That’s the question alternative data and predictive analytics were made to answer.
Credit risk management comes already loaded with obstacles, uncertainty, and inefficiencies, even in the best of times. When the times become especially challenging – like right now – it can bring credit strategies and goals into serious question.
But what if that uncertainty also unlocked opportunity? What if a closer look at the data actually found ways to grow your business?
That was the theme of the recent webinar Finding Growth in Uncertain Times: How alternative data and predictive analytics are opening opportunity. Co-hosted by Accelitas and Equifax, the panelists walked attendees through the growing need to access actionable intelligence, and the new tools that are making better credit decisions possible. They included Bob Hofmann, Credit Risk Consultant at Equifax, Tom O'Neill, Risk Advisor at Equifax, James Cook, VP of Product Management at Accelitas, and Jimmy Williams, Chief Revenue Officer at Accelitas .
How to recognize today’s creditworthy customer
When asked to name their biggest challenge, “identifying creditworthy borrowers” topped the list of webinar participants. This should come as no surprise to fellow lenders who’ve watched traditional scoring models lose touch with a new generation of consumers. Throw in rising inflation and debt, and you’ve “created uncertainty at a more granular level — households impacted by these economic conditions,” explained Bob Hoffman of Equifax. That leaves consumers sitting in lender portfolios or in prospect databases “that may look similar from a traditional Credit View history but may in fact be in very different financial situations.”
Inflation itself brings a different dynamic than it has in the past. “This is an example of a current economic condition that impacts households differently depending upon their particular circumstances,” offered Hoffman. “For example, while everyone feels inflation to some level, a family of five is hit with much higher grocery bills as food prices increase than an individual household.”
Alternative data, predictive analytics and the custom model advantage
Bringing each company’s fintech expertise into the discussion, the Accelitas and Equifax hosts discussed how lenders could use unique sources of alternative data to provide a clearer picture — especially of the non-prime consumers — and how predictive analytics can leverage that data to lower default rates and improve conversion rates.
“Whatever your performance metrics might be…custom models can be used to provide better performance,” said James Cook of Accelitas. “The benefit of custom models is the ability to tune or retune these models with feedback data from what's actually going on,” he added, diagramming how a feedback loop cycles data back into the modeling process to improve the ongoing performance of the model. Customers can leverage their own specific data performance “to better address and understand the uncertainties that their consumer set is displaying in the market.”
“We really specialize in custom scores, so leveraging these alternative data sources including the Equifax Finance data…can work in various places throughout their workflows,” said Cook. “What the data scientists really like to do is to combine multiple data sources into one score because sometimes one plus one can be greater than two.”
The takeaway: what lenders should know moving forward
Finding Growth in Uncertain Times identified five key conclusions for today’s lenders:
- Unique sources of alternative data can provide an accurate and complete picture of non-prime customers
- Insights into transaction-based payment performance can lower lending risk and cost
- Predictive analytics can leverage alternative data to lower default and improve conversion rates
- Custom models can be tuned to adapt to market changes
- There are actionable steps you can take to incorporate alternative data into your decisioning
In a climate of uncertainty, one thing is certain: lenders who adapt and learn will always be in a better position to grow.
Learn more about how Accelitas and Equifax work together.