New features for the Decision Engine

December has been a bumper month for new features for NestEgg’s Decision Engine. Here we describe how we’re using Open Banking and recent search history to further improve loan assessment.

Open Banking self-categorisation

One of the biggest challenges with Open Banking is the lack of categorisation. If transactions aren’t allocated correctly, affordability assessments won’t be accurate.

Local knowledge, such as Loan Officers knowing local employers and shops, improves income and spending categorisation.

To put this expertise to best use, NestEgg has introduced Open Banking self-categorisation.

Individual users of the NestEgg Decision Engine can now allocate bank account transactions to a category of income or spend. As a result the quality of open banking information used for credit assessment improves. With 200+ loans officers across 40+ lenders, categorisation will be unrivalled.

Affordability alerts

Improved categorisation enables new affordability alerts, merging Open Banking and credit bureau data for the first time in responsible lending.

Due to the cost of living crisis, many people no longer have enough money to pay all their credit commitments. NestEgg uses Open Banking to calculate discretionary spending, allocating a portion for loan repayments. The Decision Engine combines this with credit bureau data, deducting existing credit repayments from disposable income to assess loan affordability.

In the example below an individual has discretionary spending of £1,110. We use 35% of this figure for a proxy for disposable income. Current credit commitments are £272 and so the surplus is £116 per month. However the proposed loan repayment is £176 which exceeds £116 by £60. This suggests that the loan isn’t affordable:

An additional alert helps identify when an individual might be using credit to pay for day to day living expenses. NestEgg does this by using Open Banking to display an alert when the applicant’s current account has a low balance (e.g. under £50) for more than e.g. 10 days.

A secondary alert is provided if the applicant also has a high balance on their credit card. The implication is that the applicant is using credit to buy groceries and other day to day living costs. Therefore the loan isn’t affordable.

Only by combining open banking and credit data can an accurate estimate of affordability be made.

Recent searches

NestEgg research suggests applicants who have applied for credit three or more times in the last three months are more likely to have high credit card balances. This is a significant factor for lenders considering an application for revolving credit.

A high number of searches in recent months may also indicate an applicant has been looking for a consolidation loan recently. They’ve probably been rejected. This is an important piece of information if they’re now applying for a consolidation loan once again.

New information about recent credit searches in the Decision Engine includes the number of searches in a given period together with information about the creditor and amount applied for. Additional rules are available that would loan applications where an agreed number of searches have been made over a configurable period of time.

Plenty in store for 2024

NestEgg will be continuing to roll out our broker platform and loan matching services over the holiday break. This includes new decisioning functionality based on soft credit checks or open banking connections. Secondary bureau checks, risk based pricing and a new user interface are also on their way in Q1, 2024.

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Adrian Davies

Adrian is a co-founder at NestEgg. He is an alternative finance and credit union expert. Adrian has 25 years’ experience in the money advice and responsible lending sectors, supporting credit unions with innovative ideas so they can grow and meet member needs.

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