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How Credit Unions Can Mitigate Fraud in SMB Lending: A Data-Driven Approach to KYC and KYB

Will Tumulty, CEO, Rapid Finance

Rapid Finance

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The global small business lending market is worth an estimated $1.6 trillion, and small businesses are the backbone of America's economy, accounting for a full 43.5 percent of the U.S. GDP. However, in today’s market too many business owners have difficulty accessing the lending capital they need to grow. For credit unions in particular, this presents an opportunity to both help small businesses within their local communities thrive -- and grow themselves -- by using data-driven strategies to reduce costs, streamline origination processes, mitigate fraud and make better lending decisions.

So, why the disconnect between credit unions and small business owners? In short, because many traditional lenders, including credit unions, struggle to make small business lending economically viable. Their systems, processes and operations to support mid-market commercial lending simply don’t allow them to make the financials of small business lending work. This challenging economic model stems from both the high cost structure of many FI’s commercial origination processes and the greater perceived risk of lending to small businesses – both factors that can be addressed using a data-driven approach.

Ironically, many credit unions already have much of the data needed to identify applicants up-front and mitigate risks associated with lending. By leveraging data that already exists within their systems and simply making that data available to loan officers and underwriters as a first step, credit unions can drive informed decisions and generate a healthier portfolio.

With a robust data-driven approach, automating a first-pass decision becomes easier, thereby reducing both loan origination cost and risk. Additionally leveraging data from the current application and past interactions along with enhancements from a wealth of third-party sources to develop a complete Know Your Business (KYB) and Know Your Customer (KYC) picture of both the small business applicants and their owners elevates the level of confidence in the underwriting and decisioning.

There are some strategic steps that modern credit unions are taking to realize successful small business lending programs in their communities, including:

  • Preventing fraud at the front end by leveraging data insights from historical data, leveraging networks and third party data-sets.

  • Cleansing historical data to ensure data used is clean and relevant;

  • Leveraging data analytics and automation to streamline origination and boost conversion rates;

  • Prioritizing and rewarding the credit union’s best performing members with relevant and timely offers; and

  • •Maximizing portfolio returns over time through automated and pro-active portfolio monitoring.

Today, through the use of cloud-based services, data-enhancing APIs and a standardized, well-architected small business data schema that is thoughtfully integrated into existing systems, a modern ecosystem can be brought to life more quickly and with substantially less cost than before. This creates a cost-effective opportunity for credit unions to aggressively grow their market share among small business owners within their communities.

To learn more about how credit unions can mitigate fraud risk and accelerate the growth of their SMB lending portfolios, download the free white paper: “What You Should Know About Preventing Fraud & Optimizing Lending In The Age Of Fintech”

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