Equifax on Leveraging Verifications Amid Affordability Challenges

Equifax Vice President of Verification Services Shelly Nischbach made time for the Auto Remarketing Podcast to discuss how finance companies are sharpening their underwriting in light of the high inflation and interest rate environment they're facing. 

Nischbach also touched on how important it is for dealers and finance companies to put consumers into a vehicle and credit offering they can afford.

Q - How much are auto finance companies making sure their underwriting is sharp in light of the high inflation and interest rate environment that we're all facing?

A - We are always focused on the full lending cycle and the value chain associated with that cycle. The different macroeconomic environment certainly creates challenges that alter how all of our clients - banks,  credit unions, and finance companies -  look at their strategies for success.

So, this is the reason the conversation around using data and data-driven technology solutions in the lending process continues to evolve. We move beyond the typical benefits that we focus on like operational efficiencies, faster transactions, and instant scalability to one now where lenders are focused on innovation to grow their business while they're facing varied perspectives, as you said, on the environment around us. 

In auto particularly, lenders and dealers operate within the notion that they have to transform their business models to respond, and to stay relevant they need to find ways to harness data that will help them grow their market share, reduce risk, and increase conversions all while meeting that growing demand for a stellar customer experience.

That requires looking at the full lending cycle and looking at how they are adapting and integrating information in their loan decisioning solutions. That requires technology and data from external sources to get that full 360 degree view of their borrower at every touch point along their lending journey.

Q - Certainly, as you are articulated, dealers and finance companies do have quite a bit of data available to them to make decisions and mitigate risk. From your perspective, what might be the suggestions you could offer that could help them get all that information organized so it's most useful? 

A - When I think of this, I think, OK, first and foremost, what is the problem that my lenders are faced with? It really doesn't matter the size of the organization, the process of implementing new technologies is the same. It's time consuming, it's costly and quite frankly, it can be very disruptive. 

But as the ecosystem for lending evolves, digital and platform transformation is required. A key question is do lenders have the right plumbing in order to consume their data, effectively and efficiently? As they're addressing mounds of information, bringing all of this together from varied data sources isn't always simple, right? It's quite the opposite.

When you think about taking the next step and integrating third-party data into your decision process - it's quite daunting. Few banking institutions, or lenders, always have in-house talent required to integrate those tools and more importantly, extract the valuable and relevant insights from the data. 

Fortunately, The Work Number® gives our clients access to flexible data integration and data access capabilities. We have multiple delivery options that help clients quickly adapt and standardize their loan decision framework, making it easy to integrate  income and employment data. 

As financial institutions contemplate all of those data points in their risk models, they're left with many questions. How can I bring that data together with up-to-date information in order to give me that comprehensive view of my applicant? Once I have it,  how do I use it? How do I uncover insights to make sure that I'm making those best decisions and understand the full affordability at each individual consumer level. And while I'm doing this, how am I making those sound decisions, reducing my risk,  converting more loans, and, again, keeping that consumer at the core of all things.

Our cloud-based technology enables these things and enables credentialed lenders to provide that customer experience they've come to expect. It allows lenders access to give a quick and comprehensive overview, to be able to make decisions quickly and understand affordability by using varied data sets. By removing the data silos, technology helps eliminate the cumbersome nature of the process. 

Bringing these data sources from a cloud-based environment becomes something seamless and enables those lenders to combine data in new and different ways, unlocking insights and then ultimately giving that better experience to their consumers.

Q - You so eloquently described how critical technology is to harnessing all that data. Just how critical is it again to get people into a vehicle with auto financing that they can truly afford? 

A - I think about it in terms of transportation equity, right? Behind a mortgage, this is one of the largest credit needs a consumer will have. Auto lenders play an incredibly important role in helping consumers get into that new or next vehicle. 

This process often turns into a race between lenders who can approve the loan fastest, but success isn't just about speed, it is also about great offers and making sure that the underwriters are underwriting loans with a high degree of integrity.

By incorporating The Work Number and our income and employment data, credentialed auto lenders can unlock a new market of consumers that may have otherwise been overlooked. It may seem daunting to acquire new customers in today's increasingly competitive market but auto lenders can benefit by looking at multiple measures to understand ability to pay. They may need to incorporate additional layers of data, like employer provided income and employment.

According to some of our Equifax data nearly 20% of all consumers, within a subprime credit score, are financially durable. So this points to an untapped market of potentially attractive customers. So, the traditional credit score, while it certainly remains a strong indicator of creditworthiness, may not give the full picture as today's consumers may be more complex than just that three-digit score. 

Leveraging alternative data like income and employment in that decision process allows lenders to see a more complex picture of their borrower's ability to pay, which then, of course, broadens the pool of consumers for lenders, leading to more conversations, and more loan conversions.

Q - What's all on your radar to watch in the future? Perhaps it is a continuation of some of the information and trends you mentioned.

A - We never take our eye off of economic conditions and how our clients must continually adjust to those conditions in order to stay relevant and to grow safely. So to that end, I anticipate that our lenders will continue to look for ways to deliver a great customer experience while focusing on streamlining efficiencies that save them time and money. Lenders are going to look to find interesting ways to do things like be more financially inclusive.

Verifications of employment and income can definitely help provide that holistic picture that may show your borrower, who may have traditionally not qualified based on credit score alone, is actually a good candidate for approval. Another data-based example, of our 145 million current active employment records on The Work Number database, about 12%*, have either no credit file or are unscorable.

So using alternative data for socially responsible lending just gives our lenders another source to address those needs of relevancy, while helping them maintain or grow their competitive advantage.

*This excerpt was edited for clarity.  To listen to the conversation, visit the Auto Remarketing Podcast page. - Intensifying Verifications Amid Affordability Challenges - November 10, 2022

 *Equifax internal data study, 2022.