The report by LexisNexis Risk Solutions reveals that financial inclusion is accelerating the adoption of alternative credit data across financial institutions which, in turn, is increasing their revenues
LexisNexis Risk Solutions unveiled the findings of its nationwide Alternative Credit Data Impact Report. The study discovered that alternative data usage is becoming more widespread as institutions adopt financial inclusion initiatives. Besides, nearly all financial institutions that utilise such data state it has increased their revenue growth by at least 15% and improved customer experience.
The survey assessed the adoption, utilization and impact of alternative credit data for credit portfolio growth and management in consumer and SMB lending. Participants included senior decision makers for marketing, lending and credit risk in U.S. financial institutions such as banks, credit unions, non-bank lenders and fintechs.
Alternative credit data includes non-traditional insights such as professional licenses, asset ownership, online lending, short-term lending, rental data, consented data and more. Along with conventional credit score data, these insights deliver a more comprehensive view of one’s creditworthiness.
At least two-thirds of the financial institutions surveyed use alternative data in underwriting and portfolio management. Besides, 84% of respondents use alternative credit data in prescreening and credit risk across the customer lifecycle. Credit unions are the leading users of alternative credit data, with a 91% adoption rate.
Out of the 37% of the leading alternative credit data adopters surveyed,
- 55% aim at financial inclusion while adopting non-traditional credit insights,
- 37% look for improving segmentation,
- 24% use alternative data to improve the ability to swap in/swap out applicants.
Other benefits of adopting alternative data use named by participants include improving pricing strategies, increasing revenues, better risk mitigation and gaining a competitive advantage. The report indicated that not using alternative data could lead to lost opportunity, customer friction and limited risk mitigation.
Financial institutions surveyed were most likely to use alternative data in their credit risk assessment of deep subprime, subprime and near-prime consumers. At the same time, larger institutions were significantly more likely to be satisfied with alternative data usage than smaller banks, since they have more resources to obtain alternative types of data.