Banking the Unbanked:
Unbanked or underbanked people include all those who do not have any account with banks or indulge in financial transactions independent of banks. The National Survey of Unbanked and Underbanked Households conducted by the Federal Deposit Insurance Corporation revealed that almost 33% of the US population was unbanked or underbanked in 2013. Twenty percent of the households had negative or zero property, and a major chunk of the population, summing up to 25 million people, had low credit score.
The direct implication of being unbanked, underbanked, or having a low credit score is dissociation from the US financial structure. They are not able to avail any kind of financial services during buying homes. Although lending organizations, till a few years back, did not take any prior interest in this section of the people, initiatives are now directed at banking the unbanked and potential borrowers with low credit scores.
Business Loan origination software, with their automated verifications, are normally conditioned to reject people with low credit scores. A score of 500 or less indicates poor credit qualification. Before starting the lending process, bankers should educate customers with low credit scores, helping them to appreciate the various aspects within a mortgage plan. They should analyze the reasons why the potential client has a low credit score, and if it can be brought under control.
Clients with poor credit scores are eligible for government-insured FHA loans, where the norms of approval are quite lenient. However, if lenders find acute problems associated with credit worthiness, then no FHA loans are issued. Applications for loans are usually run through Fannie Mae’s or Freddie Mac’s automated underwriting system. If the automated system does not approve the applications, then lending organizations should go through them manually to find out the reasons of rejections.
To estimate the financial credibility of a potential borrower with low credit score, banks are now going through non-traditional ways, which include payment of rent and utility services by the borrower. Lending institutions are verifying if the person has paid rent and utility bills sincerely over the last twelve months. Another method being used to counterbalance the effect of low credit standing is letting the borrower make a down payment of a large sum of money, generally 20% or more.
While these developments reshape the process of finding customers, automation and alert systems will make the process of adapting a smooth one. Banks restricted to specific regions or a few local borrowers on the other hand, don’t feel the need for IT transformation right now. But things are likely to change once their growth achieves momentum.
Waiting in the wings is a new type of technology which can transform the way banks build relationships with people. Whether high-end customers or just someone looking for a small one-time loan, cloud computing has paved the way to engage customers in the right way every time. Automation in banking CRM software and cloud connectivity are helping lenders achieve exactly what they need for pin-point accuracy when it comes to prospecting and customer service. Catering to people’s need also involves drawing their attention, especially in a market riddled with various offers and benefit schemes. They key to success and being renowned as an all-inclusive banker is a dream most financial management teams share. As a result, banking automation needs more attention and early adoption can make you a game changer in the industry.