A payslip shows a number, it does not prove the income is real

Swedish media, including Dagens Nyheter, have reported on fake payslips, manipulated documents and false income information submitted to the Swedish Tax Agency. At the same time, banks need to become better at detecting inaccuracies without making the credit process slower. Income verification is therefore increasingly about combining multiple data sources within seconds to distinguish between income that is real and income that only appears to be.

Asking a borrower to submit their latest payslips has long been a natural part of income verification. The problem is that the documents essentially only show what someone claims to have earned. 

“A payslip is essentially a statement. You cannot see whether the income has actually reached an account or what it has looked like over time. With the tools available today, a document can also be manipulated,” says Ebba Blom, Data Scientist at Kreditz.

The problem has also been highlighted by the Swedish Economic Crime Authority. In the latest issue of Kreditnytt, Lynn Ehn, crime prevention specialist at the authority, describes how false income information can be used to obtain credit:

“By creating fake employment certificates and submitting incorrect income information, individuals can appear creditworthy even when the income does not exist,” she writes.

But the issue is not only about fraud. For banks, traditional income verification often means more steps, more administration and a slower process for the customer, which in turn increases the risk of losing that customer.

“If one bank requires three payslips and an employment contract while another bank can verify the income digitally straight away, the first bank simply risks losing the customer,” says Sebastian Grigander, Client Director at Kreditz.

An official figure does not always tell the whole story

Data from the Swedish Tax Agency shows reported income, while bank transaction data shows what has actually been paid into an account. Bank data can also reveal tax-free income streams that are not reflected in data from the Swedish Tax Agency. There is also a question of timing. Someone who has recently changed jobs or is self-employed may have a financial situation that is not reflected in their latest reported income.

“At Kreditz, we work with several independent data sources. If the Swedish Tax Agency reports a higher income than what we see in the bank data, there may be something that does not add up. If the bank data instead shows other recurring income, we can identify that. We can use one source to fill the gaps in another,” explains Ebba Blom.

Kreditz combines monthly updated income data from the Swedish Tax Agency with transaction data from PSD2 to compare and analyze current and historical income, giving banks and lenders a stronger basis for decision-making.

“A customer may provide false information in a loan application, which in turn is based on incorrect information from official sources. That is the kind of problem we want to address. From a commercial perspective, it is also about creating a better and smoother process,” says Sebastian Grigander.

From three payslips to seconds

In a traditional process, a customer may need to provide three months of payslips. When someone has recently started a new job or has a more variable income, the bank may also require an employment contract or other documentation. Documents need to be retrieved, submitted and reviewed, and sometimes the bank comes back with additional questions.For the bank, this type of verification also creates significant administrative work.

Information needs to be collected and reviewed, and in some cases the bank may even need to contact the customer and their employer to verify that the information is correct.

“We recently spoke to a bank that sometimes calls the end customer to get permission to contact their employer and verify their salary. That requires a lot of time and resources from the bank, while some customers may not want their employer to know that they are applying for a loan. It can be very sensitive,” says Sebastian Grigander.

With a digital process, verification can instead take place directly during the loan application.

“The consent process with BankID takes a few seconds. The bank can then immediately access both bank transaction data and information from the Swedish Tax Agency,” explains Sebastian Grigander.

He describes a bank looking to grow its unsecured lending business, but whose current verification process is negatively affecting conversion.

“I emphasize again; every additional step you add creates a risk of losing the customer,” says Ebba Blom.

Even when a bank needs to perform a more extensive assessment, this does not necessarily have to mean a longer or more complicated process for the customer.

“If the analysis does not identify any risks, the customer can continue immediately. If something in our system triggers a signal, we can go back to the data and see where that signal comes from. That is a major strength of Kreditz. Our data sources complement each other,” says Ebba Blom.

From data to important information

Access to more data sources is only part of the solution. The information also needs to be interpreted.A bank transaction does not, on its own, tell you what the money represents. That is why Kreditz uses models that categorize transactions and identify different types of income.

“We have built our analysis capabilities in-house over many years. Our job is essentially to turn data into information,” says Sebastian Grigander.

For Ebba Blom and her colleagues in the data team, the work involves identifying patterns and understanding how different data points relate to one another.

“There is a big difference between looking at a document and actually verifying that the income exists,” says Ebba Blom.

Fraud is getting smarter, and verification needs to keep up

Fraud is also becoming increasingly sophisticated, including through the use of AI.

“Say you have managed to manipulate your bank data, but the day after we verify your financial situation, you move the money abroad. We can flag that as a risk as well,” Sebastian Grigander emphasizes.

Just a few years ago, there was also another question: whether consumers would actually be willing to share their bank data. According to Ebba Blom and Sebastian Grigander, that barrier has become much lower.

“When I started at Kreditz a few years ago, we often got questions about whether people would really want to give their consent and share their data. Now I notice very clearly that people are willing to do so when they know who they are sharing their information with,” says Sebastian Grigander.

At the same time, the development is moving toward consumers being able to share more types of financial data. With FiDA, the EU framework for Financial Data Access, the ambition is to enable secure sharing of financial information beyond the payment account data covered by Open Banking today.

“The next step will be even more data sources. At Kreditz, we are well positioned as new requirements and opportunitie emerge particularly in connection with the CCD2 regulation,” says Ebba Blom.

Sebastian Grigander sees significant opportunities in this development:

“When we get the opportunity to work with more relevant data sources through standardized APIs, we can also perform even better analysis. We are eager to do even more with the data.”

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