## Overview

Our Affordability product empowers businesses to determine how much an end user can afford to pay per month by analyzing their income and spending patterns. By leveraging real-time Open Banking data or customer-provided transaction data, we provide a reliable estimate of affordability. This enables faster, data-driven lending decisions, improved risk management, and enhanced customer experience—all while promoting responsible financial practices.

Affordability can be used in two ways:

- **Open Banking Journey:** The end user connects their bank account via Open Banking, and we retrieve the necessary data.
- **Affordability Engine:** Customers feed their own transaction data into the API for processing, bypassing the Open Banking journey.


## Challenges We Help Address

- Making instant, accurate lending decisions with Open Banking data
- Reducing reliance on end users to self-report financial commitments
- Detecting inaccurate or misleading income and expense information
- Accelerating collections and recoveries with better repayment estimates
- Avoiding administrative delays in identifying loans and debts on credit reports
- Replacing paper-based processes with automated, real-time insights


By combining income analysis and expense categorization, our Affordability product ensures smarter lending decisions, reduces risk, and enhances operational efficiency.

## How It Works

### Types of Spending

Categorizing spending is essential for calculating affordability. Our Affordability product uses the Standard Financial Statement (SFS), a standardized tool for listing incomes and expenses. Spending is divided into three main categories:

1. **Fixed Costs:** Essential, non-discretionary expenses that occur regularly (e.g., rent, loan payments).
  - *Example:* Fuel
  - *SFS General Category:* Transport and travel
  - *SFS Specific Category:* Fuel, parking, and toll road charges
2. **Flexible Costs:** Discretionary spending that varies and reflects lifestyle choices (e.g., gym memberships, entertainment).
  - *Example:* Clothing
  - *SFS General Category:* Personal costs
  - *SFS Specific Category:* Clothing and footwear
3. **Debt Fees:** Payments on unpaid debts passed to collection agencies. Unlike regular loan payments (which are fixed costs), these are treated separately as they indicate financial distress.


## Calculating Affordability

Our affordability calculation follows a step-by-step process to ensure accuracy and consistency:

1. **Obtain Data:**
We receive transaction data for analysis. Customers can either allow us to retrieve bank transactions via Connect or provide their own data.
2. **Categorize Transactions:**
Our Categorization Service assigns each transaction to one of 81 categories, which are then grouped into SFS categories: fixed costs, flexible costs, and debt fees.
3. **Calculate Income:**
Our Income Verification Service identifies the end user’s recurring income streams and determines their monthly income.
4. **Calculate Spending:**
We calculate the average monthly amounts for fixed costs, flexible costs, and debt fees.
5. **Calculate Affordability:**
Affordability is calculated as the difference between the end user’s monthly income and their total spending.
6. **Return Data:**
The final results are returned to the customer, enabling them to assess the end user’s financial situation and make informed lending decisions.


## Key Data Provided

For every calculation, we provide the following insights:

- **Income:** A calculated income figure derived from raw bank data and validated by our Income Verification service.
- **Spending:** Detailed spending data grouped into Fixed Costs, Flexible Costs, and Debt Fees based on Standard Financial Statement categories.
- **Affordability:** An estimated affordability figure representing the difference between income and spending.


## API Response Fields

The API provides essential insights into an end user’s financial profile, including:

- **Monthly Affordabilities:** Up to 365 days of transaction data analyzed and broken down month by month:
  - `month1`: The earliest month in the dataset
  - `month11`: The most recent month
  - `calculatedIncome`: Estimated income per month
  - `fixedCosts`: Fixed costs per month
  - `flexibleCosts`: Flexible costs per month
  - `debtFees`: Debt fees per month
  - `affordability`: Affordability estimate per month
- **Aggregated View:** Holistic insights based on the entire dataset, including:
  - `estimatedCalculatedIncome`: Calculated Income Estimate based on whole period.
  - `estimatedFixedCosts`: Calculated Fixed Cost Estimate based on whole period.
  - `estimatedFlexibleCosts`: Calculated Flexible Costs Estimate based on whole period.
  - `estimatedDebtFees`: Calculated Debt Fees Estimate based on whole period.
`estimatedAffordability`: Calculated Affordability Estimate based on whole period.
  - `avgEstimatedAffordability`: Average Affordability Estimate based on whole period.
  - `avgCalculatedIncome`: Average Calculated Income based on whole period.


Additionally, the service returns an affordabilityTransactions schema, which includes all transactions and specifies whether each is a credit or debit, categorized as Fixed, Flexible, Debt Fees, or Savings.

## API Schema and Response

- [**Affordability API**](/content/apis/affordability-(stored))
- [**Affordability Engine**](/content/apis/affordability-engine)


## Configurability

Our Affordability product offers comprehensive configurability to meet different business needs:

- **Selecting the Main Income Stream:** With multiple income streams (salary, child tax, transfers), this configuration ensures only the primary income source is selected.
- **Consecutive Income Months:** Income streams must show consistent income for a set number of consecutive months; missing income in any month disqualifies the stream.
- **Exclude Benefits:** Option to exclude benefit-driven income streams from affordability calculations, while still showing them in income verification. The state pension is not classified as a benefit.
- **Deduct Flexible Costs:** Remove or reduce a percentage of flexible costs from income.
- **Prioritize Salary Income:** Focus on income streams categorized as salary (e.g., wage, payroll, salary).
- **Custom Category Mapping:** Customize expenditure categorization to define what qualifies as fixed or flexible costs based on specific business needs.


## Use Cases

- **Lending Decision Support**
Make real-time, data-driven lending decisions by assessing an end user’s income and spending patterns.
- **Fraud Detection & Prevention**
Detect inconsistencies in reported income and spending to reduce fraudulent loan applications.
- **Collections & Recoveries**
Improve recovery strategies by identifying realistic repayment amounts and prioritizing high-risk cases.
- **Regulatory Compliance & KYC**
Support KYC and AML procedures by verifying income and spending data.


## Key Benefits

- **Accurate Affordability Assessments:** Powered by real-time transaction data and intelligent categorization.
- **Enhanced Lending Decisions:** Make smarter, faster decisions with reliable data insights.
- **Improved Risk Management:** Minimize exposure to bad debt through detailed affordability analysis.
- **Customizable & Flexible:** Tailor affordability assessments to align with your business model and risk appetite.
- **Seamless Integration:** Easy-to-use API with structured, scalable responses.