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

Pinwheel Team

September 7, 2022

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Consumer-permissioned data refers to personal information that third parties can access with the consumer’s consent. 

In financial services, these data sources include the consumer’s bank account or income and employment information from their payroll platform. By granting third parties data access, a consumer can access all sorts of financial services that are underpinned by their data. 

One way a financial service provider can obtain consumer-permissioned data is via application programming interfaces (APIs). A wealth of customer data sits inside digital systems, and APIs make it easy for a financial service provider to retrieve it. An API that connects to payroll and income platforms, for example, allows the consumer to easily provide their income data to their bank.

Although consumer-permissioned data already powers numerous financial services, it’s guaranteed that payroll data will produce even more exciting use cases in the future. In the financial industry, service providers and consumers already benefit from sharing this data.

Financial service providers can automate manual processes and develop personalized solutions

Any bank or fintech that implements API technology to make consumer-permissioned data available stands to save time and money. Such solutions eliminate paperwork and manual processes since the API retrieves the data — the customer only has to give their consent to the API to access their information.

Additionally, financial service providers can use this data for critical processes such as managing lending risk, improving their underwriting models, increasing loan repayment rates, mitigating fraud, and even simplifying tenant screening.

Consumer-permissioned data also allows financial service providers to accelerate the time it takes from loan application to approval and any other process where a customer’s data is used to access a service.

But most importantly, financial service providers can leverage this data to develop new products that are the exact solution to the issues faced by their audience. In a recent Capco study, 72% of surveyed consumers said personalization in financial services is highly important. More consumer data is the key to unlocking more personalization, such as providing the right product offer at the right time.

Consumers have more options for credit services

The most significant benefit of consumer-permissioned data for consumers is expanded access to credit products. 

According to Experian, 1 in 3 consumers have a subprime credit score, limiting their access to affordable loans. In addition, the Consumer Financial Protection Bureau has found that inaccurate information on credit reports is more likely to affect younger consumers, consumers with poor credit, and consumers living in majority Hispanic and Black neighborhoods.

Faced with limited options, these consumers turn to high-interest loans that add to their financial strain and, if they were to miss repayments, could lower their credit score further. This results in a vicious financial cycle where damage to their credit rating makes it more difficult to qualify for affordable credit products.

Consumer-permissioned income and employment data can help people with subprime credit scores show they have the means to repay their loans. For example, if a loan applicant has steady income, a lender can see that immediately, so they can lower the customer’s risk and approve their application based on more than just their credit rating.

Uses for consumer-permissioned data

From lending to financial management, financial service providers can leverage consumer data for existing and new products that help customers with everything from loans to money management.

Lending

As discussed previously, a more complete picture of the customer’s finances from sources like payroll systems can fill in the gaps left by the traditional credit report. 

As such, consumer-permissioned data allows lenders to improve their underwriting models and expand their pool of customers to include subprime borrowers who are less of a credit risk than their FICO scores would indicate.

When an API automates processes like income verification, lenders also create a better user experience. 

Instead of having to manually submit paystubs, tax forms, bank statements, and other income data, a borrower can authorize the API to provide the data on their behalf. A recent J.D. Power survey found that “easy-to-use websites and mobile apps” became even more important in 2021. Enabling borrowers to quickly submit their data from a digital device is essential for customer satisfaction.

Renting

Consumer-permissioned data solutions play a significant role in tenant screening. Like with loans, when applying for a lease, a tenant must provide documents that show they’re employed and that their income is sufficient to pay. Manually submitting and verifying all this paperwork is a time-consuming process for everyone involved and is also prone to fraud.

To overcome these challenges, some proptech companies are leveraging consumer-permissioned payroll data to automate the process of income and employment verification. The solution saves time, prevents fraud, and stops incorrect data from wrongfully excluding applicants.

Earned wage access

Earned wage access (EWA) allows employees to withdraw their earnings at any time without having to wait for payday. Many EWA solutions today are available via employers, and there are also a number of fintechs that are working on offering EWA directly to consumers.

Financial service providers that want to launch EWA can rely on consumer-permissioned earnings and shift data from payroll systems and time & attendance platforms. With this data, they can reliably calculate the customer’s earnings in a given time period and make them available for withdrawal.

Financial management

According to Accenture, one in two surveyed consumers is interested in getting money management tips from their financial provider, including an analysis of their spending patterns. 

Even if their bank doesn’t offer this service, a customer can rely on banking APIs that allow them to share their transaction data with third-party financial management tools. Many popular AI personal finance apps rely on APIs to get consumer-permissioned access to the data inside a user’s bank account, which they use to offer budgeting advice, automate savings, and more.

Get access to consumer-permissioned data from a CRA

Whether you’re a startup fintech or a financial institution, making financial data sharing easier for your customers will help you improve your services. Using such sensitive consumer data also means fulfilling important regulatory requirements.

Any financial service provider that uses personal data for credit decisioning must comply with the Fair Credit Reporting Act (FCRA), which defines how consumer data can be used. As the only payroll data connectivity API that is a Consumer Reporting Agency (CRA), Pinwheel provides FCRA-compliant data to our clients, helping them protect consumer privacy and avoid penalties for misusing data.

High-quality, FCRA-compliant data is the foundation of Verify, Pinwheel’s solution that gives financial providers a comprehensive overview of their customer’s identity, employment, income, paystubs, and shifts data. Using these insights, banks and fintechs can improve different processes, such as KYC and assessing lending risks, and can gain more insights into their customers’ financial needs.

Get in touch if you’d like to learn more about how you can leverage the power of consumer-permissioned data for your product.