Bank Account Intelligence: The New Frontier in Credit Decisioning

A bank account represents a direct connection to a business or consumer’s daily financial life.

It holds all manner of data points that give lenders and payment service providers the information they need to improve their decision making, ward off would-be fraudsters and inform credit underwriting.

Call it “bank account intelligence.” As ValidiFI CEO John Gordon told Karen Webster in an interview, the granular details that give insight into an account’s behavior and payment performance are critical in improving the financial ecosystem at large as enterprises are better informed about attractive customer behavior that speeds approvals — and gets to more positive outcomes in the process.

To be sure, ACH volumes have been on the rise, and as Nacha estimated, there were more than 31 billion ACH transactions in 2023, representing $80.1 trillion.

“ACH is here to stay,” Gordon told Webster, adding that “there are benefits to service providers that they want to realize.”

Key among those benefits is pay by bank, which cuts down on transaction costs and can give rise to new use cases as faster payments become the norm.

“But the key to the arrangement is that if I’m going to take your pay-by-bank instructions — your bank account and routing number — I need to confirm that the account in fact belongs to the consumer who’s making the application or making the payment,” he said.

Some Blind Spots

Nacha, for its part, has rules in place for debit transactions that demand account numbers must be validated. However, that rule does not go far enough, said Gordon, who added that fraudsters have gotten adept at using synthetic identities and other ruses to hide behind legitimate account numbers.

“What we find is that people who perpetrate fraud have scenarios where they use the same bank accounts, or they have a high frequency of change in those metrics,” he said.

In addition to fraud, risks tied to ACH payments can come in the form of what Gordon termed “returns that have no recourse,” or “fatal returns,” where transactions can’t be reversed, and in some cases, consumers have put “stop payment” instructions in place, which means that organizations must shoulder the loss.

These are blind spots that need to be addressed by strong verification processes, Gordon said.

There’s another blind spot when it comes to extending credit. Lenders rely on FICO scores, which in many cases are well-ingrained and valuable tools, but they sometimes come up short regarding applicants’ ability to repay their loans.

The average FICO score in the United States is 715 and has been on an upward trend through the past decade, Gordon said.

“But you’d be hard-pressed to believe that the consumer is in better shape based on Consumer Price Indexes,” he said. “…While you need a FICO score, we believe there’s more to know.”

FICO may be best viewed as a lagging indicator of creditworthiness and ability to repay, he said.

“But bank data and the consumers’ bank relationship, with all the information that’s presented, can fill in the gaps,” Gordon said. “What we have found is that if you’re just looking at accounts and routing numbers and not looking at the marriage between the account, the routing number and the consumer who’s applying with it — well, then, you’re missing the opportunity to better quantify that consumer on a number of different levels.”

The Platform Moves Beyond Routing Numbers Toward Predictive Intelligence

ValidiFI’s Omni Platform, with 1.1 billion inquiries from consumers, cross-references identity information and bank account details, helping provide a more holistic view. The platform determines whether phone numbers and email addresses are still valid and how many email addresses may have been tied to an individual.

If there are four addresses opened in a 90-day period, a consumer’s risk profile soars by 70%, Gordon said. A series of non-sufficient funds transactions raises the likelihood that the next payment is also going to be a non-sufficient funds transaction by a similar 70%. It turns out that access to 90 days of transactional data carries strong value when it comes to predicting the consumer’s ultimate behavior.

“What we do is identify places, based on the velocity of bank accounts, where we can say, ‘This is potentially fraud’ or ‘That account is invalid,’” Gordon said. “We’re helping [lenders] flag things to drive things where they may want to inject friction into the process” so that they ultimately can make a better-informed decision about the individual.

“You’re going to get insights that are not only going to tell you that this is potentially fraud, but you’ll also get insights around the stability of the account, payment performance and how the consumer lives within their own financial means,” he said.

By extension, predictive bank-account-level intelligence can open the door to new financial ecosystems taking shape, including pay-by-bank use cases. Gordon offered the example where ValidiFI client PDI Technologies’ GasBuddy — which provides services to convenience stores, marrying pay-by-bank capabilities with the stores’ loyalty cards — has been able to approve more consumers as ValidiFI quantifies the consumer-bank relationship and assigns appropriate risk levels.

“The more I can say yes, the more I get to the end game, which is the connection between the brand and the consumer,” he said.

“We’re in the facts business and the information business” rather than existing solely as a fraud prevention solutions provider, Gordon told Webster. “We want our clients to have access to more information that’s going to give them more ‘yesses,’ and a basis upon which to make those decisions … and a better credit experience through data.”