The future of digital finance is evolving, and it’s happening just in time
Over the last few years, the move to digital finance has accelerated. Consumers are adopting emerging financial apps and services, empowering them to take control of their financial health. The same technological leaps that are enhancing payments, financial management and banking are also changing lending for the better, and they couldn’t have come at a more opportune time.
That’s because consumers are feeling the impact of economic uncertainty and worry about the effect that it may have on them. In a 2023 survey, Mastercard spoke to 7,600 consumers across the United States, Canada, the U.K., Australia, France, Germany and Spain about their recent financial experiences.
Over 89% of respondents say that they’ve been negatively affected by economic uncertainty.
At the same time, whether they’re making big purchases like homes or handling everyday needs like transportation or food, consumers worry that they won’t be able to borrow what they need.
Open banking data can help consumers get to the bottom of these challenges.
For starters, open banking allows consumers to permission access to their bank account, allowing lenders to augment their credit decisioning models with real time information that gives a better view of the consumer’s ability to repay a loan. That’s important because 95% of those who have been denied a loan in the past two years want more insights into the lending process. People are willing to share secure access to their bank account data, if it means better interest rates, instant approval for a loan, improved chances of being approved for a credit card or to secure an increase in the limit on a credit card.
Lenders benefit, too. By augmenting traditional credit models with open banking, they can improve operational efficiencies, lower costs and create innovative new lending models that can give consumers the credit they deserve, when they need it.
The world is going digital
The data revealed in Mastercard’s Lend Report shows global consumer support for a more transparent, digital-first approach to lending. Read more about the future of lending in Mastercard’s Lend Report here.
Give consumers a priceless asset: more time. Endless errands, work tasks and countless obligations big and small chip away at their free time and fill their schedules. Applying for a loan shouldn’t add to that.
To power a faster, better mortgage experience for consumers, Freddie Mac’s Loan Product Advisor asset and income modeler (AIM) continues to evolve, now including paystub data in addition to direct deposit data for income assessment. These cost-saving efficiencies provide increased rep and warrant coverage while continuing to meet Freddie Mac’s strong credit underwriting standards.
Open banking drives new mortgage capabilities
Using consumer-permissioned data from trusted third-party providers like Mastercard (with some services delivered through Finicity, a Mastercard company), direct deposit plus paystub increases the confidence in income calculations by matching digitized paystub data to borrower direct deposit history sourced from trusted providers.
Mortgage Verification Service (MVS) supports this new AIM capability by providing direct deposit transaction data paired with digitized paystub data to fuel this innovative, data-driven approach. It identifies the income stream that matches the paystub, delivering accurate risk assessment results.
Assets, income and employment verifications are vital to mortgage lenders looking to verify borrowers’ finances. However, between unreliable results, miscommunications and paperchases, verifying assets, employment and income can be cumbersome. MVS helps borrowers get faster approvals with fewer conditions up front, allowing them to close and move into their homes faster.
MVS can help lenders:
- More easily assess borrower capacity/automate income calculations.
- Reduce frustrations caused by paper submissions and re-asking for documentation to verify assets, income and employment.
- Remove subjectivity and manual errors in processing and underwriting.
- Lower risk and probability of fraudulent activity.
- Increase referrals by providing a better borrower experience.
AIM leverages consumer-permissioned data from open banking providers like Mastercard to better identify pay deposits using accurate and verifiable data that meets Freddie Mac’s underwriting standards. Lenders can automate the manual processes of assessing borrower assets, income and employment. This can improve the success rates for identifying income and employment by reading information provided on a paystub and verifying income transactions within a borrower’s bank account.
“Partnering with Mastercard ensures we can deliver the best tools and insights the industry has to offer,” said Daniel Miller, Freddie Mac Single-Family Director of Strategic Technology Partnerships. “This collaboration will assist lenders with quickly and easily obtaining income verification.”
How it works
Previously, direct deposits to a consumer’s bank account would qualify for rep and warrant assessment. With enhanced direct deposit and paystub capabilities, a borrower or a loan officer can upload a paystub and the technology will match the data on that paystub with the deposits from the borrower’s asset report, boosting the rep and warranty success rates and income gross-up.
The asset report can include 24 months of direct deposit transactional history and also includes income streams identified by the open banking platform. Now, with the added paystub capability, Mastercard can add a paystub report that can provide greater success assessing income through direct deposits.
The paystub report generated through MVS has two sections; the top section includes digitized paystub information. The bottom section is up to 24 months of income stream credit transactions only. These income streams are reconciled with the deposits shown on the asset report.
As an added bonus, the reduced cost of implementing MVS is reflected directly in the balance sheet. On average, up to 7 days can be cut off the processing time for each loan. The hours formerly spent by loan officers chasing down borrower documents are invested in higher-return work activities such as marketing and sales to drive additional loans. The new AIM capability will be available to Freddie Mac-approved Sellers using Loan Product Advisor beginning June 7, 2023. MVS is available via direct integration and ecosystem integrations including SimpleNexus & ICE Technology and Order Reports Service in the Client Hub today.
Want to elevate your efficiency while enhancing the customer lending journey? Get started today.
Loanspark partnered with world-leading tech brands Mastercard, Middesk, and LexisNexis to enhance, speed up, and secure service delivery for its co-branded partners and their business customers.
A partnership with Mastercard enables Loanspark to leverage Mastercard’s open banking platform, with some services delivered through its subsidiary, Finicity, allowing businesses to establish direct consumer-permissioned connections with their customers’ bank accounts. This enables SMB owners to submit financial information securely and easily while focusing on running their business, and in turn allowing Loanspark to make better credit decisions by quickly verifying the borrower’s financial details. Accurate borrower information minimizes the lending risks and increases accuracy and speed of funds for SMBs.
“Small businesses are increasingly looking for greater choice in how they borrow, pay and manage their finances. Partnering with organizations like Loanspark provides small businesses with a streamlined process to gain access to capital and putting their financial worries at ease.”Andy Sheehan, EVP, US Open Banking, Mastercard.
Read more about this partnership here.
Today, Mastercard is announcing that it has added advanced analytics to its Open Banking platform delivered by its subsidiary, Finicity in the U.S. These analytics can help lenders manage their risk profiles while also adding diverse and inclusive credit models for small business loans as well as ongoing monitoring and expansion of credit card lines.
“Small businesses are increasingly looking for greater choice in how they borrow, pay and manage their finances,” said Jess Turner, Mastercard’s Executive Vice President for Global Open Banking and API. “Open Banking provides lenders the owner-permissioned data and advanced analytics they need to offer more choice in financial services to small businesses, which are the backbone of the American economy.”
Read more about Open Banking for Business and how we’re innovating with our partners here.
With the addition of owner-permissioned data from Mastercard’s open banking platform, upSWOT now gives small and medium-sized businesses (SMBs) the ability to link financial data to 200 API-enabled apps. These include accounting, enterprise resource planning (ERP), payroll, ecommerce, Customer Relationship Management (CRM), marketing, and POS business applications.
With this partnership, Mastercard and upSWOT will be able to provide SMBs with a smooth and effective approach to run their operations.
Read more about this innovative partnership here.
OPEN, EMBEDDED, MODULAR, AND ON A PLATFORM
The rapidly-evolving space of open banking, embedded finance, modular banking and banking as a platform is driving innovators with an API mindset, and the future will see more and more public-facing consumer brands embrace APIs across many industries.
A new report from Mastercard Data & Services looks at the relationship between BaaS and open banking, an aggregated approach to BaaS as it evolves into hosted marketplaces and ecosystems and how banks and fintechs can enable BaaS at scale.
Read the full report here.
Getting a mortgage has traditionally been a long and challenging process. Customers have had to dig up paystubs and bank statements to hand off to loan officers. Loan officers and processors then manually uploaded the paperwork into the lender’s database for review and then hope for the best. When a borrower sent an incomplete document or a processor made an error in data transposition, it could delay the loan approval process by days, even weeks.
But in today’s climate of rising interest rates and low inventory, those long wait times have gone from just annoying to potentially costing house hunters the chance to close on the homes they desire. For example, serious buyers should arrive at each showing with a pre-approval letter in hand, in order to be competitive. Even those just browsing will need to move quickly if the right house comes up. And those refinancing—yes, even as rates are climbing, there are borrowers who could save by refinancing—must act fast to nail the lower rate in place.
These inefficiencies and delays were troubling to Guaranteed Rate, who, as the second-largest retail lender in the U.S., has been helping to make the mortgage process easier since 2000.
Two years ago the company decided to look into taking its underwriting process digital. There was a lot on the line. The mortgage industry sets a high bar for the financial data used to underwrite loans, requiring documents from verified institutions. What’s more, borrowers share some of their most sensitive financial information to secure a loan. Guaranteed Rate was committed to protecting the consumer’s privacy and financial data.
What Guaranteed Rate came up with is a platform that enables customers to go online or use a mobile app to grant permission for the lender via a third-party service to access their financial and payroll accounts. That lets the lender quickly and accurately verify assets, income and employment.
If everything checks out, the lender can give the borrower a quick thumbs-up. In some cases, that’s all the data the lender needs for the mortgage to go forward. This digital verification process can cut up to eight days off the underwriting process. “From an efficiency standpoint, our underwriters don’t have to manually verify income and assets for every loan, so we can scale up,” says Brad Lando, Senior Vice President of Strategic Development, Guaranteed Rate.
The company protects borrowers’ sensitive data by using Mastercard’s open banking platform. When a borrower grants a lender access to their data, Mastercard’s technology issues a token. The token allows the lender to see the data, but never house it. Nor does the lender receive login credentials. The risk of those credentials being hacked during the mortgage process is reduced, and the customer gets a better experience.
Another advantage is that borrowers can grant ongoing account access for prolonged periods of time, such as 60 days. That means the lender can refresh the data as needed without having to go back and ask for renewed permission to track down more documents, alleviating the burden on the consumer. “It’s cut down on risk, in addition to bringing a better customer experience,” says Lando.
Loan officers and processors have been quick to adapt to this digital-first method. The automated verification system allows them to sign off faster on more straightforward loans, which frees them up to focus on the more complicated ones.
And while there’s still some trepidation among consumers, they’re also starting to see the benefits. When offered a choice to manually upload their documents or grant permission for the lender to pull their information, 83% of borrowers who chose the digital path said their loan processing time was shorter than they expected it to be, or that it met their expectations.
As digital verification becomes more prevalent, the mortgage process will speed up, from application to close. And that means more people can look forward to a smoother process on the way to landing in the homes they want to live in.
Revised July 1, 2022
This week, Freddie Mac announced the latest Loan Product Advisor® (LPASM) enhancement that includes on-time rent payments as part of the company’s purchase determinations.
Mastercard, a designated third-party service provider for Freddie Mac, is excited to provide two reports for lenders that include rent payment history.
Our Mortgage Verification Services (MVS) product provides the consumer-permissioned data necessary for LPA’s rent payment history credit assessment with no setup required for the lender. If you’re already using an MVS asset report, you will automatically send the data necessary for a rent assessment.
Mastercard’s open banking platform (provided by Mastercard’s wholly-owned subsidiary, Finicity), is a designated service provider that offers a digital, single-vendor solution for assets, income and employment through both Freddie Mac and Fannie Mae. By automating the asset and income assessment process, we can also provide transaction data for rent payment history, direct deposits and 10-day pre-closing reports for employment verification. These solutions help to streamline lenders’ loan approval process and increase homeownership opportunities to qualified borrowers.
Rent Payment History in Lender Credit Decisioning
By virtue of sheer numbers, millennials are defining the trends of today’s housing market. The age group now accounts for 43% of all homebuyers so far in 2022, according to a new report by the National Association of Realtors. With approximately one-third of this demographic being credit invisible, there’s an opportunity to incorporate additional data sources to help establish creditworthiness and the ability to repay the loan. The integration of rent payment history into the mortgage lending process can be helpful to first-time homebuyers who have a strong track record of on-time rent payments, creating a new path to homeownership while still promoting safe lending.
In addition to this week’s announcement from Freddie Mac, Fannie Mae has included rent payments in their automated mortgage credit decisioning process in Desktop Underwriter® (DU®) since September 18, 2021. Fannie Mae identified recurring rent payments in bank statements and transaction data as a factor which could deliver a more inclusive credit assessment.
Fannie Mae said 17% of applicants who have not owned a home in the last three years and who did not receive a favorable mortgage recommendation could have instead received an “approved” or “eligible” recommendation if their rental payment history had been considered.
To take advantage of the rent payment history feature, Mastercard provides a Verification of Asset and Income (VOAI) and a Verification of Assets (VOA) report through its Mortgage Verification Service (MVS) that includes 12 or 24 months of transaction data that Freddie Mac and Fannie Mae can use to identify rent payment history that may provide a more favorable credit assessment.
If they are using the VOA report, lenders have the freedom to access either two or 12 months of data to satisfy their own underwriting requirements. The reports can be called with a direct API or are available currently in ICE Encompass and Encompass Consumer Connect, as well as the SimpleNexus mortgage point-of-sale (POS) platform.
Integrated with Freddie Mac and Fannie Mae Systems
Mastercard is a service provider for Freddie Mac’s automated underwriting system, LPA, which automates the assessment of borrower assets, income and employment using LPA asset and income modeler (AIM). By leveraging the expertise of service providers, AIM helps to deliver a simpler, more efficient loan origination process.
Fannie Mae’s DU validation service also accepts our mortgage verification services to independently validate borrower assets, income, and employment data—providing Day 1 Certainty® on validated loan components. By digitally validating secure third-party data through DU, you can help eliminate the paper chase and help get your borrowers approved quicker.
Learn more about Mortgage Verification Services here or request a demo from one of our open banking experts.
Small-to-midsize business (SMB) owners have had to pivot and adjust to the new realities of the economy, throughout the pandemic and beyond. Implementing new business models, investing in PPE and managing employees all come with additional costs, in a business environment that’s already rife with inflationary pressures.
Managing these challenges takes every available resource, and owner-permissioned SMB open banking data is powering the financial management apps and services that owners are embracing to improve their business operations. According to Mastercard’s Rise of Open Banking Small Business report, connecting accounts is the main driver that provides the insights and analytics that owners are looking for to help tackle critical business tasks. Ninety-six percent of owners are currently linking their business financial accounts, taking advantage of fintech apps and services that leverage open banking data to generate crucial information and insights for their businesses, helping to improve decision-making. The top reasons for connecting accounts are:
- Receiving payments from customers (75%)
- Banking (73%)
- Billing/invoicing (73%)
- Paying bills/expenses (73%)
- Accounting (73%)
- Cash flow management (72%)
With all the benefits of linking accounts, fintech innovators have a window of opportunity in the SMB space to improve the connection process:
- Reducing time for cross-platform verification
- Making it intuitive for SMB owners to link their accounts, or communicating how to link accounts
- Utilizing UI that auto-populates routing and accounting numbers
- Utilizing account owner verification to mitigate fraudulent accounts
Even with the understandable adjustments that it takes to press forward into a new era of digital business and financial management, the desire to adopt is strong in the SMB sector. Owners want to digitize their businesses to help prevent fraud, automate processes and share data and insights across apps.
Linking Accounts Generates Real-Time Financial Insights
Despite rising fintech use, 94% of small business owners still encounter financial pain points. Many of them cite financial management as a major source of stress.
Owners are seeking solutions that can help them with financial management to address these pain points. They’re looking for better ways to harness their business’s data to get a holistic view, optimize financial management and inform business strategy.
This is where SMB fintech services providers can step in and provide solutions, partnering with SMBs as they push forward into the new digital economy. Owners are open to receiving help. Sixty-three percent are looking for help with financial planning for their business, and 85% want the kind of custom financial recommendations that come from linking accounts and sharing open banking data.
The top driver for owners linking accounts is improvement in business decision-making. This comes directly from financial management apps and services. Real-time data paired with AI, machine learning and analytics can have a powerful impact on an owner’s speed of decision-making and action, allowing them to either take advantage of opportunities or avoid costly mistakes.
Better data and better decisions naturally feed into the rest of the top-three SMB owners’ concerns: saving time and improving financial health.
How Small Businesses are Using Open Banking Fintech Apps and Services
According to Mastercard’s report, banking is the top use case for small businesses, once they link their accounts. Depositing checks, paying bills and transferring funds are core, everyday needs that SMB owners are currently using fintech to accomplish.
Billing and invoicing can be streamlined and automated with fintech, and small businesses want this. Sixty-one percent of small businesses are already using fintech to do so. When routine tasks can be handled in the background by apps, owners can move more pressing concerns to the forefront. Growing, scaling and developing products or services can be given the bandwidth they deserve.
Sixty percent are using digital apps and services for cash flow management. With real-time data from linked accounts, owners can pay bills strategically, while making sure they can pay vendors, employees and themselves.
While the number of SMBs leveraging fintech apps is currently in the 50-60% range, the Rise of Open Banking study found that the number who want to use digital apps and services powered by open banking is over 90% for the majority of use cases.
The 31.7 million small businesses in the US are looking for more choice in financial services. They’re willing and ready to adapt to the digital future, and are looking for innovators that provide solutions to help them make better decisions.
Mastercard’s “always on” platform means maximum connection uptime and the highest quality data for insights into the financial health of a small business. Read the full report here to see details on the solutions small businesses are looking for from financial service technology.
*Some open banking services are provided by Mastercard’s wholly owned subsidiary, Finicity Corporation.
According to a recent study from Mastercard, consumers say obtaining a mortgage is a serious pain point in an already painful homebuying process. The survey shows that 89% of homebuyers find the mortgage process to be equally or more stressful than the homebuying experience.
Borrowers whose lenders used digital mortgage verifications were less likely to say the loan process was the most stressful part of buying or refinancing a home, and 83% of respondents using digital verifications said their loan processing time was shorter than expected or met their expectations.
As a designated third-party service provider of Freddie Mac, Finicity, a wholly owned subsidiary of Mastercard, offers an integration of its open banking data and Mortgage Verification Services (MVS) with AIM that allows clients to automate the capacity assessment using consumer-permissioned data, direct deposit account data and work history. In the case of income, lenders can now look at direct deposit history to verify income.
Click here to read the MReport article by Andy Sheehan, EVP Open Banking about how Mastercard’s open banking platform (provided by Mastercard’s wholly-owned subsidiary, Finicity) is moving the mortgage process into the digital future.