Mar 12, 2021
Thanks to alternative data, companies can thrive at the speed of the Internet. We are facing a world of technological changes and the need of adaptability is immediate. This set of data allows us to keep always up to date, giving us the power of flexibility and allowing us to anticipate users behaviors.
From the beginning of banking, customers have been assessed based on their financial history, credit card statements, mortgage payment performance and so on. This is what we call the traditional data for credit assessment. Any other kind of data that is outside of this is called alternative data.
Alternative data refers to any source of non-traditional data that gives additional insights on the customers that can be used by businesses to improve their product and services offerings, adapting to the needs of each client. This can be social media data, smartphone behaviour data, web-behaviour data, geo-location, teleco bills and so on. Alternative data is the set of information that sheds light on the behaviors, habits, interests and transactions carried out by a person. This data is classified and stored in different ways, according to its complexity or interests.
Alternative data comes from various sources, some of them are the result of the everyday use of devices, so without effort, all users contribute to the generation of alternative data.
We use different devices to access the Internet. Whichever one we choose, each device is connected to sensors, which allow the access and process of information about the user's navigation and behaviour. This allows us to obtain accurate information in real time, including data on visited websites and browser searches.
Thanks to wi-fi connections (and even Bluetooth), we can monitor data traffic, geographically locate it, and track the type of device that is being used for the connection.
For every online transaction that we carry out, we generate a set of data about our financial decisions. Both information collected by government agencies and information on transactions, serve as alternative data sources that allow us to analyze the financial situation of a person, evaluating their buying and selling behavior and payment times.
Most of the data generated by people individually usually comes from their interaction with social networks and use of email.
It includes data about their interests, interaction, usage times, comments, among others. Among the most popular are banking apps, online shopping apps and video games.
It gathers information from climate sensors about visited places or places to be visited.
It includes demographic and web browsing data, from visited websites, time spent per site, clicks and interests.
The list of alternative sources grows as technology continues to evolve: images, reviews of products or services purchased, app downloads and other endless online activities, leave a record that allows us to use these behaviours as alternative data sources.
Alternative Data vs Traditional Data
Alternative data comes into the world to complement what traditional data failed to accomplish - giving businesses a 360-degree profile of each customer. On the one hand, it reduces the risk in decision-making and, on the other, it allows us to know the various segments of the population with more certainty and detail. Although traditional sources are of great value, they fail to provide all the information necessary to increase decision-making effectiveness.
At CredoLab, for example, we use smartphone metadata and web behaviour metadata to help our clients assess the credit worthiness of their customers. By using a scoring algorithm powered by artificial intelligence, we provide our clients with accurate credit scores and insights to assess each profile and make better credit decisions.
Alternative Data: The Future of Credit Assessment
With the digital revolution speeding up, thanks to the pandemic, alternative data sources, like smartphone metadata, have become more and more predictable in assessing the profile of each customer. But what will ensure the continued reliability of this source is the way it is sourced and used.
The security of alternative data acquired for assessment is of prime importance. It’s as our CEO and Founder, Peter Barcak says, “We only collect anonymous data and that is very important because our clients, who are the lenders, care a lot for data privacy and customer rights. That is, we do not obtain information about the name, address, email or telephone number of the client ”.
In summary, alternative data sources are the perfect complement to traditional sources, facilitating the growth of a wide variety of industries. Its popularity has reflected remarkable growth, allowing companies to anticipate customer behaviors and easily adapt to technology changes.
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