Borrower Identification in Lending – All the Things You Should Pay Attention to

Blog Post Loan Processing & Underwriting

Proper borrower identification is a crucial part of any lending operation’s customer due diligence. No matter the jurisdiction, taking care of borrower identification safely and accurately will have an enormous impact on regulatory compliance as well as the overall portfolio health.

In addition, identification is the first step of real communication between the borrower and the lender. At this point, the user may still just close the browser tab and move on to a competitor. So you don’t want to be too invasive while obtaining the data needed for making an informed credit decision.

To what extent can borrower identification be automated

Advanced lending automation solutions like TurnKey Lender help achieve unmatched automation levels even when it comes to complex matters like borrower identification. That said, we prefer to go the extra mile to exceed the lender’s expectations. Here’s what we mean by that.

Our system’s state-of-the-art origination module allows lenders to fully customize the types of data they’d like to collect about their borrowers in the application form.

Loan application form editor

And once the data is collected, the system can perform the necessary checks on its own. Once the user information is collected, the platform will sync with the needed credit bureau, evaluate credit risks, and come up with a custom credit score backed by deep neural networks.

Automated borrower identification

Information lenders should consider obtaining from individual potential borrowers

First things first. As a lender, you need to establish if the person you’re dealing with is a real human being you can do business with. After years of work with lenders, we were able to distill the most important data one should collect about the potential borrowers or investors. The list below is by no means conclusive. But these factors are taken into account most often:

  • Legal name (including maiden or middle names if applicable)
  • Real permanent address
  • Telephone number and email
  • Date and place of birth
  • Sex, marital status
  • Nationality
  • Occupation
  • Position held and/or name of employer
  • An official personal identification number or other unique identifier contained in an official document with a photo (e.g. passport, identification card, residence permit, social security records, driving license)
  • Type of account and nature of the banking relationship
  • Signature

Once again, this list is in no way final and set in stone for all lending businesses. If you need to know something else when you’re just getting to know the potential customer – feel free to request more info. But keep in mind, that from the marketing perspective, you don’t want the initial form to be too long. Converting to become your client should be easy.

The information collected at this stage should be sufficient to let you make an initial assessment of a customer’s risk profile. Pay particular attention to the borrowers who are initially identified as high-risk profiles by your lending automation software. Analyze such applications with extra scrutiny and reach out to obtain additional information. For example:

  • Evidence of an individual’s permanent address
  • Personal references (e.g. from employers)
  • Social media accounts
  • References from other financial institution
  • Documents proving the source of wealth
  • Bank account statements
  • Verification of employment/public position held

To make the identification process more efficient and flexible, consider splitting potential clients into different borrower groups. These groups are most commonly divided by the size of the wished loans. So if the loan request does not exceed an established minimum, the required information can be reduced to a bare minimum. Thanks to this approach, innovative lenders are able to take a huge chunk of the market from traditional institutions. For example, this kind of flexibility is exactly how Kabbage managed to give out $6.5bn in loans over a very short period of time and become one of the biggest digital lending platforms out there.

Information lenders should collect about corporate (SME) borrowers

Sooner or later, pretty much any lender starts working with SME borrowers rather than solely individuals. And there are great returns to gain in this niche. But the risks may also be greater. So the risk analysis approaches should differ. To evaluate corporate borrowers, the following data is most often obtained:

  • The legal name of the company
  • Address of the headquarters
  • The mailing address
  • Contact telephone and email
  • Some form of official identification (e.g. tax identification number)
  • The original or certified copy of the Certificate of Incorporation and Memorandum and Articles of Association (or the document from your local authorities that proves the legality of the business)
  • The resolution of the Board of Directors to open an account and identification of those who have authority to operate the account (if applicable)
  • Data about people who have control over the business and the company’s/partnership’s assets, including those who have ultimate control
  • Information about managing partners (if applicable)
  • Data about trustees (if it is a unit trust)
  • Data about managing (general) partner where it is a limited partnership
  • Description of the legal relationships with other companies (if any)
  • A copy of the latest report and accounts (audited, if available)
  • Other relevant data about nature and purpose of business and its legitimacy
  • Data about people who are mandated to manage funds, accounts or investments without authorization, and can override internal procedures and control mechanisms

As we were saying, working with corporate borrowers may be significantly harder due to the amount of data lenders need to collect and analyze, but if this part of your business runs on intelligent loan origination software, this process too can become almost fully automated.

How to verify borrower information

If for some reason you’re not using a modern lending platform like TurnKey Lender to automate your borrower identification, first of all, get a free trial and check it out – it’s great. But alternatively, you can use one of these methods for verification:

  • Inquire for verification from a business information service, or from a reputable and known lawyer or accountant to confirm the legality of the documents submitted
  • Undertake a company search and/or make other commercial inquiries to make sure that the company has not been, or is not in the process of being, dissolved, bankrupt, wound up, or terminated
  • Put together an independent information verification process (e.g. access public and private databases)
  • Request bank references
  • Visit the corporate entity (when it’s not an overkill)
  • Contact the company representatives by telephone, mail or email

Final thoughts

As the lending industry undergoes a massive technological makeover, borrower identification changes too. And the nature of these changes lays in simplification and automation. People get more and more open about their private lives online and government databases get equipped with modern APIs. These factors among other help lenders make better and faster decisions. As a result, more of the safe loans are approved and the interest rates go down.

Lenders are just learning to rely on technology in highly sensitive matters like credit decisions. But from numerous examples of TurnKey Lender’s clients worldwide we can see that in case of lending, technology does make the life of both sides better.

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