The Value of Verified Employment Data for Consumer Lending: Evidence from Equifax

44 Pages Posted: 14 Apr 2020 Last revised: 1 Apr 2021

See all articles by Tat Chan

Tat Chan

Washington University in St. Louis - John M. Olin Business School

Naser Hamdi

Equifax, Inc.

Xiang Hui

Washington University in St. Louis - John M. Olin Business School

Zhenling Jiang

University of Pennsylvania - The Wharton School

Date Written: March 18, 2020

Abstract

What is the value of verified employment data in consumer lending? We study this question using a data set covering all employment verification inquiries to Equifax. Using a difference-in-differences approach, we analyze the changes in applicants’ loan outcomes after their employers join Equifax’s digital verification system, which provides lenders with an efficient way of accessing the (employer-) verified employment data in auto loan applications. We find that the availability of digitally verified data significantly expands credit access: the loan origination rate increases by 35.5% on average, and is more significant among deep subprime (137%) and subprime consumers(46%). The interest rates charged on these loans only rise slightly. The expanded credit access also benefits lenders, with an estimated 19.2% increase in profit. This is because the benefit of the market expansion effect dominates the cost of a higher delinquency risk among the expanded loan portfolio. Our results suggest that, besides seeking new data sources, managers and policymakers should also consider ways to extract more value from existing data. The economic benefit of doing so can be sizable without additional privacy concerns perceived by the consumers.

Keywords: Inclusive Access to Credit; Digitization; Verification Cost; Information Asymmetry

Suggested Citation

Chan, Tat and Hamdi, Naser and Hui, Xiang and Jiang, Zhenling, The Value of Verified Employment Data for Consumer Lending: Evidence from Equifax (March 18, 2020). Available at SSRN: https://ssrn.com/abstract=3556554 or http://dx.doi.org/10.2139/ssrn.3556554

Tat Chan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Naser Hamdi

Equifax, Inc. ( email )

Atlanta, GA
United States

Xiang Hui

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Zhenling Jiang (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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