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Balancing consumer risk with seamless digital CX

A robust IDV platform can enable lenders to confidently build a more complete picture of would-be borrowers of every generation.

Nov 18, 2022 / Customer Experience

Throughout the pandemic, digital lending provided a critical source of emergency funding for millions of consumers. Now, consumers must figure out how to fund both routine and one-time expenses as inflation erodes the purchasing power of their income. Digital lending solutions can help fill the gap created by stagnant wages and record-setting inflation, particularly when lenders focus on the delivery of a customer-friendly loan origination process.

In fact, alternative lending has seen strong growth in recent years and is poised to continue growing. A study by IDology reports that 18 million Americans signed up for online lending accounts last year. But our report also found that consumers are willing to switch financial service providers—more than 30 million are considering changing providers in the next 12 months.

While the demand for alternative lending will remain high, lenders must more accurately judge consumers’ riskiness without applying excessive friction during the process. According to a 2021 report by Aite-Novarica Group, only 31% of lending institutions had negligible rates of fraud incidence.

To adopt a more effective approach to fraud mitigation, lenders need a system that delivers flexible workflows for verifying prospective customers. A robust identity verification tool provides lenders with a multilayered picture of an identity and delivers more points to help financial institutions evaluate a borrower’s risk. Relying on flexible workflows, lenders are empowered to verify anyone, anywhere in the customer journey, with minimal identity data and a lighter ask from the consumer.

Transparency into the data used to evaluate a borrower’s risk is also critical. Simply put, lenders must understand the factors used to accept or reject an application. Yet not all IDV solutions offer a high level of transparency. IDV models that rely on nontransparent scoring often do not provide insight into the potential risk/risk signals associated with an identity needed to inform modern decision-making workflows.

BAI suggests that financial institutions establish “trust through transparency. Lenders should consider revisiting their traditional methods for managing risk. Transparency gives financial institutions more insight into the layers of a consumer’s physical and digital identity attributes. Transparency also enables lenders to collect only the data they need from consumers, reducing friction and further building consumer trust.

By evaluating digital identity attributes such as IP address, email, mobile phone number (as well as mobile service-related data, such as account status, type and age) and other personally identifiable information, lenders can detect synthetic identities, invalid inputs and other issues with an identity.

To avoid excessive friction, IDV can evaluate risk with minimal identity information. For example, by using digital identity attributes to qualify leads ahead of Know Your Customer/customer identification procedures, lenders can leverage an IDV solution to predict the risk of a failed loan conversion, first-payment default or failed funding.

IDV can also create a low-friction workflow by reviewing details that users may be more comfortable providing. For example, a potential workflow may rely on less-sensitive data points, such as name and phone number. Balancing faster service against the need to keep risks low means finding the right keys to predict and prevent risk and identity fraud. By collecting and assessing digital identity attributes, particularly mobile number and email and IP addresses, you’ll have the power to better evaluate the identity of your consumer.

When it comes to securing and sustaining a competitive advantage in the alternative lending marketplace, knowledge is power. Lenders can overcome many competitive threats by locating and smoothly onboarding legitimate customers with a secure, frictionless journey. This means using robust, flexible lending tech to make the digital experience more seamless.

A technology that can work behind the scenes to build a fuller picture of potential customers empowers lenders to make strong business decisions. Making softer touches with minimal consumer friction allows for a scalpel approach to data collection. Implementing a robust IDV platform that enables lenders to serve today’s customers with a seamless process can also help them confidently build a more complete picture of consumers of every generation.

Christina Luttrell is chief executive officer for GBG Americas, a global leader in multilayered identity verification and fraud prevention.

Explore ways technology can help financial services providers reach the right customers with the right credit products and compete more effectively against nonbank players in the BAI Executive Report, “Technology is pushing lending in new directions.”