September 27, 2018
Approximately 25% of the US consumers are considered thin-file because they have fewer than five items in their traditional credit histories. 7% are a no-hit (records other than the five items of the traditional framework) and 9% are completely invisible — they have no record of credit. Looking for a resistance-free entry into the financial services industry to cash in on the opportunity, technology and internet companies are particularly interested in those edge cases. With the abundance of digitized behavioral data available to those companies today — social media, search, mobile money, bills, shopping history, rent, etc., — anyone can lend. Facebook alone targets ads based on 98 data points on every user. The number of indicators FinTech startups in the alternative credit scoring space varies from several hundred to hundreds of thousands.
However, not all alternative data is born equal.
Alternative data sources vary significantly in their ability to accurately assess one’s creditworthiness/predict the likelihood of someone defaulting. Moreover, the sources of alternative data vary in relevance depending on the goal — one would look at very different pieces of data with a varying level of trust for assessing someone previously unknown to the form ...