Lending

Can Alternative Data Be Used for Creditworthiness Assessment? A Banker, a Data Scientist & a Lender Give the Only Right Answer

MEDICIGlobal Head of Content

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...

Elena Mesropyan

MEDICIGlobal Head of Content

Global Head of Content, MEDICI

Elena is a research professional with a background in social sciences and extensive experience in consumer behavior studies and marketing analytics. She is passionate about technologies enabling financial inclusion for underprivileged and vulnerable groups of the population around the world.