Why lenders need to automate income document verification

Never before has it been more important for lenders to process loan applications quickly. Growth, new customer acquisition in particular, is driven by a seamless and fast lending experience for borrowers, brokers and bankers.

Borrower and broker expectations are changing

The loan application process was something which applicants were previously comfortable taking up to ‘months long’, however is now expected to be completed in minutes as hopeful borrowers disrupt typical theories about customer loyalty by prioritising faster approval for a loan over many other things when deciding which lender to deal with.

With many lenders focussing their interest rates in favour of incentivising customers to seek a better deal by switching when they refinance, as opposed to using interest rates to reward existing customers, the so-called loyalty tax, it’s no surprise borrower loyalty is continuing to decline, making it more important for lenders to process loan applications quickly if they want to win new customers.

Hypercompetition is ripe across Australia’s lending market, challenging the feasibility of traditional loan application processes and lender reliance on manual handling for due diligence steps, such as income verification and document fraud checks, which ultimately determine how long it takes for a ready borrower to receive unconditional approval for their application (this timeline is often referred to as ‘time to decision’).

Using technology to grow

Using automation to do things better and faster is not a new phenomenon and it’s increasingly less risky for lenders as technologies become more mature. In fact, using automation to speed up simple and repetitive loan application processing tasks by removing manual intervention that slows down time to decision has become commonplace as lenders strive to compete and win. This goal method of processing applications faster without manual intervention is sometimes referred to as straight-through processing (or STP).

Whilst most lenders already use automation to remain competitive and reduce costs, there are two critical loan decision due diligence tasks that haven’t been able to directly benefit from scalable automation:

1. Income verification checks
2. Document fraud checks

The challenge with automating these tasks is related to the lack of standardisation for proof of income documents, which lenders rely on to adequately complete these tasks.

Automating income verification using documents

Lenders rely on income verification and document fraud checks to preserve the quality of their loan book, reduce poorly performing accounts and remain compliant.

Typical proof of income documents include payslips, bank statements and Tax Notices of Assessment (NOA). Loan applicants who are self-employed will often provide more complex types of documents to prove their income such as Business Activity Statements (BAS) and Company Tax Returns (CTR). Lenders rely on proof-of-income documents to assess an applicant’s ability to service the loan being applied for, whether it is an unsecured credit card loan or a secured mortgage loan.

The manual effort and time involved in performing detailed reviews of proof-of-income documents can threaten the competitive agility of lenders and impact the customer experience, which is why more lenders are choosing to use Fortiro Accelerate to process loan applications faster and automatically.

Document fraud and ‘liar loans’

Teams of people manually analyse and assess the contents of applicant proof-of-income documents in order to control credit risk as falsified and fraudulent documents, such as fake payslips and fake bank statements, often go undetected.

The chance of fraud not being detected during manual analysis and assessment of proof-of-income documents is concerningly high, as evidenced by UBS’s survey insights regarding the portion of successful borrowers, a staggering 37%, who report having made false representations on their mortgage loan application between July and December 2021.

Risks to lender reputation arising from rushed borrowers who lie on their loan application, most commonly by overstating income, understating living costs, overstating the value of assets or understating financial commitments, are increasing as the ‘liar loans’ market grows, placing pressure on lenders to find better ways of verifying income and detecting fraud.

UBS research suggests the ‘liar loans’ market has been propping up Australia’s banking sector since 2017 and whilst 70% of respondent borrowers to UBS’s recent survey, who had prior mortgage application experience, say the loan application process had become more difficult in their opinion it seems they aren’t lacking courage or creativity to make false representations to secure credit.

Fortiro Protect becomes a critical tool in any lender’s arsenal to protect themselves from liar loans and fraudsters.

Benefits of automating income document reviews

Without automation, lenders face a difficult choice: perform detailed, but slow document reviews – or – accelerate them by either increasing the team size of manual reviewers (costly) or reducing the checks performed and risking undetected fraud. Hence, the ability to automate these manual document reviews, specifically income verification and document fraud detection, is now becoming critical for lenders to achieve faster growth and reduce costs at the same time.

Fortiro

Whilst it hasn’t previously been possible for lenders to rely on automation to make both income verification and document fraud checks faster at scale, Fortiro’s unique approach to automated document analysis is helping more lenders across Australia to reduce time to decision without increasing credit risk.