Opinion  

The future of lending is going to be more about data

Neil Williams, LendingMetrics

Neil Williams, LendingMetrics

Underwriting technology has come a long way since it was first introduced to the sector, and I can recall the very beginnings of such technology as early as the mid-noughties.

The early days were not easy for companies with new automated underwriting application programming interfaces(APIs) to sell. Attitudes surrounding the use of technology in what had traditionally been a pretty labour-intensive area (underwriting) were entrenched. Why would any lender want a ‘computer says no’ solution when they had a perfectly good team of underwriters in place?

Conversations with what became the early adopters of this transformational technology were always challenging. You would often find that while you might have persuaded senior management of the benefits, the deal would falter at the eleventh hour when they could not sell the technology internally. 

There were too many defensive managers with groundless worries about their departments or jobs being made obsolete.

Part of the issue was the use of the word automated, which many misinterpreted as meaning the end of all manual input (and therefore redundancy for the underwriting team). A key element of the learning process involved telling lenders that the term 'automated underwriting' covered a very wide spectrum, and that their position on that spectrum was determined by the sort of lending they were involved in. 

If most of their lending involved sums of under £200, then they might want to automate 90 per cent of their transactions (given the disproportionate cost of manually underwriting such cases). Alternatively, if they were a mortgage lender, then they may prefer to retain manual review and only automate the early stages of their screening process.

I would unpack the automated underwriting process and tell lenders to rather think of their back office as perhaps 20 tasks, of which they may well be able to automate the first 15. Also, if they did, they could then free their existing team to focus on areas that actually benefited from human input. No redundancies, just a refocusing of the team.

Eventually, the message did get through to lenders. Bit by bit. 

They began to see that the technology could, in seconds, provide granular insight into prospective borrowers by interrogating line-by-line their finances; that scorecard changes could be made at the press of a button; that borrower screening did not always need costly credit bureau searches; that decisions could be 100 per cent in line with a lender’s credit policy; and that an electronic audit trail was there to protect them from mis-selling claims.  

As a result of many of those conversations, we have now reached a stage where the technology is familiar to most in this industry. A sizeable number of lenders at all ends of the spectrum – from high-cost, short-term credit to mortgage – are utilising it. Using the Everett Rogers’ technology adoption lifecycle, we have moved on from ‘innovators’, through ‘early adopters’, and will shortly reach the stage of ‘early majority’.