Alternative information, an ally for many industries
September 3, 2021
The utility of alternative data is so broad that it reaches multiple industries such as: Bank & Consumer Finance, Buy Now Pay Later, Digital Lending, Neobanks & Challenger Banks and Ride Hailing. Its wide use explains the success of alternative data in recent years and how new sources of information are redefining the game.
In the case of Banks & Consumer Finance alternative credit scores enable customer creditworthiness predictions like never before. By applying scoring algorithms to anonymous metadata, companies can obtain robust personalised models of human behaviour in social, spatial and sequential contexts. Therefore, large-scale phone-based metadata with behavioural mapping abilities empower organisations to infer financial wellbeing based on spending patterns. This dramatically improves companies' access to new market segments, such as the new-to-credit (NTC), new-to-bank, thin file, millennials and self-employed.
Digital Lenders are also benefiting from alternative data. Micro, small and medium-sized digital lenders can struggle big time to achieve business growth; all the metrics might be aligned, but access to capital may be lacking giving larger companies an unfair advantage. Alternative credit scoring can help digital lenders to create more accurate credit ratings and provide more loans to new customers, thus achieving the desired growth.
“Buy Now Pay Later” (BNPL) has had huge success in recent years as a tactic for acquisition and customer loyalty. Alternative information is essential so that companies can segment those potential clients that would most likely meet their debts. The travel industry is one of the many industries that can benefit from this charging system. For example, companies can retain customers who have fulfilled a purchase by offering more payment and credit options. In turn, BNPL can expand to new customer segments who do not have a credit card and who need to find new financing options to be able secure those long-awaited trips.
Alternative data can also help NeoBanks and Challenger Banks to discover an untapped source of data to de-risk a whole new market, such as: Unbanked, new-to-credit, Gen-Zs, gig-workers and small business owners that despite their creditworthiness might have failed the traditional credit test. By using alternative data scores NeoBanks and Challenger Banks can create a path for these individuals to access mainstream financial services.
Lastly, alternative scoring can benefit Ride Hailing Companies such as Grab, Gojek and Uber to rate the creditworthiness of a driver and help them acquire a car. In this way, companies set up a virtuous circle where they ensure driver loyalty and, therefore, improve their service which further leads to happier customers.
The scope of alternative data is growing. The use of new credit rating models integrated with artificial intelligence impacts a wide variety of industries by modifying the rules of the game. The competitiveness of companies is determined, today more than ever, by the possibility of individualizing people and offering personalized products and experiences according to their needs. Mass offer schemes become obsolete in the face of new technological and consumer changes.