Trends in Credit Underwriting
Trends In Credit Underwriting panel at LendIt USA 2015 with Jeff Knott, of Equifax; Angela Ceresnie, of Orchard; Sasha Orloff, of LendUp; Tim Van Tassel, of FICO; Louis Beryl, of Earnest; and moderator John Hecht, of Jefferies.
In marketplace lending the pace has increased. Thanks to technology, borrowers will have access to 500 billion of loans over the next few years. Sasha was very excited that technology is improving access to data and lowering the cost of that access. He believes that the traditional credit bureau works very well, but In today's regulatory environment underwriting is far more exciting than ever before. You have the ability to separate prime more effectively and we are just at the cusp of when it becomes very exciting.
Angela explained the challenge in underwriting for banks being getting money to borrowers as soon as possible, but making sure the underwriting is sound. It is very hard to credit check small businesses because there isn't a credit bureau infrastructure for them like there is for individuals. She finds it interesting how Kabbage has been able to leverage the data that is out there and is verified. She used the example of a seller on Amazon marketplace and how that will lead to a great deal of data on sales and revenue. This data is harder for banks to access because it takes time, but smaller platforms can use this, especially for small businesses, which are the most interesting loan products because they have more data they can leverage. Basically this has the consequence that that there is more credit out there and that is great because credit is required in order for an economy to grow.
Jeff was asked, "How do the big credit agencies view this new data?". He answered that ultimately everything comes back to the 3 C's: Credit, collateral and capacity. He conceded that as the industry continues to evolve, we have to evolve with it and that means that new data sources are opening up.
Sasha brought up the subject of possible bank partnerships, explaining that LendUp deals with deep subprime customers with a high success rate and banks will have to face up to partnerships where they can not originate and process loans as effectively. Angela agreed, commenting on the banks offering up of one vanilla product to all when there are firms now whose focus is creating the right borrower experience.
Louis ended the session by discussing a trend toward personalization in lending. He explained Earnest's ability to find people that are just the right fit and to evaluate every person on an individual basis. He commented on the irony that we started lending in a very personal world (one to one meetings with a local bank manager). Having departed from it due to automation, it is now this very automation of processes that are now allowing us to return to it and make the decisions finer and finer depending on your unique situation.