How enhancing affordability leads to higher profitability

There is a simple way lenders can increase their acquisition of profitable customers at the same time as improving responsible lending – by enhancing affordability assessments with granular, configurable data. 

If lenders had the right data, they could increase the volume and potentially the competitiveness of their quotes and get more, and better, offers in front of their ideal customers. 

So what’s stopping them?  

Limited options 

Even after the hard work of finding an ideal customer, the competitive nature of consumer lending, particularly when acquiring through comparison sites means the lender not only runs the risk of not returning an offer to an applicant, but also that offer not being competitive enough, or even worse, declining the applicant at full application. 

The problem is, lenders are hampered by the cost, speed and quality of data available to them. 

Affordability currently relies on things like ONS, CATO, Open Banking, and debt-to-income ratios, each of which have their unique values and problems, but they’re not big enough problems for the incumbent data providers to solve. They’ve made plenty of money from the status quo, so there has been little appetite for product innovation in affordability.  

But sticking with the status quo comes with its own problems: 

• CATO can be cost prohibitive with 70% coverage at best. Additionally the lack of explainability can cause problems later in the decision flow, given the nature of the RAG type offerings.  

• ONS offers full coverage but when lenders perform detailed checks at full application, they often realise the data has been inaccurate for a particular customer, or the customer made a mistake on their application form leading to a decline or a refer.  

With the increased pressure on household budgets, the necessity of affordability assessments from the regulator, and growth in affordability-related complaints, the ability to clearly explain decisions with granular metrics is becoming more and more of a financial requirement. 

What could lenders get if they had better affordability data? 

With more accurate data and robust affordability checks, lenders could: 

1. Expand to customers they wouldn’t have had confidence in previously; and gain a competitive edge over other lenders fighting for best applicants on comparison sites. 
2. Accept the customers they are currently declining at quote stage because of the lack of personalised affordability models.  
3. Avoid pre-approving customers who may fail affordability later in the journey, reducing manual underwriting and the reputational damage that comes with declining pre-approved customers. 

How richer data leads to better outcomes for consumers 

It’s a simple swap set.  

With a more accurate and more holistic picture of the consumer, those who have poor quality data in existing affordability products can get greater access to credit, and reduce friction in exploring the credit options available to them.  

All this while protecting customers, either saving them from the frustrations of pre-approved offers that ultimately lead to rejections, or worse lending to those who can’t afford it. 

The more accurate the assessment, the less likely it is for them to be declined post-click-out and the more competitive a lender’s brand will be. 

Complementary data  

There is no solution that can claim to offer the most accurate assessment for income and expenditure. This is why we recommend to our clients that any new data should be complementary to their existing credit information providers.  

Enhancing affordability with complementary data supports more effective assessments for consumers and lenders and reduces the decline rate.  

However, the problem with introducing another data product to the mix is the friction of application and the uncertainty around the benefits of a new data set. 

This is why we made sure that our Affordability Engine addresses these obstacles. 

Infact is a trusted partner to a number of consumer lenders because our products: 

• Fit into existing processes and methodologies.  
• Come with a retro to help lenders understand the benefits of the data and how it can be applied into the decision process. 
• Are explainable, intuitive and complementary to existing processes. 
• Support lenders evolving how they approach affordability assessments such as introducing a triage approach to responsible lending decisions. 
• Offer a flexible, frictionless API for lenders to share applicant information and generate a personalised modelled affordability output. 
• Offer an easy win to access valuable data with a high net benefit business case that results from a low time to value realisation vs. the cost to integrate.

Building a new bureau 

As an authorised CRA, a key result for us is an increase in responsible lending to underserved customers. We have already helped social lender Fair For You increase their acceptances by 12%, reduce their referrals by 19% and increase interest revenue by 13%.  

This is the broader purpose of Infact and our affordability work helps introduce lenders to our ultimate vision: To become the first modern, real-time CRA to sit alongside the three traditional bureaus and to empower better lending with accurate real-time credit data.  

And improving affordability assessments is just one way we are helping lenders lift profitability at the same time as improving outcomes for consumers. 

Infact is Authorised and Regulated by the Financial Conduct Authority as a Credit Reference Provider and is committed to continuing to innovate and deliver in the consumer credit information market.

Infact Systems Limited (“Infact”) is registered in England and Wales (company number 14032664), at 2-7 Clerkenwell Green, London, EC1R 0DE. Infact is authorised and regulated by the Financial Conduct Authority (FRN: 978629)