Embedded Finance

Mar 30, 2023

How Embedded Scoring Can Help Financial Institutions: A Detailed Overview

Streamline credit assessment processes and make more informed risk profile decisions. Learn more about the benefits of embedded scoring and credolab’s features.

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This article is adapted from our latest series on "A Beginner’s Guide to EmFi". If you would like to learn more about credolab’s integrated financial services solution through embedded scoring, check out the full article here.

In the lending world, distinguishing good borrowers from neglectful ones is crucial to the success and survival of a business. 

Financial institutions constantly strive to distinguish reliable borrowers from high-risk ones, which can lead to defaults, write-offs, and significant financial losses. According to the latest survey by PWC, over half of the interviewed organisations have experienced platform fraud that has resulted in financial loss, with a quarter of them losing more than $1 million each. 

In order to address fraud, executives must focus on an integrated and company-wide response strategy. All stakeholders often have to play a role in measuring, monitoring, and controlling the risk, along with keeping an eye on emerging risks and frauds that have not yet materialised and making sure they do not occur.

The traditional credit assessment process can be time-consuming, complex, and sometimes inadequate in detecting potential fraudulent activities. Using embedded scoring offers a complementary, more efficient and reliable approach to assessing creditworthiness by leveraging predictive analytics and machine learning techniques. As a result, implementing embedded scoring solutions enables financial institutions to reduce their overall risk exposure and make more informed decisions. 

This detailed blog post delves into the benefits of embedded scoring and how it can help financial institutions.

Benefits of Embedded Scoring

Embedded scoring allows businesses to make more informed decisions about their risk profiles by gaining valuable insights into every user. Unlike traditional scoring, it provides a more detailed picture of applicants' willingness to pay and signals that might raise red flags. Financial institutions, including non-banks, can benefit from embedded scoring in the following ways:

1. Security and Transparency 

Financial institutions process terabytes of data containing private, personal, and financial information daily, which makes them a treasure trove for hackers. As a result, cybersecurity threats pose a significant threat to these businesses. According to Sophos' latest research, approximately 55% of financial institutions were hit by ransomware within the last year, an increase of 62% from last year. The same study reported that financial institutions were among the smallest recipients of insurance payouts following breaches, making countermeasures against cyberattacks critical to preventing such losses.

With cyberattacks on the rise, it is essential to be prepared. Data security requires businesses to take a proactive approach. Customers also expect smooth application navigation, data protection, and security due to the large amount of data processed. Hence, it is imperative for protocols and regulations like ISO 27001 to ensure personal data security and minimise even a slight chance of data or system breaches. Furthermore, transparency in business leads to growth. Customers in today’s economy only wish to support organisations they feel most comfortable with. So, if they perceive a company as dishonest, their trust will be lost quickly.

Communication and transparency are increasingly important to customers in this Information Age. According to a KPMG study, the following concerns were found:

  • Data privacy is a growing concern for 86% of customers
  • 68% of people are concerned about how much data businesses collect
  • More than 40% of respondents do not trust companies to handle their data in an ethical manner
  • 30% of people are unwilling to share their personal information.

Transparency is crucial to prevent distrust from sapping the customer experience with financial institutions' use, processing, and security of personal information. Being open and honest about your data policies and practices is an easy way to gain trust and a requirement for certain regulations, such as the General Data Protection Regulation.

How does embedded scoring help?

With embedded scoring, financial institutions can assess a borrower's creditworthiness efficiently and safely in real time, adding an extra layer of security and transparency. In addition, embedded scoring allows them to make informed risk profile decisions while protecting sensitive data. By doing so, fraud can be prevented, and credit risk assessment can be made more accurate.

For instance, credolab provides a comprehensive anti-fraud solution that can help detect and prevent fraud during onboarding. Credolab's ML algorithms help discover behavioural patterns likely to be linked to suspicious or fraudulent behaviours and transform them into fraud scores, velocity checks, and rich insights that can be used as rules. Some of the signals used include:

  • IP address mismatch
  • Suspicious device behaviour flags
  • Early fraud flags
  • Score to predict loyalty points abuse
  • Score to predict cashback abuse
  • IP address velocity
  • Atypical application behaviour flags
  • Device velocity
  • Same ID, different devices fraud 
  • Fraud score
  • Same device, multiple ID fraud.

These identified red flags are combined with user-level, granular insights and complemented with:

  • A comprehensive database of confirmed fraudulent devices: In collaboration with TruValidate, a TransUnion solution, credolab taps into the biggest network of confirmed fraudulent devices and fraud reports in the world, with a base of over six billion unique devices.
  • The ability to identify device and account linkages: Identify suspicious devices from genuine ones and even the hidden connections between devices and accounts.
  • A more secure method without using personal data: With a device metadata-led approach, it is possible to know the devices connected to the anonymous customer ID.
  • An agile and adaptable rule configurator: The powerful and flexible business rules editor enables fraud analysts to react immediately to new threats.

Example of how companies can make use of credolab's solution

To learn more about identifying, assessing and mitigating fraud risks with bespoke machine learning models securely and transparently, check out this comprehensive guide by our Customer Success Manager here.

2. Process Streamlining

In a report by Bain & Company, embedded finance (EmFi) will double US transactions' value to $7 trillion by 2026, revolutionising how customers and businesses interact with financial services. EmFi changes how bank transactions are conducted, and customers and businesses manage their financial services relationships. After all, customers prefer accessing financial services like payments, lending, and insurance on their daily platforms rather than through traditional financial institutions.

Platforms like e-commerce websites (e.g. Shopify), food delivery services (e.g. Grab and Foodpanda), and health and wellness apps (e.g. Classpass) have emerged in recent years to meet these needs. These platforms work with fintech enablers to deliver products and services that meet modern customer expectations while also protecting the interests of businesses. Fintech enablers help identify borrowers and assess risks, including a high default rate, to minimise business financial losses.

A new ecosystem of participants is replacing the traditional bank-driven value chain: the end customer, platforms with customer relationships, software enablers to meet complex regulatory and technological requirements, and regulatory services or license providers. The shift creates contextual, seamless customer experiences, unlocks new use cases for platforms and reduces costs for end customers while improving their financial access through proprietary customer data.

How does embedded scoring help?

A customer's initial experience with any financial institution sets the tone for their overall satisfaction. The first encounter usually happens during the onboarding process. In the past, onboarding new customers involved a laborious and time-consuming paperwork process, which can overburden onboarding teams and cause delays, leading to customer frustration.

With manual processes automated and accelerated by technology, embedded scoring allows financial institutions to streamline their work, providing easier and more convenient access to lending products for lenders and borrowers. Ultimately, this leads to a faster and more efficient credit assessment process. In this way, these businesses can provide customers with contextual, seamless experiences. Furthermore, they can simplify financial access to customers while reducing costs and allowing new use cases to emerge. 

For example, TransUnion's digital onboarding solution helps financial institutions to simplify the application process for customers, reducing the need for multiple integrations and saving time and resources for IT teams. The solution uses a safe API system that enables a smooth signup process, including identity document scanning and OCR, with data verification against TransUnion's extensive identity data sets.

Identity Verification

With background checks on data such as email, phone, device SIM swaps, number portability, and anti-money laundering screenings, TransUnion evaluates customer risk transparently and in the background. As a result, the solution can assess identity fraud and confirm an applicant's identity quickly and efficiently.

Risk Evaluation

In addition to identity verification, credoSDK is integrated into TransUnion's digital onboarding solution to confirm the applicant's affordability and avoid risky lending procedures. The solution also includes geolocation validation, which further reduces the risk of fraud by verifying the applicant's location.

Biometric Authentication

Once the verification process is complete, customers can pay the first instalment through their credit card or bank account. Biometric authentication further reduces the risk of fraud by using unique physical characteristics such as fingerprints or facial recognition to confirm the customer's identity. This also increases customer engagement, leading to higher conversions.

Benefits of TransUnion's Digital Onboarding Solution

Overall, TransUnion's digital onboarding solution is a seamless and efficient way to assess identity fraud and credit risk while facilitating payments across multiple touchpoints. The solution helps to reduce fraud, streamline the application process, and improve the customer experience.

To find out more, watch the video below and visit Transunion's Digital Onboarding Solution now.

Video of TransUnion's Digital Onboarding for BNPL

3. Improved Customer Experience: 

Customer experience refers to the customer’s complete experience with a business. The process begins when they contact the business and ends when they complete a purchase. Every stage of the customer journey contributes to the customer experience.

Two major factors contribute to the significance of customer experience in financial institutions:

  1. Customer experience serves as a crucial marketing front. According to a survey by Statista, customer experience is recognised as a primary or partial competitive advantage by 93% of organisations.
  2. A satisfactory customer experience is likely to foster loyalty towards a particular brand or institution, enhancing customer retention and customer loyalty.

In recent years, financial institutions are pursuing new priorities due to significant changes in this field, such as:

  • Disruption of traditional customer relationships by intelligent and savvy fintech competitors who have entered the market.
  • Changes in customer expectations driven by global digitisation, such as the demand for self-service available 24/7, immediate response times, and personalised service across channels.
  • The increased importance of maintaining security and privacy due to the rise of sophisticated cybercrime is crucial for building and retaining customer trust.
  • The need to comply with strict and complex regulations to safeguard one’s reputation and prevent security breaches, fines, and legal action.
  • Challenges posed by budget cuts and limited resources may affect the ability to maintain IT infrastructures properly, making them vulnerable to security threats and impairing customer service.
  • Many financial institutions have failed to deliver satisfactory customer experiences, which has resulted in a loss of competitive edge in an economy characterised by disruption and rising customer expectations.

How can embedded scoring help?

The financial industry is experiencing rapid growth in customer self-service, with mobile devices providing easy access to a financial institution’s resources from any location with Wi-Fi connectivity. What was once a distant dream has become an expectation, and financial institutions lacking mobile banking applications are at a significant disadvantage. However, simply having a mobile app is not enough. To stay competitive in the market, these financial institutions must effectively utilise the data collected by their mobile applications. Without analysis, the massive amounts of data collected serve no purpose to the bank or its customers.

This is where embedded scoring comes in. Embedded scoring can extract valuable insights from customer data using data analytics platforms and machine learning algorithms. This data can then be used to develop new products, optimise existing processes, empower customers, and, most importantly, improve the overall customer experience. With embedded scoring, the absence of a drop-off point along the customer journey allows the customer’s experience to remain clean and optimised without relying on workarounds or shortcuts to assess the customer’s creditworthiness. This improves customer satisfaction and increases the likelihood of repeat business.

For example, credolab takes digital footprints from customers' mobile phones to get smartphone metadata and collect activity and information from the device, including

  • # of gambling app(s) installed,
  • Existing competitor(s) app installed, 
  • # of photos in the photo gallery,
  • Whether a user uses the cut/paste function when filling out a form,
  • Device brand/model,
  • OS, Device ID, memory ram
  • Social media apps > how many there are, but NOT your username on social media
  • Battery Health, and many more.

Credolab processes this information into scores identifying the correlation with micro-behavioural patterns similar to confirmed fraudulent or risky applicants. When switching from manual to automated engines that calculate vast amounts of data in a shorter time, a loan decision can be made in seconds. By using real-time scores and features, credolab reduces the time to yes to just seconds while helping lenders lower their risk.

4. Improved Financial Services Access: 

Embedded finance is a useful tool that can aid financial inclusion by enabling non-financial platforms and companies to connect with financial institutions and provide financial services to their customers. By offering a seamless user experience, embedded finance can help overcome common obstacles that prevent people from accessing financial services.

Small and medium-sized businesses (SMEs) can also benefit from embedded finance solutions, enabling them to deal with everyday business issues such as cash flow and obtaining loans. According to a report by the Asian Development Bank, SMEs are essential to Southeast Asian economies, employing 69% of the national labour force from 2010 to 2019 and accounting for 97% of all enterprises. The advantages of embedded finance can help ensure these firms are properly supported.

"Integrating payment systems, customer insights, and credit scoring technology can be done using Open Banking, Business as a Service (BaaS), or APIs. By incorporating embedded scoring technology into financial services, the user onboarding process can be made more efficient. The use of Artificial Intelligence (AI) and Machine Learning (ML) technology ensures transparency and security while enabling quick and automatic measurement of a borrower's creditworthiness. Lenders can now assess eligibility for credit using alternative data even if the applicant does not have a credit history. This can help promote financial inclusion by enabling more people to access financial services." - By Peter Barcak, Founder and CEO of credolab

How does embedded scoring help?

The embedding of financial services has attracted both merchants and customers. As such, businesses are innovating and implementing financial solutions into their products at an increasing rate. Even though embedded finance is a relatively new concept, it has proliferated in recent years. Embedded banking revenues are expected to increase further, with Publicis Sapient predicting an annual growth rate of 41% from 2021 to 2025.

In addition to generating new revenue streams, this innovative approach can serve as a crucial differentiator for merchants. Offering the right product at the right time enhances the customer experience, improves checkout conversion rates, and builds more loyal customers. Through embedded scoring, financial services can be more easily accessed, making the underwriting process more accurate, reliable, and secure. By doing so, financially excluded people can access financial services more easily.

When considering the efforts of major financial players to enhance inclusivity, it is noteworthy to acknowledge the significance of new digital footprints and the utilisation of behavioural data analytics technologies to democratise financial access. Many lenders still rely on outdated scoring systems provided by credit reporting agencies (CRAs) or bureaus for assessing the creditworthiness of borrowers, limiting their ability to assign scores for applicants with little to no credit history, typically those in the middle to upper-income groups. 
The challenge for lenders is to determine a credit score for all borrowers, including those with limited or no credit history, which has resulted in financial exclusion for many people.”
By Michele Tucci, MD Americas & Chief Strategy Officer at credolab, extracted from What Are Some Changes Big Players Are Making To Be More Inclusive With SupraOracles, IBM and More

By leveraging embedded scoring technology which uses machine learning algorithms, fintechs such as credolab and other next-gen credit risk companies enable almost half of the world's population without a bank account to access credit. With the customers' consent, smartphone and digital behavioural data are analysed in real-time to convert digital footprints into credit scores securely, transparently, and without any disruption to the user journey.


Financial institutions can gain various benefits through embedded scoring, including enhanced security and transparency, streamlined processes, better customer experiences, and improved financial access. With embedded scoring, financial institutions can evaluate a borrower's creditworthiness in real-time with an added layer of security and transparency. This approach can also improve customer satisfaction and loyalty by providing effortless access to financial services. Moreover, embedded scoring can help financial institutions optimise their work, lower costs, and increase accessibility for financially disadvantaged individuals.

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