Managing Credit Risk and Offering a Better Experience: Plaid’s New Income Verification Offering

Consumer lenders face considerable challenges making loan decisions in this volatile and uncertain economic environment. While traditional credit data is certainly foundational in assessing creditworthiness, other sources can provide critical real-time insights that this data lacks. In a recent Aite Group survey, nearly half (48%) of consumer lenders indicated that they are somewhat less or far less confident in using traditional credit data for loan decisioning. These lenders are already using a host of alternative data sources to fill some of these gaps, such as alternative credit scores, account transaction data, and data on alternative or subprime loans. When I discussed these findings with survey participants in more detail, many noted a critical—but unfilled—need: being able to quickly confirm a loan applicant was employed and their income, regardless of the type of job held. These lenders also noted that employment and income information would be useful on an ongoing basis so they could proactively reach out to borrowers in repayment or with an open credit line if they observed a reduction in income or job loss. Alternatively, a boost in salary could present new cross-sell opportunities.

Data aggregators and furnishers are hearing this call, and rapidly developing new solutions to fill this gap. For example, Plaid just announced a new product—Plaid Income—which will facilitate the verification of employment and income in two ways. A lender can request that a consumer link to their payroll provider account and grant access to certain information, similar to the way in which a consumer permissions access to a bank account via Plaid currently. Or, the consumer can upload relevant documents such as paystubs, W2s, and 1099s to a Plaid portal which then ingests and shares relevant data with the lender. Importantly for many consumers trying to piece together income from various sources, this new offering will support verification of all types of employment, from gig work and freelancing to full-time positions.

A majority of leading consumer lenders report using at least some form of alternative data for loan decisioning today, with many expecting to expand such use in the future. As lenders seek critical information to manage credit risk while also trying to provide a better customer experience, new offerings of this type are likely to be in high demand.

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