Above and beyond any other process, verifying a borrower’s identity is a near-universal practice to avoid business risks – auto lending is no exception. The differentiator for how many customers will complete transactions is precisely when and how lenders complete the verification process.
Forbes has reported that improving digital account opening was a top priority for banks looking to implement or replace technology over the past several years, closely followed by loan origination process improvements and CRM ugrades. However, one in five financial institutions were found to have a digital account opening process exceeding ten minutes.
Evidence from BAI suggests that only 60% of online customers looking to open accounts online actually followed through with doing so. Outdated, branch-biased verification on the part of financial institutions is one of the major reasons for this drop-off rate.
With the end goal of making transactions faster and easier for customers, there are several verification steps to consider.
You have three ways to handle this identity verification process in your application or loan origination system (LOS).
This approach to buyer ID verification is slow and requires considerable employee time. In 2020 and beyond, an entirely manual process to ID verification risks making customers (and dealers) ask unpleasant questions such as “why are you making me fill in a paper form?”
Hybrid ID verification
The hybrid process combines digital and manual activities. For example, you might have a website where borrowers can submit a photo of their ID. Next, a person on your staff manually reviews the image and compares it to the information provided on the application file.
A digital approach is the fastest way to manage ID verification, meaning minimal effort for the customer and no work burden on the dealer to complete the transaction. An example of this approach would be the borrower simply taking a photo of their ID with a phone and uploading to the dealer’s system.
Based on our work with multiple lenders, we encourage all our customers to adopt a fully digital process for ID verification. With the help of third parties like Instant ID verification, you can expedite the process and don’t need to worry about building all of the infrastructure yourself.
Where’s the buyer based?
Once you’ve verified your borrower’s ID, your risk models may recommend residential address verification as well. Generally speaking, this type of verification is most common for sub-prime and lower credit-quality borrowers.
As with ID verification, there are third parties that can help with this process and three ways to put this type of verification into operation: manual, hybrid and digital. Given the high perceived sensitivity of some popular address verification methods (for example, “upload a bank statement”), we recommend using a fully digital process to put users at ease. Manual process steps also increase the chance of an information security incident.
What’s the buyer’s income status?
Lending to consumer borrowers in the digital age requires objective information; the days of basing underwriting decisions on a close relationship with a bank manager are long gone. Compared to other verification processes, this type of verification holds the highest risk of abandonment.
Income status documentation includes a lot of highly personal information, such as Social Security Numbers and annual incomes. Many consumers in the digital era are wary of handing over personal information for fear of it being used to commit fraud or identity theft; the likelihood of this is higher if the information is requested too early in the onboarding process. On the other hand, this is valuable information for lenders and is a vital part of underwriting and risk management.
To keep lenders happy as well as avoid borrower frustration, it’s critical to make this process as easy as possible. We recommend two process improvements:
- Leverage third-party data sources and services to easily collect and process customer information and automatically check its accuracy.
- Decide on an automated digital strategy for a long-term, measurable means of both speeding up your verification processes and making adaptations with minimal outsourcing required.
As with the other processes, you have the same three choices on how to approach this verification activity: manual, automated, and hybrid. There are specialized providers, such as the CCC Verify and The Work Number, which can help you to expedite the process.
Get confident in your verification process
Using dedicated third-party services to improve your verification process is one of the best ways to speed up the quality and speed of your lending. However, there’s a cost when you decide to outsource these functions, and it’s often more challenging to have confidence in these systems because they often appear to be a “black box”— a system with limited transparency over its inner workings.
To solve this challenge, we recommend using these due diligence processes upfront to shortlist vendors that may prove a viable option for you.
- What are the data sources you use in your system? How often are the data sources updated or verified?
- What are the shortcomings of your income and employment databases?
- Does the system provide a confidence score or other indications regarding the quality of data provided?
In our experience, there are two ways to structure a relationship with verification lenders. A direct relationship gives you a high level of visibility into the vendor’s operations, with the trade-off being that you need to take on the vendor selection and management activities. Alternatively, you may ask your loan origination provider to manage the verification data providers on your behalf.
Where to start
There are many moving parts when it comes to improving your verification processes. For example, a lender specializing exclusively in high volume sub-prime customers will need a high quality, automated verification process simply to avoid the amount of manual work required to filter through easy declines or falsified information.
However, your situation may be different. Contact White Clarke Group today to request a free review of your verification processes so we can help you can identify quick wins and close more deals.