To counter the continued rise in fraud, auto lenders of all sizes are counting heavily on risk management and loss mitigation. For small lenders, risk management may be the part-time responsibility of one employee.
Banks, captives, and credit unions may devote an entire team to the endeavor. However, the degree of diligence devoted to risk and loss may vary, depending on the capabilities of the lender.
Many lenders manage risk and prevent loss by a combination of experienced underwriters with great judgment and Excel spreadsheets that summarize portfolio performance and highlight delinquencies and default trends. In the current market, those methods are no longer adequate.
How to leverage fintech
Modern loan origination solutions manage risk and mitigate loss the moment an application is submitted. Cloud-based fraud analytics and a range of pre-integrated verification services help detect risk by identifying potential income or employment misrepresentation, identity theft, and dealer fraud.
Through analysis of millions of loan applications (both legitimate and not-so-legitimate), machine learning detects application inconsistencies indicative of fraud. Illicit paycheck stubs can be generated in a matter of minutes using a credit card and one of many online paystub services.
When analysis suspects that income doesn’t sync with a job title or credit score, an underwriter can initiate further investigation. Questionable employment credentials can be verified via an automated call to Equifax’s TheWorkNumber. Used-car valuations that seem inflated can be verified through services like Black Book. Upfront identification of potential fraud is the most efficient means of reducing lending risk.
Portfolio analysis helps prevent loss
Your portfolio is rich with insights. Make those insights visible through analytics designed explicitly for portfolio analysis. A loan-origination system that is tightly integrated with analytical tools helps lenders spot characteristics of loans that have defaulted.
Lenders can then identify loans with similar characteristics and work to avoid defaults by those clients who are likely to become delinquent. Lenders can also use this insight to modify credit policies to further reduce risk. Analytics give lenders an almost limitless ability to explore their portfolios and identify risk factors.
Market trends indicate a greater need for diligence
First-quarter auto sales don’t build optimism for the remainder of 2019. To maintain a profitable portfolio, lenders need to use the most effective technologies and methods to support well-informed lending decisions.
With fintech advancements such as machine learning to detect potential fraud, and analytical tools designed specifically for portfolio analysis (no integration or custom development required) lenders can be well prepared to reduce risk and prevent loss.
With more than 20 years in the auto finance industry, Lana Johnson leads the charge to drive innovation as COO at defi SOLUTIONS. defi SOLUTIONS is the Technology Partner of Auto Finance Excellence (AutoFinanceExcellence.org), a sister service of Auto Finance News.