# The Evolution of Underwriting Financial Products
Over the last 10 years, technology has revolutionized the underwriting process for financial products by making it more automated and scalable. The underwriting process involves scrutinizing different characteristics of customers, such as age, income, employment, and financial requirements, to decide whether to approve their application and what rate to charge. In this post, we will discuss the different ways underwriting has progressed significantly in the last decade.
## Point Scoring for Underwriting Financial Products
Point scoring is a key underwriting method that evaluates a customer’s data against a lender’s preferred scoring system. Lenders use software or APIs that factor in thousands of data points, such as age, income, gender, residential status, and credit score, to determine the likelihood of a customer paying back on time. A customer’s score determines whether they will be approved or declined for a financial product.
The advantage of point scoring is that it is quick and easy to factor into the overall score and automate decision-making. Lenders can collect previous historical data to predict whether a certain demographic is a better customer type. They can then adjust the score to accept or reject a particular risk level.
## Automated Credit Scoring
Credit scoring has become astonishingly automated, thanks to credit reference agencies or bureaus that lenders use to get real-time data on a customer’s financial status. This data includes details on how many other loans or forms of credit a customer has been applying for and how many debts they have outstanding. This information helps vendors make an informed decision on whether to approve an application or not.
Credit scoring is based on numerical values and credit scores, making it easy to factor into the overall score. Automated credit scoring has significantly streamlined the underwriting process for financial products.
## Social Media as a Factor When Underwriting Financial Products
Credit card processors have found social media and email accounts useful in underwriting for many years. These tools were not available a decade ago. By evaluating basic social media accounts such as Facebook, Gmail, or LinkedIn, financial institutions verify the applicant’s identity and employment status.
This process is automated and helps to reduce fraud prevention. Overall, using social media is not only useful for confirming names, locations, and employment, but it is also hugely beneficial for fraud prevention.
## Recent Use of Artificial Intelligence
Artificial intelligence (AI) has become an essential tool in underwriting financial products. Providers can now incorporate AI into decision engines instead of continually updating scorecards. The AI system can learn on its own by getting real-time information of which customers are repaying on time and defaulting, which providers can feed back into the underwriting process.
By incorporating AI into the underwriting process, providers can make it more effective, lower default rates, and maximize profits.
The underwriting of financial products has come a long way in the last decade. From point scoring and automated credit scoring to social media and AI, technology has streamlined the process and made it more efficient. Going forward, we can expect breakthroughs in AI, machine learning, and blockchain to have the biggest impact on scaling up processes and operations for companies in the financial space.
In summary, technology has made the underwriting process for financial products more efficient and scalable. By incorporating AI, machine learning, and blockchain, financial institutions can lower default rates and maximize profits. The evolution of underwriting is a continuous process, and we can expect to see many more exciting advancements in the future.