Prospects for progress in unsecured lending applications

Unsecured personal loan applications lack the sophisticated digital verification tools seen in other product lines

The unsecured lending market generally sees low levels of pull-through rates from applications to booked loans. Among issues, the verification step of the journey can be a particular pain point for applicants, causing delays or pushing the process offline.

While the digital lending market is growing, online verification processes among lenders remains somewhat underdeveloped. Some notable efforts by fintech lenders to make the process more streamlined and secure are yet to be replicated in the journeys of most traditional lenders.

Fintech lenders leading the way

The standout verification tool seen among providers is API bank account linking using third party services such as Plaid or Finicity. Using the login credentials of a supported bank account, applicants give permission to the lender to access account details including ownership and balance and transaction information. With this, Finicity can show an applicant’s average monthly income and 24 months of transaction history. These processes are seamlessly embedded in the application journey and provide a secure, user friendly way of verifying information in addition to expediting the approval process.

Prospects for Progress 1
Lending Club and Upstart’s implementation of Plaid. One Main’s implementation of Finicity. Source: Digital Banking Hub

Document upload

In contrast to product lines such as checking accounts, generally speaking unsecured loan applications do not make use of ID document upload during the verification process. A minority of lenders ask applicants to upload an image of their ID document or paystub but as lending applications are generally web-based this lacks the sophistication of mobile app applications which utilize the device camera.

Prospects for Progress 2
One Main file upload, SoFi camera ID capture, Revolut ID and selfie capture. Source: Digital Banking Hub

The contrast between standout processes across the unsecured lending market such as One Main’s file upload portal, SoFi’s ID capture and Revolut’s Onfido-backed process is stark. In addition to enabling a quick approval, the process of uploading a form of ID along with a selfie using the device camera within the application form adds an extra layer of security compared to those that ask an applicant to upload a file from their device. With providers such as Onfido, a biometrics liveness check can be conducted to match the ID document to the applicant. This approach also removes the risk of an applicant using a stolen document, digitally altered images or photos downloaded from the web.

The stretch of tradition

Traditional lenders such as Citi, PNC and Wells Fargo base their verification processes on the information an applicant provides and a standard credit file check. In some cases, applicants are required to supply their employer’s address and phone number in addition to providing copies of recent paystubs or proof of income. This can result in long application forms with up to 50 information fields. That contrasts sharply with those of Lending Club and Sofi who have fewer than 30.

Prospects for Progress 3
PNC, Wells Fargo, US Bank and Discover Personal details entry. Source: Digital Banking Hub

But an opportunity exists for traditional lenders to outstrip fintech lenders by employing best practice verification features seen elsewhere. In addition to API bank account linking, providers may consider integrating other third party verification tools in their application process. There is evidence these approaches are effective in reducing fraud with Jumio claiming an 80% reduction in fraud using its selfie verification process compared to ID only solutions.

While these advanced KYC solutions help to reduce pain points in the journey, benefits to the lender are also substantial. Alongside staying ahead of changes to regulatory requirements – which will become increasingly important as governments look to set standards for online verification requirements in the months and years ahead – they can deliver a more secure process which is less reliant on manual reviews, and ultimately improves customer acquisition and delinquency rates.

Tom Erasmus
Senior analyst, London Olivia Liu
Director, New York
olivia.lui@curinos.co
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