Apr 29, 2020 Walt Wojciechowski
The software that supports your consumer lending business can't provide all the information loan officers require to make decisions.
For example, an application that contains borrower profiles may provide credit decisioning data, but rely on Fannie Mae's Desktop Underwriter system to calculate risk. In this case, an application programming interface (API) allows DU to send risk assessments to your loan approval software.
An API is a series of protocols and routines that allow two different applications to exchange data. Developers create them for the purpose of allowing software with limited capabilities to call on functions from other systems. In consumer lending, APIs provide access to the data enterprises require to safely engage prospective borrowers.
"The quantity and quality of data at a consumer lender's disposal dictate the institution's competitiveness."
Where APIs fit into the consumer lending process
The quantity and quality of information at a consumer lender's disposal dictates the institution's competitiveness. A bank capable of cost-effectively obtaining relevant, accurate information regarding individuals' borrowing habits is better positioned to set up low-risk loans than a credit union that struggles to verify the quality of its data.
One data validation method entails comparing and contrasting the same information from two different sources. For example, we've written about how traditional consumer credit reports may contain inaccuracies. Sometimes, a credit bureau may list the wrong phone number or address. Sometimes, if two consumers have the same name, a credit agency might list a lien, judgment or eviction record on the incorrect report.
To validate the information within a credit report, an institution could contrast that information with data contained in other credit reports. Alternative credit reports, for instance, also gather personally identifiable information such as bankruptcies, property ownership, phone numbers, address histories and Social Security numbers among other details.
A lender could be correlating credit information from various sources manually, or automate the process using data validation algorithms. This is where the API comes into play - the program gathers data from different credit agencies automatically and sends it to a lender's internal system. The latter solution runs the data validation code, confirming whether personal identifying information and other details are accurate.
This is just one of many examples of how consumer lenders can leverage APIs. Goldman Sachs is actually launching a new service that depends heavily on this technology.
How Goldman Sachs uses APIs
TechTarget wrote about a discussion at Harvard University's Institute for Applied Computation Science, during which Martin Chavez, CIO and deputy CFO at Goldman Sachs, spoke about how the financial advisory company built an online consumer lending service called Marcus on APIs.
Chavez and his team built the platform in 12 months. Through APIs, Marcus uses solutions such as AWS Elasticsearch and Apache Kafka as well as connects customers to services such as Twilio, FICO and Adobe.
"One of the things we're insisting on is a very high standard of lovely and impeccable documentation for these APIs because we're opening up the vertical monolith, which used to have only one API point, which was human beings on the phone, and now has many RESTful APIs," said Chavez.
Instead of using humans as the go-between for information Marcus uses APIs. It's a fantastic example of how the technology is changing the operational demands associated with consumer lending.