Equifax Income Confirm Targets Card Underwriting Risk

Equifax has launched Income Confirm, a new underwriting tool designed to give card issuers verified income and employment data at the point of application.

By pairing payroll-based income from The Work Number with the applicant’s Equifax credit report, the product allows issuers to make faster approval decisions and set initial credit limits with greater confidence, rather than relying on self-reported income.

“Consumers expect a fast, streamlined process when they apply for a new credit card,” said Scott Collins, General Manager and Senior Vice President of Financial Institutions at Equifax.

“Income Confirm equips lenders to make decisions based on facts, not estimates, and to optimize initial credit lines based on the consumer’s true ability to pay.”

In addition to this competitive environment, other issues, such as proposed legislation (interest rate caps) and/or the Credit Card Competition Act, could continue to further compress lender profit margins, limiting lenders’ ability to cover the costs of errors that result from estimates of applicants’ income.

Income verification has historically been a weakness in card underwriting. While many of today’s issuers continue to rely on self-reported income, they typically only request documentation when an application will trigger a review.

This approach is fast; however, it has limitations. It allows for over-reported income to be reported as accurate. The manual review process slows down time to approval and increases costs.

That explains why issuers are moving to automate this process. Issuers are looking for solutions that will automatically verify income quickly, minimize manual intervention, and support the ability to pay checks required under the U.S. Ability to Repay rules, while minimizing additional steps for applicants. 

Equifax believes that income verification data can do more than just provide information to support approval or denial of a credit applicant. Verified income data, when combined with credit data, will allow issuers to better establish credit limits and identify potential high-risk applications prior to account opening.

Income Confirm may also influence how much credit a customer is eligible to receive when opening an account (not only whether they qualify for one).

Thus, Equifax suggests that Income Confirm could potentially be used in the same way as other components of a lender’s decision-making process, rather than as a separate look-up tool. 

Income Confirm displays a customer’s employment status, employer name, and income calculated from The Work Number alongside the customer’s credit file.

There are many alternative solutions available to lenders who want to verify income. For example, Experian and TransUnion each have income and employment verification services.

Many of these services will use a combination of employer-provided records and modeled income based on the borrower’s demographic characteristics.

The fintech space takes a significantly different approach by using bank-account information and/or employer relationships to demonstrate recent deposit activity and cash flow to the issuer.

Each approach has its own trade-offs. For example, bank-account data can provide insight into a consumer’s most recent income level; however, deposits can fluctuate greatly from month to month.

Additionally, modeled income can expand the number of borrowers covered by a particular service, but it can lack precision when it comes to establishing credit limits.

For W-2 workers, payroll data provides a more consistent picture of their pay. Equifax believes that this consistency lends greater assurance to issuers to establish opening credit limits with a greater degree of confidence and to allow early usage of cards without assuming undue risk.

It is worth noting that payroll data does not cover all types of income. Gig workers and self-employed individuals may not be reflected in payroll databases. In these cases, issuers would likely continue to use fintech income verification methods such as bank account verification, in conjunction with payroll data, rather than replace them.

“Synthetic identity fraud is a rapidly growing threat impacting the consumer lending ecosystem,” said Felipe Castillo, Chief Product Officer for U.S. Information Solutions at Equifax.

“With Synthetic Identity Risk, Equifax strengthens lenders’ fraud defenses, helping them uncover hidden risks and move from reactive loss recovery to proactive prevention.”

The new synthetic identity fraud tools at Equifax will help support more automation in underwriting. The cost of an average identified synthetic identity fraud case is approximately $13,000 for lenders, and this has led to the reason fraud prevention is now being tied to faster lending decisions.

Synthetic frauds typically combine actual and fictitious information to create a false identity over time.

As issuers move toward quicker approval times, there may be greater difficulty in identifying these types of cases. With stronger identity tools combined with income checks, Equifax is attempting to decrease the risk of fraud while continuing to allow legitimate applicants to quickly process their applications.

In other words, for issuers, automation does improve speed, but automation requires more security measures.