Credit decision state of the union

What in the market today are a bunch of open source code full of bugs, lack support and most of the code out there are dated and enterprise users are afraid to adopt them into their operating systems. Most of the credit decision engine hobbyists lurking on various online forms are amateurs and lack banking and finance knowledge foundation.

Some commercially available decision engines are dated, single threaded and extremely expensive to maintain. Some of the newer offerings are created with fancy UI and fake AI automation tools are a gimmick at best.

What large banks and lead aggregators need today is a speedy, multi-threaded, complete and omnipresent decision engine that interacts with all aspects of their needs with high availability. In this article, we will talk about some of the emerging needs and trends of use cases for a robust and modern decision engine software.

Cloud based decisioning software

Cloud based credit decisioning software provides high availability, redundancy and security. What we’ve found lately with emerging markets such as Africa and Southeast Asia is that their local governments require their citizen’s data to be stored locally or at a minimum in their geographical region.

There are many regional cloud service providers now in various geographies, should you export your decision engine software form US, EU to other regions of the world, you should consider first work with a local cloud provider and make sure their redundancy, availability are up to a certain standard of SLA (service level agreement) before launching your products internationally.

High availability and redundancy is core consideration for any decision engine software provider to consider. The software should reside across multiple regions for redundancy and the virtual machines should be sized up to the number of API (application programming interface) calls to be ready to handle peak number of requests during a given period or bursts of API calls during a certain hours of the day. These preparations can be simulated and prepared in advance to launch.

Security and penetration testing

As with any other types of enterprise system or platform, security audits and penetration testing must be performed on the system. Even if the decision engine provider is hosting their solution at a client’s cloud infrastructure, these tests must be performed. 

There is low level infrastructure penetration testing to check any leakage of certain ports or IPs exposed unnecessarily to the public. There is also software level penetration testing to see if there are any access points, logins that are exposed for hackers to log into the system without much attempt.

The most popular and widely accepted security audit is SOC2 Type 2. This is a series of tests and audits to test the strength of the entire company’s security infrastructure. From developers access points to password enforcement to cloud server monitoring procedures. This is a test and audit by third party auditing firms that is conducted on an annual basis. Any self-respecting enterprise software firm should have these auditing activities and auditing reports for their clients to review

Clients of decision engine software providers should ask for the latest penetration testing report and security audit reports.

Multi-tenancy

The multi-tenant concept in decision engines is defined in several ways. First, is the ability to host multiple clients on the same code base. And second, within each client, you should be able to host multiple decision paths that could run simultaneously. There are then concepts on how to execute product offers after a credit decision is made, but we will address that a little later.

For some banks or lead aggregator companies, the ability to run multiple sets of rules for each line of business or multiple affiliates is very popular nowadays. A use case for banks is that they should be able to make a different decision for their online customer and their in-branch customers from the same system.

Another use case for lead aggregators is that they should be able to make a separate decision for each of their affiliates such as creating a different decision path for their mortgage lender affiliate and their auto lender affiliates. The ability to manage these multiple relationships or tenants is now becoming critical for any successful decision engine software provider.

Multi-tenancy keeps all decisions in one place, it’s easier to manage and significantly lowers the cost of maintenance for banks and lead aggregators.

Multi-product underwriting strategy

For each bank or lead generator, their line of business or affiliates may have a deeper ask. Each applicant might need to be presented with multiple offers at the same time. Let’s examine a few use cases.

A bank needs the ability to offer a checking account, credit card, and a home equity line of credit product at the same time using on credit bureau pull and run through multiple decision paths. This saves money for the banks by reducing the amount of credit pulls needed for different product offerings as well reduce compliance risk coming from end users. This gives the bank the ability to cross sell the customer at the moment of application as opposed to chasing clients with emails and letters afterwards.

For lead aggregators, their affiliates may offer multiple products and would like for the lead aggregators to tell their applications that multiple offer approvals are possible. For example, an affiliate may offer a personal loan and a credit card product. The lead aggregators should be able to run a rudimentary personal loan underwrite strategy and the credit card credit rules at the same time for that particular affiliate. This maximized the lead aggregator’s ability to match a product to their applications and also maximize their affiliate’s exposure to potential new customers. 

Product offering, beyond the underwriting decisions

Almost all of the credit risk decision engines lack product offering support. A product studio is a must to provide a complete solution for banks and financial services companies.

As an example, an underwriting decision is rendered. That’s great, but what now? A complete decision engine offering should link a decision engine outcome to a product offer.

Most of what's available today on the market either doesn’t offer a product engine or can only return a single product flavor. These solutions lack a major functionality for banks and also lacks imagination when it comes to providing a product management studio for banks to configure their product offerings.

What’s a product engine studio

A product engine works hand in hand with a credit decision engine. Whereas the credit decision engine works on identity verification, income verification and credit worthiness decisions, the product engine takes over after an approval decision is rendered.

The product engine should have the ability to construct any product by using any parameter available within the decision engine studio.

For example, an installment loan offer may need credit score and debt-to-income ratio as a simple two parameter offer construct to render a loan amount, interest rate and duration of the loan. But what if the bank needs to use a much higher multivariate setup?

An offer engine should provide the ability for the user to program their offers by using any number of parameters to produce a very specific offer for a small group of customers if they so choose. 

So when you pick your next decision engine implementation, please make sure it comes with cloud infrastructure, the ability to handle multiple lines of businesses within each business, the ability to offer multiple types and flavor the products. That’s a true mark of a modern decision engine.

Next time, we will talk about caching and the ability to use and reuse information from third parties to produce even more results from your own applicants and affiliate clients.

About LendAPI

LendAPI is a DIY digital onboarding platform with a fully customizable product builder and an integrated graphical Decision Engine. LendAPI’s application workflow, sub-tenant management, third party integrations plus customer portal and communication methods is a complete end to end solution. It’s free to signup.