Published on 5/3/2023
Lending and Alternative Finance Terms 101
Whether you are new to lending or simply looking to get a better understanding of the terms your lender is using, you’ve come to the right place. We will take you through some of the most common terms used in alternative finance and save you from having to Google every word and then Google the definition it gives you. (Yes, we have to do that too sometimes)!
What is IAV?
This is a common term in the lending and alternative lending industry. IAV, or Instant Account Verification, and Instant Bank Verification, or IBV, refers to a bank verification process. Both terms are used interchangeably and typically involve entering your online banking credentials into a secured site or app that gives your lender a read-only version of your bank statement. This is a digital bank statement that shows all your balances and transaction history to help make a determination on if, and how much, a lender is willing to lend you.
Another term that will come up in the IAV process is “MFA”. You may have heard this acronym before and know it has something to do with your online banking, and you are absolutely correct! MFA, or Multi-Factor Authentication, are the security credentials commonly used when logging in to your online banking. Though it’s becoming more and more common for other online applications and websites to use them too. MFA comes in many forms such as an OTP, or One Time Pin. This is a code that is texted to you to be added as another layer of verification at the login process. Other MFA’s include picture grids where you might be asked to “check all the squares with a car in them” to ensure you are a real person and not a robot or AI. The most common form of multi-factor authentication for online banking are security questions. Things like “what was your middle school mascot?” or “who was your dog’s roommate’s second cousins’ best friend?”. (Cuz we all remember that stuff)? Some banks will have one security question, while other will have 6 or 7 of them.
What is IDV?
IDV, or Identity Verification, is exactly what it sounds like. It is a system, software or process used to make sure you are who you say you are. This is to protect both the vendor and customer from fraud. IDV in the lending industry is often a digital process involving key pieces of information that are verifiable, and hopefully safeguarded so that you are the only individual that would know the details. These include things such as your name, address, phone number, social security number, and sometimes email address. It is also common to see lenders ask for driver’s license number and date of birth. The more pieces of information they have that can be matched up, the more confident they can be of your true identity. While it can feel worrisome to hand over those personal details, it’s for your security too. Think of it like someone asking for your car keys. Would you hand them over to just anyone without asking any questions? Probably not. You’d be asking all kinds of questions to safeguard that precious ’98 Honda you call “Hank” when no one is looking. This is your identity though, and no offense to Hank, but the more questions lenders ask, the better for your financial safety.
What is Auto Decisioning?
Let’s take a break from the acronyms for a second and talk automation and auto decisioning. This sounds like a highly technical, very complicated enigma machine kept behind closed doors. To be honest, it can be, but we are going to unpack it for you. When a lender has a borrower fill out a loan application, there is a lot that needs to happen behind the scenes to get the answer needed to approve a loan. Who is this person; have we seen them before? If so, did they pay back their loan? If we give them a new loan, how much can we give them? How will they pay it back? When will they pay it back? And that’s just the top 5 inquiries! To be able to answer all pertinent questions, the lender needs to review and process the information on your application, verify your identity, and verify your income. Some have to verify employment and other items too depending on state laws. This work can be done manually, but more and more lenders depend on different types of software to make each step faster and easier for them and the borrower. For example, using an IBV or IAV software to allow the borrower to verify their bank account details in less than 2 minutes from the comfort of their couch instead of making them go get paper copies of their bank statement.
If the lender uses a software to verify a digital bank statement, and another software to verify identity, and yet another to verify employment, it makes sense to string these together through a website so the whole process seamlessly flows like a little waterfall. (Fun Fact: that’s actually what they call the process of going through the loan application digitally). When the waterfall process is set up to automatically flow through each step it is called automation. Sometimes, the last last step in an automatic process is to curate all the details the lender finds most important and run them through a set of decision rules. The result will be a recommendation to the lender on if they should move forward with the loan or not. This is called auto decisioning. Some lenders use auto decisioning as a filter only and the loan applications that don’t pass this process are still reviewed manually. Some allow “a second look” for you to provide other documentation to help your increase loan worthiness. Every lender is different, but almost every lender is looking to automate their process to make everything faster and easier. Automation and auto decisioning make good business sense for them, and is less time wasted for you.
What is BNPL?
BNPL or Buy Now Pay Later is exactly what it sounds like. It’s not really a regular loan, more of a line of credit so you can have something right away and pay for it in installments or several smaller payments over time. BNPL has become hugely popular to pay for everything from used books to vacations. Instead of trying to save up $600 for plane tickets to Hawaii, you can make $100 payments once a month which is much more manageable for many people. This new way to lend is making wish lists, and bucket lists achievable for some like before.
What is KYC?
Back to the acronyms, KYC is a big one and stands for Know Your Customer. This is a common lending and banking term with the purpose of understanding who your customer is and the nature of their business needed for regulatory standards. There are several laws around anything to do with the movement of money so it makes sense that lenders would be included in this directive. As discussed above with IDV, KYC exists to safeguard everyone involved so as you can guess, IDV is a major player in KYC. Identity verification software, plus some basic questions are routine for a Know Your Customer process.
What is an LMS?
An LMS, or Loan Management System, is a system (usually a digital dashboard) that helps lenders keep track of loans, where they are in the process, next steps, and documentation. They can be very sophisticated and fully automated with auto decisioning (throwing in those new words already!) or a very simple tracking and storage system. This is often confused with an LOS or Loan Originations System, which is a software that usually helps find and track leads for lenders. Leads, in this instance, are an opportunity for a loan. It may not seem like the case sometimes, but lenders really want to lend. If you don’t get money, neither do they. LMSs and LOSs are both popular tools in the lending and alternative finance industry.
What is the DecisionLogic Difference?
Ok, so maybe this isn’t as common a question, but it is a phrase frequently used by anyone who knows us. You see, we don’t see our customers as just another customer. We believe in being a true partner in our customers’ business, and that extends to every aspect of their process.
Our interface is built to make the IAV process as fast and easy for the borrower as possible, with the highest-level security available. We listen to our customers and work constantly to optimize the platform as the industry and business needs change.
As a partner, the lenders’ customers are also our customers. Their success is our success. We have world-class support teams for lenders, their tech teams, and their borrowers. Real humans, helping humans with a genuine interest in getting the best resolution possible via phone, email, or chat. We also don’t believe that good customer service comes at a price, and every customer and borrower receive the same white glove service regardless of the relationship.
