decisions. These are based on an appli- cant’s real financial status, rather than an estimate cobbled together from an analogue application. Apart from it being instant (and telling whether the borrower can really afford the loan - a game changer in itself) OB will deliver a range of other benefits. One of the most obvious is that lending decisions will cease to be a largely binary approve/decline business. When you have near-perfect knowledge of someone’s finances, you can engage in a more nuanced approach. Risk-based pricing, a feature of many other sectors, is achievable. Loan amounts and terms can be tailormade for an individual’s circumstances. Lenders will know if a prospect can’t repay £10,000 in three years, but can over five years; and then offer them a different deal to the one they applied for. Notorious areas of miscalculation such as an applicants’ discretionary spend- ing and loan serviceability (that have plagued decision-making in the past) and contribute to loan default rates, cease to be problematic. When an applicant’s data is analysed through categorisation tools, lenders are able to identify and quantify all areas of spending. Heavy use of ATMs, unplanned overdrafts and gambling site spending, for instance, will all be noted and enable an immeasurably more robust lending decision to be made. It
such as multiple applications are auto- matically noted. The US is already further down this track than we are and there you can already get an initial okay for a loan purely on the basis of your social secu- rity number and date of birth. No need for even a telephone call when you can get all you need direct from the applicant’s account (once they have approved your access to it). There are not really any forms to fill in. How many years away ‘tap and go’ is for us, is difficult to tell. But my bet is there will be lenders established with this technology by 2024 in the UK and Australia. And those that haven’t invested in having this capability, will have an exhausting game of catch-up ahead of them.
will pave the way for a braver form of lending: analogue would say ‘decline’, or ‘referral’, but digital, with a 3D picture, can say ‘yes’. This new level of nuance is so much more helpful to the borrower. The data will tell the lender when loan payments are best afforded during the month (because the consumer often does not know), so that a repayment schedule can assist cashflow. And when someone’s finances are going awry during the course of a loan term, this will be red-flagged and pre-emptive calls triggered to nip an issue in the bud. A large termination payment appears in someone’s current account and the bank knows a catch-up call is in order. The beauty of this new era is that as time passes the data deepens and the analysis improves. After a couple of years, the data available to lenders will enable them to understand the con- sumer’s financial situation way better than the consumer does them selves. Anticipating buyer needs will be possi- ble, creating the opportunity for proac- tive selling. And this selling will obvious- ly not be of products that the consumer does not benefit from. These will be products that will advantage the con- sumer. Mis-selling should be a thing of the past. Fraud is reduced because all data goes through central hubs, so anomalies,
Andrew Tierney is a credit risk professional based in Queensland. Andrew.tierney@balanceriskmanagement.com.au
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