Credit Management April 2024 issue

THE NEWS
Younger borrowers bring
access to loans into question
AS consumers continue to
navigate cost-of-living
pressures, new research
shows that younger age
groups face significant
barriers when it comes to accessing credit.
A survey of 1,000 UK borrowers by Tink,
the payment services and data enrichment
platform, found that over three quarters
(78 percent) of 18-34 year olds have had
a loan application rejected. When asked
why they’d been disqualified from a loan,
12 percent cited thin credit history (e.g. not
having enough credit history to qualify)
and 11 percent noted the inability to prove
their financial history.
Tink’s insights also show that younger age
groups abandoning arduous applications,
suggesting they have zero tolerance for
friction-filled processes and may not
be capitalising on the financial services
available to them.
The research shows that nearly a quarter
(22 percent) of 18-34 year olds have
abandoned a loan application and used a
different lender because the process was too
cumbersome. What’s more, when applying
for a loan, 20 percent of respondents said
they had the correct documents, but
abandoned the process because they needed
to submit them manually (i.e had to print
them off and post them).
A Tink survey of 200 UK lenders supports
these findings, with research showing that
36 percent of lenders cite manual income
verification as the point when they see
the most drop off in the loan application
process.
Similarly, the research suggests that
cumbersome manual processes can be
costly and time consuming for lenders.
Almost a third (32 percent) of lenders
surveyed cite manual income verification
as the most time consuming step in their
own risk decisioning process, and a quarter
(25 percent) say document validation
(capturing application information and
analysing its authenticity) is the highest
cost they face.
As a solution to overcome these barriers,
younger age groups cite a willingness to
give lenders permission to view transaction
data from their bank accounts in return
for smoother application processes and a
better chance of securing a loan.
For example, encouragingly 40 percent
of 18-34 year olds surveyed would enable
lenders to digitally view transaction
data from bank accounts to improve the
application process (e.g. remove the need
to manually submit documents on income
and expenditure), while over half (57
percent) would like the option of having
loans tailored to their financial situation.
What’s more, the research highlights
that lenders recognise that improving
the loan application process makes sound
business sense. More than three quarters
(78 percent) of lenders surveyed agree it’s
important to reduce friction in the lending
application to give them a competitive
advantage, while 77 percent say it’s crucial
to improve risk decisioning models to give
a more accurate view of people’s finances.
Jack Spiers, Banking & Lending Director
at Tink says the research highlights a clear
access issue amongst younger generations
trying to borrow: “Not only are a significant
amount wrestling with cumbersome
application processes, they’re also being
rejected for loans based on factors that
suggest blinkered financial assessments.
“It is important lenders are harnessing
data-driven risk decisioning solutions to
offer fair, accurate affordability checks,
while also removing the friction associated
with manual application submissions.
And it’s not just benefiting the end user.
Adopting these models can help lenders too
- boosting customer acquisition through
improved success rates, while reducing
operational costs.”
“Not only are a significant amount
wrestling with cumbersome
application processes, they’re
also being rejected for loans based
on factors that suggest blinkered
financial assessments.’’
Brave | Curious | Resilient / www.cicm.com / April 2024 / PAGE 8