When a customer applies for credit, you must decide whether to lend to them quickly and provide a simple and fast onboarding experience to reduce the risk of losing them to another provider.
These processes are increasingly automated. Efficient automation can support speedy decision-making and enhance and accelerate the onboarding process, improving customer retention and creating a competitive advantage.
In this article, we look at how credit decisions are made, the processes lenders use and how technology can improve the experience for everyone.
How do financial service providers make credit decisions?
Most customers who require credit will be new to the financial services company they approach. So as well as having to check their credit with credit referencing agencies, lenders must move through the know your customer (KYC) and anti-money laundering (AML) process to reduce the risk of financial crime.
Manually processed credit reports are slower, cumbersome, and errors can slip in. Digital solutions – especially a platform that performs several functions at once – can make the customer experience faster, more efficient and hassle-free – with less work for the lender.
Although every credit provider has its own process for making credit decisions, most follow a similar path:
- The customer completes the onboarding process, including KYC and AML
- Lenders get a credit reference from one of the credit referencing agencies
- Depending on the reference, and the perceived risk of default and non-payment, the lender may refer to its credit underwriting department for further assessment of credit risk it faces, or simply reject the application
- Lenders are also required to undertake affordability assessments, confirming through a series of questions and checks that the borrower has the capacity to repay the loan
- The loan is approved, the borrower receives their credit, and the lender gains a new revenue stream.
The process is straightforward, but credit providers depend on having the right information at the right time for it to run smoothly.
The manual onboarding and credit checking process is linear and slow
The fintech revolution has led to an explosion of new financial services business models and companies, but many organisations are still relying on manual or paper-based methods of onboarding and checking the creditworthiness of new customers and loan applicants.
Credit scoring builds a personal and financial profile of a customer to determine how reliably they will repay the loan in a timely manner. Done manually or semi-manually, the process is linear, requiring employees to call up or log into the databases of several different sources. They must go through KYC and AML checks to comply with regulation.
This involves verifying the name, address and date of birth of individuals by using details from, for example, banks or utility companies. The next step is to satisfactorily determine that they do not present a clear risk of being involved in any financial crime, such as fraud or money laundering.
Operatives must then create a scorecard of creditworthiness. This may involve going back to some of the same utility and telecom companies or referring to the documents procured from them. Lenders must establish the customer’s stated financial standing is accurate, perhaps by checking against tax or bank records for salary information, then checking details with credit bureaus.
After that, organisations need to take a decision on the credit request and assign a credit limit. They may take a while to arrive at this decision, and if the process is carried out manually, any errors will need to be corrected, which can make the process even longer.
Technology streamlines and speeds up credit decisions
Technology can automate and streamline every step of the process, reducing the time to onboard and reach a credit decision.
Digital platforms enable lenders to automatically log into existing databases, bureaus and public records, downloading the necessary digital documents and storing them on the onboarding platform. Business process automation can be used to validate customer documents more accurately than humans.
Having only one set of verified digital documents means no discrepancies and fewer errors to correct. This allows credit decisions to be made more quickly.
Best-in-class platforms will also feature automated real-time integration with third-party credit agencies to validate credit scores, assess credit risk and confirm the customer can afford to repay the loan. Such platforms may also integrate with AI or machine learning software that automates and builds on existing statistical methods. These technologies help determine a customer’s creditworthiness, the affordability for the borrower and credit limit.
Once a credit application is approved, employing e-signature solutions ensures it is the correct person signing the documents, which will include:
- Pre-contract information (PCI)
- A written adequate explanation (WAE)
- Qualification questionnaires
- Direct debit (DD) mandate
- Supplementary proofs/evidence
- The credit agreement
The additional benefit of using an advanced digital platform is that that customer only has to complete a single process to review documents, provide any additional evidence and complete the agreement. This reduces the chances of customer abandonment.
How to accelerate credit decisions without extra work
Secure technology platforms enable you to scale the customer onboarding process quickly and affordably.
BONAFiDEE’s digital engagement platform includes a full range of biometric and record checks to verify each new customer’s identity in a safe, compliant, and fully evidencable way. From the outset, the process is digitally tied to each customer's unique identity, providing evidence that KYC and AML processes have been completed by the same individual.
A full audit trail is available of the customer's journey through the consent, identity verification, data capture and, if credit is awarded, the document signing stages, all the way through to completion.
To find out more about our advanced digital signature and customer verification solutions, download our guide, or contact our team.
