Create seamless digital loan experiences with advanced verification tech

This article first appeared in the April BAI Executive Report. Gain more insights into the value of building banking relationships through lending in that issue, Executive Report: “Innovations in lending services.”

Lending has undergone a significant transformation. The rise of technology and the growth of online lending have given borrowers a wide variety of options to choose from, leading to an increasingly competitive landscape. While this shift has democratized access to credit, spurred innovation and driven down costs for borrowers, it’s presented opportunities, challenges and risks that lenders must navigate with care.

The shift toward digital lending has brought about faster, more efficient and easily accessible lending options. However, it has also paved the way for widespread fraudulent activities. The fraud risks lenders face seem endless, from account takeover to synthetic identities. And although protecting against fraud is paramount, maintaining compliance with AML (Anti-Money Laundering) and KYC (Know Your Customer) requirements is critical.

Meeting the demand for quick, easy borrowing experiences while protecting against fraud and maintaining compliance is a tall order. Overcoming this collective challenge hinges on an effective digital identity verification strategy and the right technology, but it begins with a solid understanding of what today’s consumers want and expect from a lender.

Overcoming the ultimate challenge: shifting consumer preferences

The rise of digital has significantly impacted consumer expectations, especially regarding borrowing. IDology’s Annual Consumer Digital Identity Study showed that 18 million Americans signed up for an online lending account in 2022. And in 2023, 82.1 million U.S. consumers used buy now, pay later, indicating similar growth in alternative lending.

In a time of rising interest rates, it may seem that consumers would borrow less, but new FDIC data shows the year-over-year increase in loan balances is the second largest in more than 30 years. The opportunities are abundant for lenders who can deliver a seamless borrowing process.

At the same time, consumer expectations vary across generations, and lenders must understand and meet the needs of different age groups. While common logic may dictate that younger consumers are savvier in the digital environment, a recent study found that 78% of consumers, regardless of generation, prefer to bank digitally. The generational difference lies in how they choose to bank. Younger generations focus on ease of use, speed and mobile account generation, while older demographics are more security-focused and prefer using a computer. Fifty-two percent of consumers aged 18 to 24 report using a mobile device when creating an account online, while a computer is the device of choice for 42% of those aged 65 to 75.

Lenders must also consider shifting consumer concerns around data privacy. Consumers know they must take steps to protect their data. But they place most of the responsibility for personal data privacy squarely on businesses. This is particularly true of lenders since they collect and manage standard personally identifiable information (PII) and sensitive customer financial data. Consumers want to ensure their data is not misused. IDology’s identity study found that 65% of consumers showed concern over companies collecting data without their permission, and 90% support new privacy regulations at the state or federal level. Lenders must find a way to collect only the data necessary to stay compliant, foster consumer trust and minimize friction.

How advanced verification powers lending innovation

So how can lenders do more with less data and deliver seamless digital experiences that exceed borrower expectations without increasing the risks of fraud or noncompliance?

The solution lies in rethinking digital identity verification. Meeting modern demands requires digital identity verification that:

Relies on multiple layers of data. From lead evaluation to account origination and every transaction that follows, differentiating a trusted borrower from a fraudster requires a solution with multiple intelligent layers of verification built in. Lenders must be able to access enough data to identify if and when a borrower’s information or behavior is unusual. While a social security number is often the linchpin for rooting out potential fraud threats, solely using a single data point isn’t enough.

Technology that can look across multiple data sets is critical. With data diversity from several authoritative sources, lenders can build an accurate picture of legitimate customers before taking them through the credit underwriting process and origination. A data-diverse identity verification solution can quickly verify consumer identities without collecting excessive data by analyzing readily available but less invasive information, such as IP addresses, phone numbers and email addresses. A “soft” KYC check performed before a fuller check or for authentication after initial onboarding allows lenders to evaluate risk while only asking consumers for PII they deem less sensitive.

Offers visibility into cross-industry consortia data. Fraud, particularly synthetic identity fraud (SIF), moves between industries indiscriminately. A consortium fraud network enables different institutions to benefit from fraud data and learnings elsewhere in the ecosystem, securing the whole network more effectively. Utilizing consortia data amplifies real-time fraud intelligence between companies in the network anonymously, giving lenders insight into fraud threats trending in other industries.

Combines AI with human fraud expertise. With its ability to scrutinize vast volumes of digital data quickly, AI can automate the discovery of threats for faster, enhanced decision-making—but it’s not foolproof. Inherently, AI alone can’t provide the transparency lenders need to explain to regulators why a decision was made, produce an auditable trail showing policies were followed during onboarding and better train the machine learning models that power it.

The combination of AI and human fraud expertise eliminates these issues. Fraud analysts provide oversight and closed-loop transparency for continuous improvement and optimization. Through partnerships with software developers, they feed fraud intelligence into product innovation roadmaps, ultimately empowering users to prevent more fraud from entering their system.

Fraud analysts are also invaluable in providing first-hand, expert insight into the fraud they’re seeing in the marketplace and best practices for preventing it in the future. As part of a layered approach, fraud analysts monitor transactional activity across a vast consortium network of customers, giving users a cross-industry view of fraud and fraud specific to their business so they can make more informed fraud prevention decisions.

Accelerating approvals, unlocking growth with seamless verification tech

Digital lending has revolutionized the financial landscape, presenting lenders with unprecedented opportunities for growth. However, lenders must understand what consumers expect and meet the diverse needs of borrowers spanning different generations without lowering their defense against fraud or compromising compliance.

This balance of security and convenience remains the ultimate challenge, which begins during onboarding. Layered identity verification solutions are a critical lending technology that can empower lenders to evaluate consumer risk while staying competitive. With the right solution in place, lenders can deliver a seamless and secure borrowing experience that builds trust and leads to loyalty for long-term growth.

Joel Sequeira is Director of Product at IDology, a GBG company.