LexisNexis Survey of Bank Decision Makers Finds Majority of Respondents Use Alternative Credit Data for New Applicants

A recent LexisNexis Risk Solutions survey of nearly 225 senior decision makers for lending, marketing, and credit risk found that 65 percent of respondents use alternative credit data on at least half of all new applicants. Many use consumers’ bank account information to bolster lending capabilities, so over half of respondents reported revenue increases of 15 percent and higher.

U.S. Bancorp in Cincinnati uses alternative data to form a holistic banking program for small businesses that organizes customers’ account information in one dashboard. Seshu Guddanti, the bank’s senior vice president and senior director of software engineering for server message block platforms, explained that using both a platform mindset and consumer data allows the bank to offer more products and services.

The data doesn’t limit a customer to only being categorized as a small business client, as they “could also be a consumer and could also be a mortgage customer,” Guddanti said, according to American Banker. “So we’re taking a platform view that once this data is aggregated, it could be used by many different teams within the bank to make their own decisions about this data.”

Lenders are also using alternative data to reach underserved markets. Ribbit, a data solutions provider based in Oxford, Ohio, analyzes account data and non-credentialed data provided by consumers to help financial services firms create lending models, as well as develop a more comprehensive credit profile.

Kareem Saleh, founder and chief executive of FairPlay, a Los Angeles-based fairness solutions firm, noted that when companies only use data from credit agencies, they can perpetuate biases toward underserved communities. This results in “subpopulations [of consumers] that are not well represented in the data whose riskiness can be overstated,” said Saleh.

Some firms that use second-look financing—loans offered to consumers with credit scores below 680 who are rejected by larger institutions—explained that the established rating methods are not sufficient to make a confident lending decision.

“For us, we believe that the [consumer’s bank account] offers the clearest window into that consumer’s financial health as well as ultimately what they can afford, so that you’re creating the best possible relationship between the financial institution and the consumer,” said John Gordon, Ribbit’s chief operating officer.