In the world of pre-approved loans, income verification stands as the gatekeeper to financial nirvana. But what happens when borrowers and banks engage in a game of hide-and-seek with crucial financial documents?
Picture this: A borrower walks into a bank, and dreams of homeownership or entrepreneurship dancing in their eyes. The bank, armed with forms and checklists, eagerly awaits the paperwork that will unveil the borrower’s financial reality. However, what unfolds next is a tale as old as banking itself: The elusive quest for precise income documentation.
Income estimation follows, as banks struggle to piece together a full picture on the financial status of a borrower. But what happens when the information provided is inadequate, or worse still, inauthentic? Join us as we delve into the enigmatic world of income estimation, where clarity is scarce, and confusion reigns supreme.
How are lenders currently assessing creditworthiness?
Currently, banks and non-banking financial companies assess income for salaried and non-salaried individuals using the following documents either individually or in combination:
- Bank Statements: Borrowers typically submit recent bank statements to demonstrate regular deposits and sources of income, such as salary deposits, investment dividends, and rental income. Lenders may rely on bank statements to ascertain income from various sources.
- Salary Slips and Employment Verification: Borrowers also tend to submit recent pay slips from their employer to adduce proof of income. These payslips mention gross earnings, taxes withheld, and other deductions. Lenders tend to request multiple pay stubs to verify the consistency of income.
- Financial Statements (for businesses): Businesses and self-employed individuals may be asked to provide financials to verify income. These documents present the financial performance of the borrower’s business over a specific period of time, to attest to consistency of income.
- Tax Return Documents: Individuals’ Income Tax Returns and Businesses’ GST Returns may be relied on to verify income.
At IDfy, we have a one-stop-shop solution that allows you to fetch, extract, and analyze all these documents.
Income verification using Bank Statement Analyzer
A Bank Statement Analyzer is particularly useful in income verification. It offers insights over and above regular forms of income verification, given the depth of information it presents.
Banks typically approach comprehensive income classification for salaried and non-salaried borrowers through keyword, credit profile, and imputed income analysis.
Keyword analysis helps trace bank statements for words like income, salary, and a range of other common synonyms. The challenge, though, is that language is not always linear, meaning that line items do not always use commonly known synonyms.
Credit-profile analysis builds a comprehensive credit profile even in the absence of details of regular transactions. This is done by determining and listing out the top sources of credit in relation to frequency, thus building a borrower’s financial profile and drawing out insights on their creditworthiness. In the absence of precise information, however, most assessments may be guesswork.
Imputed income is derived by estimating the borrower’s gross income and deducting expenses from it. This presents the net income, which can be evaluated to see if the borrower’s net disposable income is higher. However, this may only offer a part of the full picture.
Typically, income verification supports lenders by giving them insights on the borrowers’ financial history. BSA helps identify the potential sources of income beyond salary – such as investments and rental income among other things. This gives lenders a comprehensive overview of the borrower’s financial capacity.
BSA also offers negative database checks, which can help mitigate risk by identifying red flags associated with the borrower’s financial history. This includes detecting instances of default, bankruptcy filings, or other adverse financial events.
With the help of sophisticated algorithms, BSA identifies relevant keywords and recurring patterns within bank statements. The analysis of transaction descriptions and frequency help lenders discern consistent sources of income and expenditure patterns.
Finally, BSA also assigns confidence scores based on the consistency and reliability of the sources of income. This gives lenders all that they need to make informed decisions regarding loan approvals.
Dealing with tampered statements
It is entirely possible that a bank statement submitted for analysis may be fraudulent in its entirety – it may have been tampered with in part or in full. In such cases, BSA can come in handy as a tool to verify the authenticity of a statement.
Authenticity checks can sniff out everything from fudged-up numbers – think repetitive round numbers for particular transactions, to entirely concocted statements. Authenticity can be verified through simple actions like verifying statements against existing templates, paying close attention to the numbers reflected against particular transactions, looking for particular patterns that reflect suspicious activity, and deploying technology that detects physical tampering and distinguishes between original documents and printouts.
The IDfy BSA API ensures the integrity of financial statements. For instance, our bank statement analyzer includes upfront ML-based document authentication and tampering checks using advanced algorithms. This ensures the integrity of financial statements.
Finding your perfect BSA API
While choosing a BSA API, we’ve found that most vendors overlook making use of keyword-based rules and ML algorithms. Our API ensures the accurate detection of income & EMI Obligations for both individuals & for businesses to provide valuable insights for underwriting decisions. It also includes advanced analytical capabilities, customizable risk scoring, and detailed transaction categorization. This enhances risk assessment and delivers more informative outputs.
Recognizing that switching from existing vendors to more customized solutions presents challenges, our API offers customizable output fields and seamless integration with client backend systems that facilitate a smooth transition from previous vendors.
