Tag: alternative credit data

Picking up where we left off, online fintech lenders face the same challenges as other financial institutions; however, they continue to push the speed of evolution and are early adopters across the board. Here’s a continuation of my conversation with Gavin Harding, Senior Business Consultant at Experian. (Be sure to read part 1.) Part two of a two-part series: As with many new innovations, fintechs are early adopters of alternative data. How are these firms using alt data and what are the results that are being achieved? In a competitive market, alternative data can be the key to helping fintechs lend deeper and better reach underserved consumers. By augmenting traditional credit data, a lender has access to greater insights on how a thin-file consumer will perform over time, and can then make a credit decision based on the identified risk. This is an important point. While alternative data often helps lenders expand their universe, it can also provide quantitative risk measures that traditional data doesn’t necessarily provide. For example, alternative data can recognize that a consumer who changes residences more than once every two years presents a higher credit risk. Another way fintechs are using alternative data is to screen for fraud. Fraudsters are digitally savvy and are using technology to initiate fraud attacks on a broader array of lenders, in bigger volumes than ever before. If I am a consumer who wants to get a loan through an online fintech lender, the first thing the lender wants to know is that I am who I say I am. The lender will ask me a series of questions and use traditional data to validate. Alternative data takes authentication a step further and allows lenders to not only identify what device I am using to complete the application, but whether the device is connected to my personal account records – giving them greater confidence in validating my identity. A second example of using alternative data to screen for fraud has to do with the way an application is actually completed. Most individuals who complete an online application will do so in a logical, sequential order. Fraudsters fall outside of these norms – and identifying these patterns can help lenders increase fraud detection. Lastly, alternative data can help fintech lenders with servicing and collections by way of utilizing behavioral analytics. If a consumer has a history of making payments on time, a lender may be apt to approve more credit, at better terms. As the consumer begins to pay back the credit advance, the lender can see the internal re-payment history and recommend incremental line increases. From your perspective, what is the future of data and what should fintechs consider as they evolve their products? The most sophisticated, most successful “think tanks” have two things that are evolving rapidly together: Data: Fintechs want all possible data, from a quality source, as close to real-time as possible. The industry has moved from “data sets” to “data lakes” to “data oceans,” and now to “data universes.” Analytics: Fintechs are creating ever-more sophisticated analytics and are incorporating machine learning and artificial intelligence into their strategies. Fintechs will continue to look for data assets that will help them reach the consumer. And to the degree that there is a return on the data investment, they will continue to capitalize on innovative solutions – such as alternative data.   In the competitive financial marketplace, insight is everything. Aite Group recently conducted a new report about alternative data that dives into new qualitative research collected by the firm. Join us to hear Aite Group’s findings about fintechs, banks, and credit unions at their webinar on December 4. Register today! Register for the Webinar Click here for more information about Experian’s Alternative Data solutions. Don’t forget to check out part one of this series here.   About Gavin Harding With more than 20 years in banking and finance Gavin leverages his expertise to develop sophisticated data and analytical solutions to problem solve and define strategies across the customer lifecycle for banking and fintech clients. For more than half of his career Gavin held senior leadership positions with a large regional bank, gaining experience in commercial and small business strategy, SBA lending, credit and risk management and sales. Gavin has guided organizations through strategic change initiatives and regulatory and supervisory oversight issues. Previously Gavin worked in the business leasing, agricultural and construction equipment sectors in sales and credit management roles.

Shawn Hanson, CEO of Marine Credit Union in Wisconsin, knows a thing or two about growth.  Over the past 18 years as CEO, Shawn and his team have the grown the credit union significantly, both organically and through acquisitions. In addition, he has developed a clear vision to reach the underserved. I spoke with Shawn to get his perspective and insights about growth, risk and the underserved. Here’s what he had to say: Marine Credit Union has grown from $120M to $789M over the past 18 years under your leadership.  What have been the top 2-3 actions you’ve taken to fuel this growth? The past two decades of growth have included a lot of successes, but also some key failures. Failures that taught us some hard lessons in who we are – and who we are not. If I can point to one action that has had the most impact on our growth, it is the refinement of our focus. We clarified our mission, vision and strategy and aligned our business decisions accordingly. Over the past 18 years as CEO, what has been your proudest moment? (Or proudest moments?) I reach out to employees on a regular basis and ask them to share with me a story of how they impacted a member’s life. I hear stories of people who never thought they would dig themselves out of a financial hole, and people we are helping to save thousands of dollars each month in bill payments. I feel so fortunate that I get to hear these stories every day. So, to answer your question, my proudest moment will happen today when I hear that next story. Then again tomorrow. And again, the next day. What drove Marine’s decision to focus on serving the underserved? I started my career in the consumer finance industry, so it is where my roots lie. Over time, we have come to discover that serving the underserved is not only a good business to be in, it is a business that is good. A business that is doing well while doing good – performing financially while giving back to its communities – is a business that people want to be around. How does your credit union define underserved?  What services does your staff offer members that are unique? We define the underserved as people who cannot typically get help down the block. While this most often means individuals, who are credit-challenged, it is more than that. Our underserved can be an overleveraged borrower who needs some help simplifying their life and streamlining bill payments. We have a debt consolidation product that’s a perfect fit for that situation. Our underserved can be a self-employed borrower whose income statements don’t fit inside a neat box, a homebuyer with an unconventional property. or an immigrant with alternative documentation. Our in-house underwriting and decentralized decision-making structure give us more flexibility to serve our underserved. Given your credit union’s history of growth through acquisitions, how have you preserved the culture of reaching the underserved? We are experienced, but we are not perfect. When it comes to the integration of employees, we learn through each acquisition. Our strategy is very different from other financial institutions, and we know this creates a learning curve for merging employees. Cultural integration is incredibly important to us. We have taken this too slow, too fast and everywhere in between. What we know for certain is that one size does not fit all. Whatever approach we decide on for a cultural integration, we do it with intention and two key principles in mind: do what’s best for the employees and the members. Why do you think credit unions are uniquely positioned to reach & serve the underserved? Talk about roots; this is where we were born. Serving the underserved is in our credit union DNA. Beyond our history, it is what we are known for: people helping people. Credit unions have built a legacy of trust with the communities we serve. Trust has become a coveted commodity. What is the biggest misperception among credit unions regarding the topic of serving the underserved? It’s too risky. One of the underpinnings of the credit union movement is providing a path to affordable credit.  What should risk-adverse credit unions think about when evaluating their mission? Think about the role you play in your community; how would the world be poorer, but for your presence? If you can answer with clarity, you're serving a need. Everybody seems to be chasing the most qualified borrowers today. We're focused on being there for the rest. Marine’s mission is to “create a better future for themselves and their families”.  What has been the biggest surprise for you serving the underserved? We call it “the snowball effect.” Repeatedly, we have seen one small “yes” turn into a remarkably different life for a member we have helped. A car loan led to transportation to work, which led to a steady job, which led to a promotion, which led to buying a home. I never underestimate the power of a chance. How has your board helped to accelerate the mission to reach the underserved?  What advice do you have for boards who are concerned of taking on more perceived risk? I feel very fortunate to work with a Board of Directors who has accelerated our mission in many ways, but most importantly, by having an open mind and allowing themselves to think differently. Our Board is always learning and always pushing me, one another and the credit union to be better. Strategic planning season is upon us.  What advice do you have for credit unions looking to lend deeper? Hone your focus. Know who you are and who you are not. Know who you serve and who you do not. Get aligned on where you want to be 5, 10 and 20 years from now, and work backward. What do you need to be focusing on in 2019 to achieve your long-term goals, and what do you need to stop wasting energy on? Ensure your people, products and processes are aligned and scaled to support a diversification or transition. This can take years to build or evolve. Walk, don’t run.   About Shawn Hanson Shawn Hanson is the CEO of Marine Credit Union. He has been with the credit union since April 2000 when the credit union had two offices and $37 million in assets. Hanson’s vision for the future is a differentiated financial institution that provides services to a broad geographic base with the best service. Hanson has also held positions at Citizens Community Federal Credit Union and AVCO Financial Services. Learn more about the array of alternative credit data sources available to financial institutions to reach your underserved populations.  

Traditional credit data has long been the end-all-be-all ruling the financial services space. Like the staple black suit or that little black dress in your closet, it’s been the quintessential go-to for decades. Sure, the financial industry has some seasonality, but traditional credit data has reigned supreme as the reliable pillar. It’s dependable. And for a long time, it’s all there was to the equation. But as with finance, fashion and all things – evolution has occurred. Specifically, how consumers are managing their money has evolved, which calls for deeper insights that are still defensible and disputable. Alternative credit data is the new black. It's increasingly integrated in credit talks for lenders across the country. Much like that LBD, it's become a lending staple – that closet (or portfolio) must-have – to leverage for better decisioning when determining creditworthiness. What is alternative data? In our data-driven industry, “alternative” data as a whole may best be summed up as FCRA-compliant credit data that isn't typically included in traditional credit reports. For traditional data, think loan and inquiry data on bankcards, auto, mortgage and personal loans; typically trades with a term of 12 months or greater. Some examples of alternative credit data include alternative financial services data, rental data, full-file public records and account aggregation. These insights can ultimately improve credit access and decisioning for millions of consumers who may otherwise be overlooked. Alternative or not, every bit of information counts FCRA-compliant, user permissioned data allows lenders to easily verify assets and income electronically, thereby giving lenders more confidence in their decision and allowing consumers to gain access to lower-cost financing. From a risk management perspective, alternative credit data can also help identify riskier consumers by identifying information like the number of payday loans acquired within a year or number of first-payment defaults. Alternative credit data can give supplemental insight into a consumer’s stability, ability and willingness to repay that is not available on a traditional credit report that can help lenders avoid risk or price accordingly. From closet finds that refresh your look to that LBD, alternative credit data gives lenders more transparency into their consumers, and gives consumers seeking credit a greater foundation to help their case for creditworthiness. It really is this season’s – and every season’s – must-have. Learn more

As more financial institutions express interest and leverage alternative credit data sources to decision and assess consumers, lenders want to be assured of how they can best utilize this data source and maintain compliance. Experian recently interviewed Philip Bohi, Vice President for Compliance Education for the American Financial Services Association (AFSA), to learn more about his perspective on this topic, as well as to gain insights on what lenders should consider as they dive into the world of alternative credit data. Alternative data continues to be a hot topic in the financial services space. How have you seen it evolve over the past few years? It’s hard to pinpoint where it began, but it has been interesting to observe how technology firms and people have changed our perceptions of the value and use of data in recent years. Earlier, a company’s data was just the information needed to conduct business. It seems like people are waking up to the realization that their business data can be useful internally, as well as to others.  And we have come to understand how previously disregarded data can be profoundly valuable. These insights provide a lot of new opportunities, but also new questions.  I would also say that the scope of alternative credit data use has changed.  A few years ago, alternative credit data was a tool to largely address the thin- and no-file consumer. More recently, we’ve seen it can provide a lift across the credit spectrum. We recently conducted a survey with lenders and 23% of respondents cited “complying with laws and regulations” as the top barrier to utilizing alternative data. Why do you think this is the case? What are the top concerns you hear from lenders as it relates to compliance on this topic? The consumer finance industry is very focused on compliance, because failure to maintain compliance can kill a business, either directly through fines and expenses, or through reputation damage. Concerns about alternative data come from a lack of familiarity. There is uncertainty about acquiring the data, using the data, safeguarding the data, selling the data, etc. Companies want to feel confident that they know where the limits are in creating, acquiring, using, storing and selling data. Alternative data is a broad term. When it comes to utilizing it for making a credit decision, what types of alternative data can actually be used?  Currently the scope is somewhat limited. I would describe the alternative data elements as being analogous to traditional credit data. Alternative data includes rent payments, utility payments, cell phone payments, bank deposits, and similar records. These provide important insights into whether a given consumer is keeping up with financial obligations. And most importantly, we are seeing that the particular types of obligations reflected in alternative data reflect the spending habits of people whose traditional credit files are thin or non-existent.  This is a good thing, as alternative data captures consumers who are paying their bills consistently earlier than traditional data does. Serving those customers is a great opportunity. If a lender wants to begin utilizing alternative credit data, what must they know from a compliance standpoint? I would begin with considering what the lender’s goal is and letting that guide how it will explore using alternative data. For some companies, accessing credit scores that include some degree of alternative data along with traditional data elements is enough. Just doing that provides a good business benefit without introducing a lot of additional risk as compared to using traditional credit score information. If the company wants to start leveraging its own customer data for its own purposes, or making it available to third parties, that becomes complex very quickly.  A company can find itself subject to all the regulatory burdens of a credit-reporting agency very quickly. In any case, the entire lifecycle of the data has to be considered, along with how the data will be protected when the data is “at rest,” “in use,” or “in transit.” Alternative data used for credit assessment should additionally be FCRA-compliant. How do you see alternative credit data evolving in the future? I cannot predict where it will go, but the unfettered potential is dizzying. Think about how DNA-based genealogy has taken off, telling folks they have family members they did not know and providing information to solve old crimes. I think we need to carefully balance personal privacy and prudent uses of customer data. There is also another issue with wide-ranging uses of new data. I contend it takes time to discern whether an element of data is accurately predictive.  Consider for a moment a person’s utility bills. If electricity usage in a household goes down when the bills in the neighborhood are going up, what does that tell us? Does it mean the family is under some financial strain and using the air conditioning less? Or does it tell us they had solar panels installed? Or they’ve been on vacation?  Figuring out what a particular piece of data means about someone’s circumstances can be difficult. About Philip Bohi Philip joined  AFSA in 2017 as Vice President, Compliance Education. He is responsible for providing strategic direction and leadership for the Association’s compliance activities, including AFSA University, and is the staff liaison to the Operations and Regulatory Compliance Committee and Technology Task Forces. He brings significant consumer finance legal and compliance experience to AFSA, having served as in-house counsel at Toyota Motor Credit Corporation and Fannie Mae. At those companies, Philip worked closely with compliance staff supporting technology projects, legislative tracking, and vendor management. His private practice included work on manufactured housing, residential mortgage compliance, and consumer finance matters at McGlinchey Stafford, PLLC and Lotstein Buckman, LLP. He is a member of the Virginia State Bar and the District of Columbia Bar. Learn more about the array of alternative credit data sources available to financial institutions.

According to our recent research for the State of Alternative Credit Data, more lenders are using alternative credit data to determine if a consumer is a good or bad credit risk. In fact, when it comes to making decisions: More than 50% of lenders verify income, employment and assets as well as check public records before making a credit decision. 78% of lenders believe factoring in alternative data allows them to extend credit to consumers who otherwise would be declined. 70% of consumers are willing to provide additional financial information to a lender if it increases their chance for approval or improves their interest rate. The alternative financial services space continues to grow with products like payday loans, rent-to-own products, short-term loans and more. By including alternative financial data, all types of lenders can explore both universe expansion and risk mitigation. State of Alternative Credit Data

The second full day of Experian Vision 2018 kicked off with an inspirational message from keynote speakers Capt. Mark Kelly and Former Congresswomen Gabby Giffords, rolled into a series of diverse breakout sessions, and concluded with Super Bowl-winning quarterback Aaron Rodgers sharing tales of sports, leadership and winning. Need a recap of some of the headlines from the day? Here you go ... Retail Apocalypse? Not so fast alarmists. Yes, there are media headlines around mergers, closings and consumers adopting new ways to shop, but let me give you three reasons as to why the retail sky is not falling. There were more store openings last year than closings, and that trend is expected to continue this year with an estimated 5,500 openings by December. There continues to be a positive sales trajectory. E-commerce sales are increasing. Big department stores have seen pains, but if brands are focused on connection, relevance and convenience, there is hope. Consumers continue to spend. Subprime auto bubble? Nope. Malinda Zabritski, Sr. Director of Experian Automotive Sales, says the media likes to fixate on the subprime, but subprime financing has been on the decline, reaching record lows. Deep subprime is at .65%. Additionally, delinquency rates have also tapered. The real message? Consumers are relying on auto lenders for financing, largely due to consumer preferences to lease. The market is healthy, and while it has slowed slightly, the market is still at 7% year-over-year growth. Consumer-permissioned data is not just a value-add for thin-file consumers. Take for instance the inclusion of demand deposit accounts (DDAs). David Shellenberger, Sr. Director of Scoring and Predictive Analytics for FICO, says people who have had long relationships with their checking accounts tend to be more stable and generally sport higher credit scores. Consumers with thick, mature files can also benefit with DDA data. Consumer-permissioned data is not just about turning a “no” to a “yes.” It can also take a consumer from near-prime to prime, or from prime to super-prime. Would you want to make a credit decision with less information or more? This was the question Paul DeSaulniers, Experian Sr. Director of Product, posed to the audience as he kicked off the session on alternative data. With an estimated 100 million U.S. consumers falling below “thick-file” credit status, there is a definite need to learn more about these individuals. By leveraging alternative credit data – like short-term lending product use, rental data, public records and consumer-permissioned data – a more holistic view of these consumers is available. A few more facts: While alternative finance users tend to be more subprime, 20% are prime or better. A recent data pull revealed 20% of approved credit card users also had alternative finance data on them as well. About 2/3 of households headed by young adults are rentals. Imagine a world where the mortgage journey takes only seven to 10 days. With data and technology, we are closer than you think. Future products are underway that could master the underwriting phase in just one day, leaving the remaining days dedicated for signing disclosures, documents and wiring funds. Processes need to be firmed up, but a vision has been set. The average 30- to 45-day mortgage journey could soon be a distant memory. 97% of online banking applications that are started are abandoned. Why? Filling out lengthy forms, especially on a mobile device, is not fun. New technology, such as Experian’s Instant Form Fill, is allowing consumers to provide a name, zip and last four numbers of their social security number for an instant form fill of the rest of the application. Additionally, voice assistants are expected to increasingly facilitate research on purchases big and small. A recent study revealed nearly half of consumers perceive voice assistants to be useful. Businesses have more fraud losses than ever before. Not surprising. What is scary? An estimated 54% of businesses said they are not confident in their ability to detect fraud. Another session reported that approximately 20% of credit charge-offs are synthetic IDs, a growing pain point for all businesses. Consumers, on the other hand, say they “want visible signs of security” and “no friction.” Tough to balance, but those are today’s expectations. More Vision 2018 insights can be accessed on #ExperianVision twitter feed. Vision 2019 will be in San Antonio, Texas next May 5-8.

The traditional credit score has ruled the financial services space for decades, but it‘s clear the way in which consumers are managing their money and credit has evolved. Today’s consumers are utilizing different types of credit via various channels. Think fintech. Think short-term loans. Think cash-checking services and payday. So, how do lenders gain more visibility to a consumer’s credit worthiness in 2018? Alternative credit data has surfaced to provide a more holistic view of all consumers – those on the traditional file and those who are credit invisibles and emerging. In an all-new report, Experian dives into “The State of Alternative Credit Data,” providing in-depth coverage on how alternative credit data is defined, regulatory implications, consumer personas attached to the alternative financial services industry, and how this data complements traditional credit data files. “Alternative credit data can take the shape of alternative finance data, rental, utility and telecom payments, and various other data sources,” said Paul DeSaulniers, Experian’s senior director of Risk Scoring and Trended/Alternative Data and attributes. “What we’ve seen is that when this data becomes visible to a lender, suddenly a much more comprehensive consumer profile is formed. In some instances, this helps them offer consumers new credit opportunities, and in other cases it might illuminate risk.” In a national Experian survey, 53% of consumers said they believe some of these alternative sources like utility bill payment history, savings and checking account transactions, and mobile phone payments would have a positive effect on their credit score. Of the lenders surveyed, 80% said they rely on a credit report, plus additional information when making a lending decision. They cited assessing a consumer’s ability to pay, underwriting insights and being able to expand their lending universe as the top three benefits to using alternative credit data. The paper goes on to show how layering in alternative finance data could allow lenders to identify the consumers they would like to target, as well as suppress those that are higher risk. “Additional data fields prove to deliver a more complete view of today’s credit consumer,” said DeSaulniers. “For the credit invisible, the data can show lenders should take a chance on them. They may suddenly see a steady payment behavior that indicates they are worthy of expanded credit opportunities.” An “unscoreable” individual is not necessarily a high credit risk — rather they are an unknown credit risk. Many of these individuals pay rent on time and in full each month and could be great candidates for traditional credit. They just don’t have a credit history yet. The in-depth report also explores the future of alternative credit data. With more than 90 percent of the data in the world having been generated in just the past five years, there is no doubt more data sources will emerge in the coming years. Not all will make sense in assessing credit decisions, but there will definitely be new ways to capture consumer-permissioned data to benefit both consumer and lender. Read Full Report