Income verification is a complex and often inefficient procedure, with too many opportunities for jam-ups and errors. If done poorly, it can really slow down workflows and decrease your organization’s effectiveness. If you have clients waiting on the results, any lag time could cause you to lose out on valuable business.
Thankfully, technology has made huge strides in streamlining and optimizing income verification protocols, even in just the last few years. Financial institutions and third-party providers can take advantage of many new ways to verify income faster and more accurately.
These technologies are necessities if you work with renters, loan applicants, or in any industry where income verification is required. Here are some of the latest developments that could make your job run a lot more smoothly.
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1. APIs
Source: corporatefinanceinstitute.com
An API, or application programming interface, is a string of code that lets different software programs talk to each other. An API enables one platform to seamlessly pull and utilize data from another, saving users a lot of steps. Many APIs are publicly available, allowing developers to experiment with different use cases or ways for software programs to interact.
One very common way that APIs are used is to verify payment or password information on different websites. When you log in to a website using Google, the site asks Google — via Google’s Sign-in API — to authenticate your information. Google then shares some of your identifying details with the website, saving you the trouble of typing it in yourself.
Third-party income verification platforms use APIs to pull information from banks, payroll systems, and other electronic data sources. With this information, a platform can quickly determine whether a user is eligible for a loan, mortgage, rental property, etc. With APIs, information from pay stubs or employers does not need to be manually entered into a platform.
You can learn more about the various steps and challenges involved in verification of income here. In short, though, APIs can eliminate the need for tedious processes like submitting paperwork, emailing files, and verifying documents’ authenticity.
2. Open Banking
source:moneycrashers.com
Open banking is the set of conceptual ideas and regulatory practices that allow financial data-sharing — via APIs — to happen. Prior to open banking, individuals had little control over their data, and banks kept customer’s information within their own systems.
With open banking, individuals are able to release their financial information to companies and other third-party providers. This gives them access to different kinds of financial products, including apps that help them save money or earn rewards.
In other countries outside of the United States, open banking has been standard practice for a long time. In 2010, the Dodd-Frank Act coded open banking into U.S. law, paving the way for fintech companies to operate.
Since then, other laws have made it easier for third-party providers to access data from financial institutions via open banking. Most modern income verification practices, like online platforms that allow quicker access to banks’ income data, rely on open banking.
3. Machine Learning and AI
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AI and Machine Learning power some of the more advanced income verification software. These technologies remove human error from the process of scanning hundreds of documents and performing complex income calculations.
In addition to simply determining an individual’s income, machine learning models can identify patterns in the data and documents provided. It can use these patterns to predict whether or not an individual (or organization) will ultimately default on a loan.
Natural language processing (NLP) technology, in combination with machine learning, can even analyze writing related to income verification processes. It can analyze emails and other written communication to find inconsistencies — including recognizing tone and flagging potential dishonesty or fraud.
AI can, theoretically, also be used for facial recognition in order to confirm an individual’s identity while verifying their income. This practice, however, is pretty unpopular, and in 2022 was dropped by the IRS due to privacy concerns.
4. Blockchain
source:goodfinancialcents.com
Blockchain is an unalterable form of digital ledger that can permanently store records of financial transactions. It is decentralized, meaning no single authority (like a government or a bank) has control over it.
Some blockchain enthusiasts say the technology could make current income verification procedures obsolete. This is because transaction records are stored in thousands of distinct digital locations, virtually eliminating the possibility of human error.
More likely, blockchain technology will be used by existing financial institutions and fintech companies to improve recordkeeping and data exchange. The technology could make verifying transactions much faster (minutes versus days) and less vulnerable to fraud or inaccuracies.
That said, there is some controversy as to just how immutable data stored with blockchain technology actually is. And there have already been incidences of fraud and theft in spite of the widely held belief that blockchain can eliminate these risks.
Keeping Up the Pace
These are just some of the most recent technology updates that are improving the efficiency and accuracy of income verification. In the fintech world, things evolve so fast that there could be a dozen new solutions by the time you read this.
Burdensome regulations and stuffy institutional practices can gum off the works and keep some tech from getting off the ground. But just because banks may be slow to adapt doesn’t mean your organization should be. To win, forward-thinking companies should always be ready to try out new tools and advances as they come.
