PERSON OF THE WEEK: Alternative data sources stand to open up more opportunities for lenders to identify consumers who qualify for a mortgage but may not know it yet. To learn more about how alternative data sources are helping mortgage lenders provide first and second chance opportunities for consumers that might not otherwise be possible, MortgageOrb interviewed Ashley Knight, senior vice president of product management for Experian’s financial services and data business.
Q: Can you explain the concept of open banking and its potential impact on the mortgage industry?
Knight: Open banking is the practice of securely sharing consumer-permissioned financial data between banks or third parties. Typically, this is done through APIs that give direct access to consumers’ bank accounts with consumer permission. This data most often includes information from consumers’ bank accounts, such as transaction history, account balances, and spending patterns.
Open banking within lending represents a new era in consumer empowerment. It gives consumers greater control over their financial data, allowing for a more accurate representation of their creditworthiness. This technology opens the door for new, predictive information, such as transaction data, to be incorporated into lending decisions. This is key because, while the information included in a consumer’s credit report remains the most effective means to assess lending risk, millions of consumers are currently excluded from the mainstream credit ecosystem and unable to secure credit at affordable rates.
Layering traditional credit report data with consumer-permissioned transaction data creates a more detailed view of a consumer’s financial health and creditworthiness for lenders and can provide more opportunities for consumers. Ultimately, by leveraging open banking technologies and cashflow insights, mortgage lenders can provide first and second chance opportunities for consumers that might not otherwise be possible – potentially making the dream of homeownership a reality for more consumers.
Q: What are some of the challenges mortgage lenders currently face in incorporating cashflow insights into their decisioning?
Knight: A common problem we hear in the industry today is transaction data, or information from a consumer’s bank account, can be noisy and challenging to interpret. Financial service providers need to be able to quickly categorize this information to extrapolate meaningful insights, and they need to do it seamlessly. This is where we can help; Experian can provide deep analytics and insights based on bank transaction data. We categorize consumer-permissioned account transaction information and deliver transaction categories and predictive attributes back to lenders in seconds – enabling mortgage lenders to easily incorporate this information into their decisioning.
Q: How can mortgage lenders effectively leverage transaction data to enhance their customer insights and streamline the lending process?
Knight: By tapping into banking transaction data, lenders can gain real-time visibility into applicants’ income streams, spending habits, savings patterns and more. This holistic view can support financial inclusion while also improving underwriting accuracy and speeding up application processing. For example, Experian offers income, cashflow and affordability attributes that can be used across the lending lifecycle. When viewed with traditional credit information from Experian and expanded Fair Credit Reporting Act data, Experian Cashflow Attributes can boost predictive accuracy by up to 20% – ultimately allowing lenders to drive revenue growth while mitigating risk.
In addition, mortgage lenders can use transaction data to offer more tailored mortgage products. For instance, borrowers with fluctuating incomes or irregular expenses may benefit from flexible payment options or customized terms that align with their cash flow patterns. These insights can also empower lenders to provide more personalized advice and recommendations to borrowers. This can strengthen customer relationships by demonstrating a deeper understanding of a consumer’s financial needs and offering solutions that support long-term financial well-being.
At the end of the day, we know lenders want to afford consumers every opportunity to get the best loan product they can qualify for while mitigating risk. Transaction information and the corresponding categories, attributes and scores, represent a rich set of predictive data, providing a more holistic view of a consumers’ financial health.
Q: In your opinion, how do you foresee the role of open banking evolving in the mortgage industry over the next five years?
Knight: As the adoption of newer and more predictive attributes and scores continues, we are working collaboratively with industry leaders, consumers and regulators, to advance the use of new data sets while empowering consumers to take control of their data to improve their chances of owning a home.
By leveraging banking transaction information, organizations can create opportunities for new and existing customers that might not have otherwise been possible. At the same time, our research shows 71% of consumers would be willing to share access to their banking information if doing so could improve their likelihood of getting approved for credit.
Because of this, we are focused on making cashflow data and insights, with the proper consent, more accessible while ensuring consumers are empowered and maintain control over their information.
Open banking currently holds untapped potential, and I believe, over the next five years, leveraging open banking enabled data, access and insights – such as cashflow, affordability, risk triggers and more – will become standard practice in mortgage lending. We are committed to working alongside lenders, consumers and the broader industry to ensure maximum benefits from this previously untapped set of insights.