loan servicing software community bank small business


The defi Team Automation, Compliance, defi INSIGHT, Fraud, Instant Integrations, New Customers, Technology

loan servicing software community bank small business

How do you effectively reduce credit risk? Some lenders use manual risk assessment tools, portfolio management spreadsheets, and even good old-fashioned intuition to guide them. However, there’s a more efficient and reliable way to mitigate risk—innovative lending software

When you use software that has a wide range of risk assessment, management, and mitigation capabilities, you can identify potential risks more easily and make well-informed lending decisions. Whether you’re looking for a new lending software or simply want to manage risk more effectively, there are a few important risk reduction capabilities you should consider.

How Lenders Can Reduce Credit Risk 

Lenders wanting to reduce credit risk can run into a number of obstacles. First, the risk environment is constantly changing. Every year, fraudsters come up with new schemes are designed to be incredibly difficult to detect. Compliance regulations also change frequently, so lenders have to stay up to date with new rules for detecting potential risks in applications and managing portfolio risk.

Second, some lenders are offering a greater range of loans, and this makes managing risk more complex. A diverse, expansive portfolio opens up a lot of exciting lending opportunities, but it also means you need a system for identifying individual risk factors for each type of loan and applicant, as well as carefully managing this risk throughout the loan period. 

In this complex industry, one of the best ways to reduce credit risk is by upgrading to a software platform capable of managing many different types of loans. There are three software capabilities in particular that help lenders effectively reduce risk: 

  1. Fraud analytics 
  2. Verification services
  3. Automation and machine learning 

Let’s take a closer look at how each of these three capabilities help reduce credit risk. 

Want to find out more about our software and services? Contact our team today.

Innovations in Fraud Analytics 

There are a number of different fraudulent schemes out there, including: 

  • Income: Applicants can create fake pay stubs that appear very realistic. Using this scheme, they can get approved for loans that are way beyond their actual income level. 
  • Employment: Just as fraudsters can fake an income, they can also create a synthetic employment history, including phone numbers tied to fictitious employers or references, phony email addresses, and dummy websites. 
  • Collateral inflation: Fraudsters can inflate the value of a vehicle or other collateral property in exchange for more favorable loan terms. While savvy lenders can usually spot this scam, occasionally fraudsters slip under the radar. 
  • Identity: Identity theft is a big problem for the lending industry because the applicant will look legitimate on paper, so it can be a difficult scam to catch. 

With so much potential for fraud, how can lenders reduce credit risk? Lending software that easily integrates multiple, innovative third-party fraud providers with fraud analytics built into their systems can give you the greatest potential to identify some of these scams during the application process. 

Rather than relying on your loan officers to make their best guesses about an application, fraud analytics providers collect and mine data to identify hidden patterns. For example, with innovative fraud detection, you could identify a pattern in fraudulent phone numbers that enables you to automatically flag these numbers in future applications for manual review. Even if your loan officers have never personally encountered a specific scam before, your system will keep a detailed record of all known scam factors and notify loan officers of any suspicious information or activity.

The Latest Verification Services Help Lenders Reduce Risk 

Fraud analytics and verification services go hand in hand to reduce credit risk. The best lending software will have: 

  • Synthetic identity detection capabilities that compare personal information provided on the application to reliable credit databases.
  • Income verification from secure and confidential sources.
  • Alternative credit data and trended credit data filters that give lenders a clearer picture of how risky an application actually is (these filters go beyond traditional credit scores, income reports, or employment history, making this data harder for fraudsters to fake). 
  • Verification and refutation of employment history. 
  • Accurate collateral valuation, including history-adjusted values (the system should also be integrated with Black Book and Kelley Blue Book for vehicle valuations). 

To reduce credit risk, lenders can’t take applicants at their word. Advanced verification services like these help lenders separate honest borrowers from potential fraudsters

Using Automation and Machine Learning to Manage Portfolios 

Reducing credit risk involves more than just detecting fraud and verifying information. It also requires lenders to manage their applications and portfolios effectively. For example, if an account is delinquent, lenders need to take action to prevent the loan from defaulting. Automation and machine learning enable lenders to take these necessary steps as quickly and efficiently as possible. 

Risk management automation works by: 

  • Assessing borrower risk and eliminating high-risk applicants within moments. 
  • Structuring loans based on past and projected risk management data.  
  • Prioritizing low-risk, high-reward loan applications.  
  • Approving very low-risk applicants automatically. 
  • Sending mid-range-scoring applicants to loan officers for manual assessment. 
  • Automating the delinquency recovery and collections process to reduce financial risk. 
  • Using machine learning algorithms to identify patterns and create new decisioning rules based on these trends. 

Not only does this improve the efficiency of your loan approval, origination, and management systems, but it also gives your loan officers more time to focus on tasks that require a personal touch. 

Is Your Risk Management System as Effective as It Could Be? 

One of the most important ways to reduce credit risk is by leveraging the wealth of data sources available to you. Collecting, managing, and analyzing data can be a time-consuming process, which is why you should consider using a software that automates risk management for you. 

The best systems use machine learning algorithms, automated decisioning, fraud analytics, and verification services to reduce risk at every stage of the lending process, from loan origination to account closeout. Having all of these capabilities and data in one platform also eliminates information silos. Using connected data, you can assess risk and take the most important steps to protect your business and your borrowers from preventable threats and vulnerabilities. 

Getting Started

defi SOLUTIONS provides advanced lending software that is designed to help you assess and reduce risk. Using machine learning, automation, fraud detection, and verification services, lenders can manage risk as efficiently as possible. If you’d like to learn more about how to reduce credit risk, contact our team today or register for a demo.  

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