How to Select the Right Income and Employment Verification Solution

The inclusion of income and employment data in traditional credit reports can offer vital insights and broader visibility into consumer financial profiles. A robust decisioning strategy that takes income and employment data into account is key for businesses looking to effectively mitigate risk, particularly when unpredictable market conditions call for a keen understanding of consumers’ capacities to pay. Broader access to and use of this data can also foster financial inclusion, fueling growth for lenders and consumers alike. 

Optimizing the income and employment verification process can go a long way in streamlining operations and delivering more satisfactory borrower experiences, making the selection of a solutions provider a task of great importance. Understanding the distinctions across solutions, including criteria to look out for, is therefore critical to choosing the best match for your business.  

Know your options

The benefits and uses of income and employment data are well founded. Combined with traditional credit data, it paints a fuller picture of a consumer’s financial standing, helping improve risk decisioning and the ability to determine creditworthiness. Lenders can also use income and employment data to enhance marketing efforts, strengthen account management and more.

Determining the right solution will depend on the specific priorities of your organization. How deep do your data insights need to be? Is it critical your data coverage span the entire US workforce or are you focused on specific regions? How much friction are you willing to allow into your process — and at what cost?

While there’s plenty to consider, finding the best solution for your business can be boiled down to four criteria: precision, friction, coverage and cost.

Data precision

Several forms of data are used to verify income and employment, each offering different levels of detail and precision:

Modeled data leverages algorithms and predictive models to estimate a borrower’s income and employment status. This data can be particularly useful when complete datasets aren’t available as it helps predict outcomes and trends crucial for assessing income and employment stability.

Derived data is raw data that’s been processed, reformatted or used to infer additional insights. An individual’s income trends, cash flow activity, income stability and other information could be derived from their bank data, for instance, enabling a more robust view into someone’s financial and employment history beyond raw data alone.

Finally, verified data is data pulled directly from the original source. This could include confirmation of income and employment from an employer or payroll provider. Verified data ensures the information being used to verify income and employment is credible and reliable, thereby reducing instances of fraud or mistakes.

Leveraging the deepest, most accurate consumer data for each instance of verification sounds great in theory, but the balance of precision against speed, cost and friction will vary from use case to use case. For example: Mortgage loans require deeper insights and a more robust approach to determining risk than most other loans — and are therefore more likely to benefit from verified data. But for faster turnarounds that carry less risk, such as personal loans, modeled or derived data might be sufficient.

With most lenders offering multiple types of loans (or in many cases, serving multiple industries), having flexibility around income and employment data can help ensure you get exactly the right level of information for each applicant.

Access friction

Not all lenders have the same tolerance for friction within the application process, nor does each type of loan necessitate a friction-free user or back-end experience.

Conducting an instant pull of data involves the least amount of friction. The data is gathered directly from the payroll provider or employer through a data furnishing model or on a transactional basis — and doesn’t necessitate interaction with the consumer. Consumer-permissioned access warrants some consumer involvement to allow sharing of data from the original source to a third party. Manual access involves collecting data offline, requiring hands-on intervention from either consumer or verifier. With the burden on consumers and lenders to access and deliver documents, this option comes with the most friction.

While the ability to instantly access furnished data will be the right choice in some circumstances, how you choose to access data might vary depending on your budget, business goals, types of loans offered, as well as industry. For instance, in auto lending scenarios where speed is critical, instant data is often a preferred method of verification, whereas additional friction is typically acceptable given regulatory requirements in mortgage lending.

Whether your aim is to limit friction in favor of more positive customer experiences, or reduce costs to meet specific business needs and thereby allow more friction into the equation, finding a solution that offers customization around data access and retrieval is key to a sustainable verification strategy.

Coverage rate

A provider’s coverage rate — or the percentage of US population for which a provider can supply income verification reports or employee records — will ideally be on the high end, enabling broader reach, greater efficiency, lower costs, etc. But a high coverage rate alone does not guarantee a high success rate or effectiveness in generating robust, usable reports. Consumer-permissioned data methods, for instance, cover nearly all consumers — but too much application friction can lead to high abandonment prior to verification, significantly impacting success rates. Unfortunately, low completion rates can result in a reliance on multiple vendors, driving up costs and necessitating more vendor management for internal teams.

Lenders hoping to optimize their coverage and completion rates should look for single, multimethod platforms offering consumer-permissioned data, in addition to other verification methods. Consider providers that prioritize the user application experience, as well as those that verify income for freelance and gig workers for broader, more accurate insights. 

Price point

Verification costs can range across solutions, so understanding the total cost per application is key to determining value. While the need for instant, verified data — which is typically the most expensive — might not necessarily apply to some businesses, others might not be willing or able to forsake speed for cost savings. Consumer-permissioned and manually accessed data tend to be more cost-effective options and a good fit for organizations seeking to lower spend (and which can manage the potential of less precision and more friction).

With a careful, cost-benefit analysis of various data types and means of access, you can make an informed decision on how much to invest in a solution that meets your organizational bar for precision, friction and coverage.

How Transunion can help

TransUnion’s full suite of differentiated income and affordability solutions offers verifiers choices across key buying criteria, allowing you to leverage income and employment data based on your organization’s unique business challenges and priorities.

For more information on TransUnion income and affordability solutions, visit us here or contact your representative.