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Alternative credit scoring

Matchi Trend Report - Digital Account Origination

Fintechs have changed the way that credit is assessed from the traditional method of bank based credit historical using alternative data sources likes social media as well as using self-learnings algorithms to assess changes in credit based behavior and update models, all in real time

Traditional credit scoring has usually been measured by the ability of customers to pay their debts on time, i.e. a history of regular payments. The unintended consequence of this, as evidenced by the financial crisis of 2008, is that new credit could be used to pay old credit, leading to an eventual collapse in the trail of debt. On the other hand, the lack of credit history prejudiced clients such as immigrants, new graduates or startups – even though they could be better credit risks than existing clients.

There has been a change in the way credit is being assessed, led mainly by fintech companies who have used innovative approaches to assess credit for both existing and new clients. In addition, there has been an acknowledgement that current data sources are also becoming flawed, including:

  1. Younger people are not using credit cards so less credit history being developed
  2. Cash flow management is being increasingly considered as a stronger indicator of credit risk
  3. Other billing systems can overemphasise indebtedness like medical bills being handed for collection without reaching clients
  4. Selling of debts to debt collection agencies impact credit scores even though the debt has been settled

There is a paradox for new clients in that: you cannot get credit without a credit rating, and you cannot improve your credit rating without access to credit. The new approaches to credit scoring use:

  • Other data where payments are made regularly, e.g. utility bills, insurance payments, telecom bills
  • Financial information to enhance credit reports, e.g. down payments or deposits made for purchases
  • Financial personality profiles, e.g. based on responses to a qualitative survey
  • Alternative sources of information, e.g. social media behaviour
  • Sales history for startups

Sales based scoring for startups

Alternative data sets

Financial personality profiles

Spending data

Financial analysis






More on Matchi: Matchi is a global fintech innovation match-making firm, since 2013. Matchi has worked with over 100 leading banks and insurance companies (FIs) around the world, and has a database of over 2,500 fintech firms. Matchi provides both a highly curated portal of fintech solutions, as well as bespoke projects for FI clients to source targeted fintech solutions aimed at the FIs focus areas / pain points. The global Matchi team has run Innovation Challenges and Market Scans for multiple FIs around the world, in markets as diverse as Canada, Japan and India, as well as searches in other geographies.

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