credit scores were the gold standard when verifying tenant income and financial situations. However, they offer a limited view of prospective tenants’ financial health and employment status. Often, applicants with thin or no credit scores may not qualify despite having a solid source of income and a high ability to pay. Evaluating cash flow data provides a more holistic view of an applicant's actual ability to pay rent consistently. 

Take the example of a young person who recently graduated from college and started a new job. They want to move into their own place now that they have a steady income, but only recently opened their first credit card. As a result, they will likely have very low or thin credit, which makes it challenging to get approved without a co-signer. Since they're new to full-time employment, their tax returns won't provide an accurate assessment of their income. 

Using cash flow data, the property management company would be able to see that the renter has a solid source of income, a good utility bill payment history, and even earns $600 a month delivering groceries via a gig app. With a more complete picture of the renters' financial situation, the property manager can approve their rental application. Cash flow data doesn't replace credit scores; rather, it offers an additional way to evaluate risk and allows property management companies to make smarter, more informed decisions. 

Plaid's consumer reporting agency increases both the availability and usability of cash flow data by turning complex data into actionable insights. Instead of relying on limited data, like credit scores and tax returns, tenant screening reports can now provide more comprehensive insights about an applicant's financial health. 

Expanding rental access is good for people looking for a home, as well as for property owners and managers. It may help more renters qualify for homes, lowering the rental vacancy time. 

Cash flow underwriting: A guide to the future of consumer lending

Get the latest analysis and industry research from experts at Datos Insights.

4. Improved tenant verification services reduce eviction costs

The typical eviction costs $7,685, including unpaid rent, legal fees, and other charges. For a property management company with a 3,000-unit portfolio, that translates into an avoidable annual expense of $2.8 million. 

As we covered earlier, reducing those costs starts with combining credit checks with cash flow data. However, tenant background checks and eviction history are still reliable methods of screening potential renters and reducing costs related to evictions and damages. 

Previously, a tenant background check could take up to five days to run checks and even contact previous landlords. However, fintech solutions are making that process much easier while still carefully reviewing criminal records, previous evictions, and credit scores. By combining traditional data with cash flow data, rental agencies get a fuller picture, helping reduce fraud and limit future liabilities. 

How to verify tenant income faster and reduce fraud risks with Plaid 

Plaid offers a comprehensive solution for rental screening. Proptech companies and property managers can eliminate many manual processes by combining comprehensive income checks, instant identity verification, and automated payment account verification in a single solution. In many cases, they can verify and accept new rental applications in seconds. Plaid solutions that help accelerate leasing include: 

  • Identity Verification: Validate documents and check for liveness to verify identity in 10 seconds or less. IDV offers a user-experience-optimized flow that can increase verifications by as much as 30% while helping improve conversion rates.  

  • Income: Perform tenant income verification and employment checks in real-time by accessing payroll and bank data and uploading income documents—no more copying W-2s or worrying about whether documents have been altered. 

  • Auth: Authenticate bank accounts and set up ACH payments for application fees, security deposits, and rental payments.  

  • Balance: Get real-time insights into bank account balances to reduce overdraft fees and payment returns. 

  • Transfer: Automate bank payments for online rent collection and reduce payment costs by 40%. 

With Plaid's help, Padsplit, a co-living marketplace that provides access to cost-effective housing, reduced its reliance on manual verification by 70% and processed most applications in less than 60 seconds.

Most housing-insecure people can't wait weeks for rental verifications to process. By verifying income and identity faster, Padsplit helps them find a place in minutes rather than weeks. 

The future of tenant screening is faster, smarter, and safer 

The traditional leasing process was inefficient, time-consuming, and rife with fraud. It also overlooked applicants without high W2 incomes and established credit scores. Fintech is revolutionizing the rental verification process by speeding it up and giving companies access to more data so they can make smarter decisions. 

The future of leasing is instant—and that isn't just good for businesses. Thanks to fintech innovations, housing-insecure people with limited credit scores now have access to a more level playing field. 

Learn how Plaid can help you screen and approve residents instantly. 

Talk to Plaid about instant rental verification solutions

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