Alternative Data – The Champion of Innovative Credit Scoring How to improve decisioning accuracy + expand your customer base
Alternative data is quickly becoming a competitive advantage for lenders – encouraging financial inclusion for the unbanked/underbanked, improving decisioning accuracy, preventing fraud and powering instant approvals. But what exactly is it and how is it such a powerhouse?
Alternative data refers to any data outside of the traditional credit scoring process – including open banking, behavioral info, telco, utilities, social media and more.
Examples of Alternative Data Telco data
Open banking data
Data usage, SIM card, text and voice to determine the probability of default
Financial data shared between banks and non-banks for real-time views of financial info and payment transactions to expand your customer base
Cash flow data/Financial data
Alternative lending payments data
Looks at income and payment history, while incorporating cable, phone, utilities and rent to predict credit risk where there are gaps in traditional credit scores
Loans including payday, installments and rent-to-own, determining repayment patterns for higher-risk candidates
Travel data
Social media presence data
Travel history and patterns to help determine demographic profile
Posts, followers, contacts, photos on various social media platforms as a form of identity verification
people in Asia have no access to formal credit
of US adults can’t be scored using traditional credit
boost in fraud detection rate for online lenders using alternative data
bytes of data are created every day
Types of Alternative Data used by large consumer lenders *
Transaction/account data Identity-verification data Alternative credit score Specialty credit bureau Utility/bill payment Trended credit data Employment Social media Don’t use * Aite Group, January 2020, The Financial Brand
Benefits of Using Alternative Data: Improved Decisioning Accuracy – make more accurate risk decisions
Rapid Onboarding – make risk decisions in real-time to automate approvals
Greater Financial Inclusion – provide credit opportunities to thin-file/no-file customers
Improved Agility – learn, iterate and deploy faster
Faster Speed-to-Market – launch products faster with a more accurate view of risk
Maximized Value – identify opportunities for upselling and offer personalized pricing
Better Fraud Prevention – improve identity verification and KYC processes
Lenders/credit providers using Alternative Data:
use it to evaluate thin/no-file customers
had an increase in offer acceptance
improve risk assessment among unbanked consumers
saw an improvement in pricing
evaluate non-prime consumers
see tangible benefits within the year
Discover how to use
alternative data
to go from a one-dimensional view of your customers to 3D
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Sources: https://development.asia/explainer/heres-how-alternative-credit-scoring-can-improve-poors-access-loans https://www.urban.org/urban-wire/adopting-alternative-data-credit-scoring-would-allow-millions-consumers-access-credit https://www.prweb.com/releases/how_fintechs_can_use_alternative_data_for_improved_predictive_modeling/prweb18046239.htm https://www.transunion.com/resources/transunion/doc/insights/research-reports/research-report-state-of-alternative-data.pdf