Cash flow underwriting: Benefits & how to access cash flow data
copy gray iconlinkedin graytwitter grey

Cash flow underwriting: Benefits & how to access cash flow data

December 13, 2022

According to Pinwheel research, 75% of US workers believe that credit scores should not be the only criteria to qualify for a loan. However, accessing the vast majority of traditional credit products today still hinges on having a good credit score, excluding roughly one-third of US consumers.

On the one hand, consumers want more inclusive financial products. On the other hand, lenders need to find a way to decrease risk. To achieve this, lenders can include cash flow data in their underwriting models. Cash flow underwriting uses alternative credit data such as income or bank account transactions to understand a borrower’s cash flow and better assess their creditworthiness.

Traditional underwriting methods depend greatly on an individual’s credit profile, as calculated by credit reporting agencies that take into account factors such as payment history, credit history length, and amounts owed. Although cash flow data is excluded from this assessment, a growing number of lenders are now incorporating it into their underwriting methods — over half are utilizing cash flow or bank transaction data to determine a potential borrower’s creditworthiness.

With access to cash flow data, lenders are also able to better understand a consumer’s ability to pay back a loan — a critical advantage now that economic uncertainty and a potential recession are threatening to increase unemployment and potentially increase delinquencies.

The advantages of cash flow data

With cash flow data, fintechs, traditional financial institutions and lenders can improve their underwriting models, reduce fraud, and deliver better products.

1. Reduce default and portfolio risk

After a period of economic growth, financial service providers and consumers are once again grappling with financial turmoil and bracing for a potential recession. Cash flow data can help lenders navigate challenging economic conditions with in-depth insights into their customers’ financial health. 

The use of cash flow data in loan underwriting improves lenders’ ability to determine a person’s default risk, ensuring they can still offer credit to individuals with a stable income. Likewise, cash flow data can support lenders in analyzing the health of their loan portfolio by providing a more granular overview of different borrower segments.

2. Reduce fraud

Addressing fraud is a top of mind issue for lenders. For every five loan applications, one has an inflated income statement. It’s also easy to create a fake paystub — there are over 300 websites that offer this service for a small fee, and lenders that still default to asking applicants to manually upload their paystub are at risk of receiving a fake one.

Cash flow data solves this problem by enabling lenders to verify an applicant’s earnings using data straight from source systems, such as a person’s payroll platform or bank account. While some financial service providers might worry that their customers would hesitate to grant them access to this data, our research indicates otherwise. The majority of US workers (82%) are happy to share this information.

3. Personalize financial tools and services

With consumer-permissioned access to cash flow data, lenders also benefit from real-time insights into their customers’ finances, which allows them to tailor their tools and services to evolving customer needs.

Credit reporting agencies update credit scores on average every month, but cash flow data can be updated in real time. When a customer gets a salary raise, for example, the lender can receive a notification and automatically offer the customer a credit line increase or another product they’re eligible for. If a customer’s salary decreases dramatically or if they lose their job, the lender can create a new repayment plan that lowers the delinquency risk.

Offering these types of personalized financial services represents a significant market opportunity. More than six in 10 (62%) US workers are interested in automatic credit line increases based on increases in income, while 63% are interested in proactive loan repayment plan recommendations if there’s a sudden decrease in income.

4. Expand consumer base

Cash flow underwriting allows lenders to factor in additional data when evaluating applicants. While a person’s credit score is a good place to start verifying their creditworthiness, this potentially excludes no-file, thin-file, and subprime applicants who might otherwise be safe to lend to. For example, someone who has recently emigrated to the US to work a high-earning job could be an excellent candidate, even though they don’t have any credit history.

However, these applicants are often turned away or offered high-interest options they can’t afford. Cash flow data provides a solution — an additional layer of data that lenders can use to lower the risk of extending credit to borrowers they would otherwise have to turn down. Consequently, financial service providers can expand their market and delight consumers who have been traditionally underserved in the financial system.

What is the best way to access data for cash flow underwriting?

Financial technology APIs are the best and safest solution for accessing consumer-permissioned cash flow data. 

With an API, lenders can automatically connect to hundreds of data source systems — a much faster and cost-effective solution compared to manually integrating with every system. On the customer side, they can easily authorize access and provide the necessary data without having to manually upload any documentation.

Cash flow data can come from either the customer’s bank account (by analyzing their transaction data) or their payroll platform (by analyzing paystubs and shift data). 

Payroll platforms have several advantages over bank transaction data — the first being that they sit at the top of the consumer financial data stack. A person might direct deposit their paycheck into several accounts, so their bank transaction data might not be 100% accurate with regard to their earnings.

Additionally, payroll includes data on tax withholdings, healthcare deductions, 401(k) contributions, unpaid leave, paid and unpaid time off, and other important income-related information that doesn’t exist in bank accounts. Connectivity to payroll is also critical to get immediate updates on any changes to a customer’s income or employment status.

To ensure regulatory compliance when accessing cash flow data for credit underwriting, lenders should only work with FCRA-compliant data vendors, like Pinwheel. The FCRA regulates the collection of and access to consumer data, providing consumers with recourse if the data proves to be inaccurate. Fines for violating the FCRA range from $100 to $1,000 per violation, and some cases have led to multimillion-dollar fines.

Power cash flow underwriting with Pinwheel Earnings Stream and Verify

To enable cash flow underwriting, getting access to consumer cash flow data is only the first step. The next step is to analyze the data to determine the person’s income, pay frequency, and other factors that influence their creditworthiness. Unlike other payroll data connectivity APIs that only provide data, Pinwheel completes both steps to deliver ready-to-use, real-time income data insights.

With Pinwheel’s Verify and Earnings Stream solutions, lenders can decrease risk, grow their customer base, and expand credit access to traditionally underserved customers.

Earnings Stream insights span historical cash flows, accrued earnings in the current pay period, and projections of future earnings and pay dates. The solution is supported by our income platform coverage, which is the highest in the market at 1,600+ payroll platforms and the top 40+ time & attendance systems, covering 80% of US workers.

In addition to enabling cash flow underwriting, financial service providers can use Earnings Stream to launch earned wage access, offer financial management tools, or develop brand-new products.

Verify enables automated income and employment verification for faster application processing (with support for document uploads), helps reduce fraud, and allows lenders to use income data for FCRA-permissible purposes such as credit decisioning.

Both products include recurring access, a feature that updates income and employment data in real time, so lenders are notified as soon as there are changes to a customer’s income or employment status.

Contact us to learn more about how Pinwheel’s solutions can help you tap into new lending opportunities.

Always stay up to date

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
View our Privacy Policy   ➔

Up next

How to reduce default risk with consumer-permissioned data

How to reduce default risk with consumer-permissioned data

Read more  ➔
Digital lending technologies and trends that are shaping the industry

Digital lending technologies and trends that are shaping the industry

Read more  ➔
4 technologies that improve fraud detection in banking

4 technologies that improve fraud detection in banking

Read more  ➔
Why automated income verification is a must-have feature for lenders

Why automated income verification is a must-have feature for lenders

Read more  ➔
December product release: 10% increase in conversion, enhanced security and access to pay frequency data

December product release: 10% increase in conversion, enhanced security and access to pay frequency data

Read more  ➔
A conversation with our Chief Information Security Officer

A conversation with our Chief Information Security Officer

Read more  ➔
Former CFPB Deputy Director Raj Date Joins Pinwheel as an Advisor

Former CFPB Deputy Director Raj Date Joins Pinwheel as an Advisor

Read more  ➔
Cash flow underwriting: Benefits & how to access cash flow data

Cash flow underwriting: Benefits & how to access cash flow data

Read more  ➔
Why banks need a payroll connectivity API that prioritizes information security

Why banks need a payroll connectivity API that prioritizes information security

Read more  ➔
How alternative credit data can benefit lenders

How alternative credit data can benefit lenders

Read more  ➔
Tech Spotlight: Implementing your first feature flag

Tech Spotlight: Implementing your first feature flag

Read more  ➔
Pinwheel Welcomes New Advisor, Ethan Yeh, to Advance Pinwheel’s Data Science Strategy

Pinwheel Welcomes New Advisor, Ethan Yeh, to Advance Pinwheel’s Data Science Strategy

Read more  ➔
Tech spotlight: Securing access control across internal services

Tech spotlight: Securing access control across internal services

Read more  ➔
The anatomy and potential of payroll data: Transforming complex data into insights

The anatomy and potential of payroll data: Transforming complex data into insights

Read more  ➔
Beyond the credit score: Propelling consumer finance into the future with income data

Beyond the credit score: Propelling consumer finance into the future with income data

Read more  ➔
Ayokunle (Ayo) Omojola joins Pinwheel’s Board of Directors

Ayokunle (Ayo) Omojola joins Pinwheel’s Board of Directors

Read more  ➔
Conquering conversion: Engineering practices developed to help customers

Conquering conversion: Engineering practices developed to help customers

Read more  ➔
Driving Customer Delight: From implementation and beyond

Driving Customer Delight: From implementation and beyond

Read more  ➔
Pinwheel Supports Open Finance Data Security Standard

Pinwheel Supports Open Finance Data Security Standard

Read more  ➔
How we design Pinwheel to solve real customer problems

How we design Pinwheel to solve real customer problems

Read more  ➔
What is consumer-permissioned data and what are its benefits?

What is consumer-permissioned data and what are its benefits?

Read more  ➔
How payroll data connectivity can help financial service providers in tumultuous market conditions

How payroll data connectivity can help financial service providers in tumultuous market conditions

Read more  ➔
Pinwheel now supports document uploads to supplement payroll data

Pinwheel now supports document uploads to supplement payroll data

Read more  ➔
Brian Karimi-Pashaki joins Pinwheel as Partnerships Lead

Brian Karimi-Pashaki joins Pinwheel as Partnerships Lead

Read more  ➔
Optimizing for conversion with smarter employer mappings

Optimizing for conversion with smarter employer mappings

Read more  ➔
What are super apps and how will they impact financial services?

What are super apps and how will they impact financial services?

Read more  ➔
Increase conversions and maximize share of wallet with Pinwheel's new UX update

Increase conversions and maximize share of wallet with Pinwheel's new UX update

Read more  ➔
Pinwheel announces support for taxes

Pinwheel announces support for taxes

Read more  ➔
Ryan Nier Joins Pinwheel as the Company’s first General Counsel

Ryan Nier Joins Pinwheel as the Company’s first General Counsel

Read more  ➔
The future of enabling earned wage access

The future of enabling earned wage access

Read more  ➔
Deliver earned wage access faster with Pinwheel Earnings Stream

Deliver earned wage access faster with Pinwheel Earnings Stream

Pinwheel Earnings Stream provides the necessary data and intelligence to reliably offer earned wage access (EWA) at scale.

Read more  ➔
Digital transformation in banking in 2022: What it means, trends & examples

Digital transformation in banking in 2022: What it means, trends & examples

Read more  ➔
June product release: Expanded connectivity to employers, a custom experience with Link API and more

June product release: Expanded connectivity to employers, a custom experience with Link API and more

Read more  ➔
Pinwheelie Spotlight: LaRena Iocco, Software Engineer

Pinwheelie Spotlight: LaRena Iocco, Software Engineer

Read more  ➔
Build fully custom experiences with Pinwheel’s Link API

Build fully custom experiences with Pinwheel’s Link API

Read more  ➔
Pinwheel expands connectivity to 1.5M employers

Pinwheel expands connectivity to 1.5M employers

Read more  ➔
Robert Reynolds joins Pinwheel as Head of Product

Robert Reynolds joins Pinwheel as Head of Product

Read more  ➔
Pinwheel obtains highest security certification in the industry

Pinwheel obtains highest security certification in the industry

Read more  ➔
Lauren Crossett becomes Pinwheel’s first Chief Revenue Officer

Lauren Crossett becomes Pinwheel’s first Chief Revenue Officer

Read more  ➔
Everything you should know about the role of APIs in banking

Everything you should know about the role of APIs in banking

Read more  ➔
Open finance: What is it and how does it impact financial services?

Open finance: What is it and how does it impact financial services?

Read more  ➔
How automated direct deposit switching benefits traditional banks

How automated direct deposit switching benefits traditional banks

Read more  ➔
Pinwheel Secure: Authentication optimized for market-leading conversion

Pinwheel Secure: Authentication optimized for market-leading conversion

Read more  ➔
Pinwheelie Spotlight: Elena Churilova, Software Engineer, Integrations

Pinwheelie Spotlight: Elena Churilova, Software Engineer, Integrations

Read more  ➔
May product release: Localization and downloadable pay stubs

May product release: Localization and downloadable pay stubs

Read more  ➔
How a payroll API can level up lenders and renters

How a payroll API can level up lenders and renters

Read more  ➔
The power of payroll APIs in consumer finance

The power of payroll APIs in consumer finance

Read more  ➔
Data Talks: Pinwheel’s Fortune 1000 coverage and top employer trends

Data Talks: Pinwheel’s Fortune 1000 coverage and top employer trends

Read more  ➔
April product release: Enabling connectivity to time and attendance data for 25M US workers

April product release: Enabling connectivity to time and attendance data for 25M US workers

Read more  ➔
Tech spotlight: Increasing engineering momentum at a systems level

Tech spotlight: Increasing engineering momentum at a systems level

Read more  ➔
How crypto exchanges can turn direct deposits into a fiat onramp

How crypto exchanges can turn direct deposits into a fiat onramp

Read more  ➔
March product release: Time and attendance coverage and Pinwheel's new online home

March product release: Time and attendance coverage and Pinwheel's new online home

Read more  ➔
Pinwheelie spotlight: Arianna Gelwicks, Tech Recruiting

Pinwheelie spotlight: Arianna Gelwicks, Tech Recruiting

Read more  ➔
What is payroll data and how it benefits proptech companies

What is payroll data and how it benefits proptech companies

Read more  ➔
Earned wage access: What is it and why does it matter?

Earned wage access: What is it and why does it matter?

Read more  ➔
How fintech APIs are transforming financial services

How fintech APIs are transforming financial services

Read more  ➔
Webinar: Unleash growth with income and payroll APIs

Webinar: Unleash growth with income and payroll APIs

Read more  ➔
February product release: Updated Link UX and data quality

February product release: Updated Link UX and data quality

Read more  ➔
Tech spotlight: Floating footer with React functional components

Tech spotlight: Floating footer with React functional components

Read more  ➔
Why a direct deposit switching API is a must-have for banks and neobanks

Why a direct deposit switching API is a must-have for banks and neobanks

Read more  ➔
Pinwheelie spotlight: Hale Ahangi, People Operations Lead

Pinwheelie spotlight: Hale Ahangi, People Operations Lead

Read more  ➔
Shift from a vicious to virtuous cycle: The foundation for a fairer financial system

Shift from a vicious to virtuous cycle: The foundation for a fairer financial system

Read more  ➔
January product release: Recurring access to income & employment

January product release: Recurring access to income & employment

Read more  ➔
Pinwheel’s Series B and our path towards a fairer financial future

Pinwheel’s Series B and our path towards a fairer financial future

We're excited to share that we have raised a $50M Series B funding round led by GGV Capital with participation from many others.

Read more  ➔
Pinwheelie spotlight: Devin DeCaro-Brown, Product Manager

Pinwheelie spotlight: Devin DeCaro-Brown, Product Manager

Read more  ➔
Tech spotlight: How to implement async requests in your Python code

Tech spotlight: How to implement async requests in your Python code

Read more  ➔
2021 recap and product update: An amazing year for Pinwheel

2021 recap and product update: An amazing year for Pinwheel

Read more  ➔
Charles Tsang joins Pinwheel as Head of Marketing

Charles Tsang joins Pinwheel as Head of Marketing

Read more  ➔
Pinwheelie spotlight: Octavio Roscioli, Senior Software Engineer

Pinwheelie spotlight: Octavio Roscioli, Senior Software Engineer

Read more  ➔
November product release: Beta launch of income & employment monitoring

November product release: Beta launch of income & employment monitoring

Read more  ➔
How can payroll data help with one’s financial picture?

How can payroll data help with one’s financial picture?

Read more  ➔
Pinwheelie spotlight: Caroline Lo, Software Engineer

Pinwheelie spotlight: Caroline Lo, Software Engineer

Read more  ➔
2021 company onsite: Bringing Pinwheelies together

2021 company onsite: Bringing Pinwheelies together

Read more  ➔
October product release: Beta launch of direct deposit allocation monitoring

October product release: Beta launch of direct deposit allocation monitoring

Read more  ➔
Why payroll data access is inevitable on your product roadmap

Why payroll data access is inevitable on your product roadmap

Read more  ➔
Security spotlight: SOC 2 compliance

Security spotlight: SOC 2 compliance

Read more  ➔
Jeff Hudesman joins Pinwheel as Chief Information Security Officer

Jeff Hudesman joins Pinwheel as Chief Information Security Officer

Read more  ➔
Welcoming John Whitfield, VP of Engineering

Welcoming John Whitfield, VP of Engineering

Read more  ➔
Announcing Pinwheel’s FCRA Compliance

Announcing Pinwheel’s FCRA Compliance

Read more  ➔
Pinwheel's statement on Section 1033

Pinwheel's statement on Section 1033

Read more  ➔
Pinwheel raises $20M Series A

Pinwheel raises $20M Series A

Read more  ➔
If I were a fintech founder

If I were a fintech founder

Read more  ➔
Pinwheelie spotlight: Phil Jen, Director of Product

Pinwheelie spotlight: Phil Jen, Director of Product

Read more  ➔
Celebrating women's history month with Sasha Pilch

Celebrating women's history month with Sasha Pilch

Read more  ➔
Tech spotlight: How we re-launched our API docs

Tech spotlight: How we re-launched our API docs

Read more  ➔
Why I chose Pinwheel: Payroll APIs as the next frontier

Why I chose Pinwheel: Payroll APIs as the next frontier

Read more  ➔
Lunch and learn with Nik Milanović

Lunch and learn with Nik Milanović

Read more  ➔
Pinwheelie spotlight: David Daudelin, Senior Front End Engineer

Pinwheelie spotlight: David Daudelin, Senior Front End Engineer

Read more  ➔
The missing link

The missing link

Read more  ➔
Introducing Pinwheel, the API for payroll

Introducing Pinwheel, the API for payroll

Read more  ➔