Mitigate credit risk with integrated lending data

Credit risk is an inherent part of financing and lending. Giving out money and politely asking people to give it back is one of those ideas that can only sustain itself if the financial institutions involved mitigate credit risk, taking steps to vet borrowers before funding and incentivize them to repay their debt in full.

These strategies for managing credit risk are perennial topics. In recent months, we've written about reporting credit history to the bureaus, reducing default rates through hardship programs, and automating your underwriting process to properly assess each applicant and match them to the right interest rates.

In this post, we're focusing on a complementary strategy now offered through LoanPro's modern credit platform: using Smart Verify to integrate data sources directly into your operation, granting you better insight both before you extend credit and as you monitor customers' ongoing financial health.

The benefits of accessing data from a unified platform

Even the best data is only useful to the extent that you can access it. For all of the intricate data available today, it’s still no better than a dusty set of encyclopedias if you can’t actively use it to inform your business decisions. For data to do work, it needs to be integrated into your operations, making itself available not just when you call for it, but when you didn’t even know you needed it.

Most legacy systems hardly even give you access to your own data, let alone third-party sources. That leaves credit providers manually hopping between windows or building out their own custom application to try and access their data from the back end. Smart Verify consolidates reliable third-party data sources with your operation, all on a holistic platform, keeping everything visible from start to finish.

These new data solutions offer several key benefits to the banks, financial institutions, and other lenders using LoanPro:

• Fresh data sources. LoanPro gets our data directly from official sources to ensure information is up to date and accurate, pulling new information as often as possible. For example, if a next-of-kin says a borrower has passed away, LoanPro queries the Social Security Administration's Death Master File (DMF), with data refreshed as frequently as the SSA allows.
• Holistic system. Rather than using multiple systems (either manually hopping between windows or building out an API connection on the back end), these data solutions put all your borrower information in LoanPro, keeping everything visible.
• Streamlined for speed. Manually searching an external database is possible, but time-consuming, eating up precious resources and lowering margins across your accounts. LoanPro’s data solutions streamline the process: Agents only need to make a few clicks (or none, with automations) and then pulling the data takes only seconds.
• Superior borrower experience. Instead of asking a customer to provide proof of their military status or the death of a family member, you can instantly verify it with highly precise information, even if the borrower only has minimal data on file with you. This means you can mitigate credit risk without imposing any more obligations on your customers, providing them a more convenient experience that's likely to win repeat business.

Leveraging Smart Verify across your operation

Credit risk comes from many angles. Whether a borrower passes away, gets their assets seized by a lien from another lender, or simply runs off, the outcome is ultimately the same for the credit provider: lost revenue. The losses from one bad account typically eat up the profits from 3 to 4 healthy, repaying accounts. Credit providers need to see risk reduction not just as an additional safeguard, but a core element of their revenue strategy.

Smart Verify makes it easier to detect and prevent credit loss at scale. Before an account is ever issued, Smart Verify automatically checks multiple data sources for risk information, pulling its findings back into LoanPro. From there, LoanPro’s modern API can connect to your BI layer and underwriting system, allowing you to instantly analyze risk and offer a credit product with the appropriate terms.

Reduce B2B fraud risk

Bad actors see business credit as a potential gold mine for fraud. The sheer size of a B2B credit account is enough to draw in fraudsters. Paired with the fact that most fraud detection tools have focused on consumers, it puts B2B credit providers at significant risk.

Rather than traditional identity theft, where a criminal borrows on someone else’s name and credit, business borrowers are more likely to attempt synthetic identity fraud, fabricating a business profile to apply for credit. They might also pose as recently dissolved businesses, knowing that most databases won’t have the most up-to-date information. To credit providers, these businesses can look legitimate, but they’ll learn all too late that they’re just shells for fraud, money laundering, or other illegal activity.

Smart Verify gives B2B credit providers insight into their applicants, helping prevent credit loss and reduce compliance risk by adhering to KYB/AML laws. With a simple search, you can learn everything about a business applicant, from the basics (like its age, locations, and EIN) to more detailed information (like its status and standing with state and federal agencies, or any liens on the company’s assets). These screening tools give providers an in-depth view of business identity risk, preventing potential exposure with shell corporations and non-registered entities.

Detect bankruptcies and liens

A business may not be fraudulent, but that doesn’t mean it’s a good idea to hand them money. If a company is subject to a lawsuit or bankruptcy, you could be the last party in a very long line of people asking for their money back as the company liquidates their assets.

Before extending credit to a business, credit providers can use Smart Verify to detect bankruptcies, lawsuits, judgments, and liens.

When a funding request comes in, they can instantly check litigation and bankruptcy history. If the business is embroiled in lawsuits, the provider will know ahead of time, and can adjust their available credit and repayment terms accordingly. Similarly, learning about a previous judgment against a company can show that they have a history of non-repayment, revealing a substantial risk of defaulting.

Even if the company isn’t currently in any financial or legal trouble, they may be overextended in debt, with pre-existing liens against their assets. If the company does fail to repay, those lienholders will be able to seize the collateral before the company repays you. (This is especially true with tax liens, which are repaid to the government ahead of any UCC liens.) Using Smart Verify to investigate a company’s lien status lets credit providers accurately assess the risk of offering credit.

Streamlining compliance with integrated data strategies

Even accounts with excellent credit history and repayment can sometimes throw you a curveball. For one, nobody lives forever, and plenty of us leave some amount of unpaid debt when we shuffle off this mortal coil.

Credit providers might learn about a borrower’s death as they collect on a delinquent account, when someone claiming to be the borrower’s next-of-kin says the original borrower has passed away. To write off the account, the agent would normally need to request some kind of proof, like a copy of a death certificate. But with Smart Verify, they’re able to use a Quick Action to instantly check the Social Security Administration’s Death Master File (DMF), confirming that the borrower has in fact passed away. As part of the same Quick Action, they can write off the account, send a confirmation to the next-of-kin, and perform any other automations tied to closing the account.

Similarly, Quick Actions and Smart Verify can simplify compliance processes for both the borrower and agent. When a credit provider receives word that a borrower has gone active duty in the military, they need to adjust the credit rate to the limits allowed by the Military Lending Act (MLA) and Servicemembers Civil Relief Act (SCRA). But before the agent can drop the rate, they need to confirm that the borrower is actually on active duty. Normally, they would have to ask the borrower to send a copy of their active duty orders, putting an additional burden on the servicemember. But with LoanPro’s new data solutions, the agent can instantly confirm that the borrower is active duty through the Defense Department’s database, and then use automations to update the account and send a confirmation to the borrower, all in the course of the same short phone call.

Protecting your portfolio with ongoing automations

Even if an account looked promising at the outset, unforeseen risks are part and parcel of extending credit. Borrowers with pristine credit scores and healthy repayment histories can still fall on financial difficulties, putting your portfolio at risk.

That’s why Smart Verify gives you options for both automated ongoing monitoring. Rather than spending your agents’ time and resources repeatedly performing the same ad hoc checks, you can automate the process, checking third-party data sources for new information on the cadence you specify. For business clients, you can know if they are shut down, get a new UCC filed on them, get sued, or go bankrupt. For consumers, you can stay up to date with any deaths or changes in military status. When changes do happen, LoanPro will notify the appropriate agent or manager and carry out any automatic actions you’ve set up, like modifying an account to comply with SCRA or restricting further funding for businesses with liens.

See it in action

Smart Verify brings a lot of benefits to lenders and other credit providers, whether their customers are consumers, businesses, or both. If you’re curious about protecting your portfolio with Smart Verify, reach out. We’d be happy to show you how it works.