How Fintechs are setting higher standards for the credit market
June 18, 2021
Fintechs propose new game rules for the credit market
With the emergence of Fintechs, new ways of credit scoring have emerged, offering a more complete customer credit profile. These Fintech startups have perfected the traditional credit rating systems through the use of technology to find new client segments using alternative data.
Unlike banks, Fintech companies have democratized access to credit. To achieve this, they have had to invest in the construction of databases, in machine learning models and in technological infrastructure, in order to minimize the risks of bad debts. In this way, today they are more capable, in contrast to other traditional financial entities, to have a complete credit profile of their clients.
Fintech companies have leveraged a series of contextual advantages to offer new credit scoring methods:
- The first and foremost is the greater access to information, a product of the proliferation and digitization of data. Access to a variety of data sources, both traditional and alternative, allowed Fintech companies to create models to know how risky a customer is.
- The appearance of new B2B technology platforms has made it easier to launch new companies without much budget. In this way, everything can be outsourced, from a CRM to a call center. Therefore, in the face of such competition, Fintech companies have focused their efforts on proposing value to their clients.
- Data science, too, has made it easier to build risk assessment models. Likewise, access to computer sources through the cloud has made it possible to generate models with greater amounts of data allowing Fintech companies to produce more accurate risk predictions, improving their internal credit scoring.
With the use of technology, Fintech companies can access various non-traditional data sources to perform alternative scoring to offer loans to people outside the banking system. For example, some use information from car purchases, rental payments, cell phone data, social media information, and even mouse movements. Credolab is an example of a Fintech company offering alternative credit scoring. Through the use of alternative data, the company generates an integrated credit rating, making credits available to people, who, although creditworthy, do not currently have access to loans.
With an important commitment to alternative information, Fintechs have been pioneers in this new conception of credit scoring, expanding the market and forcing other more traditional entities to also start venturing into these new lines of business.