Credit risk

CredoLab turns to alternative data to assess credit risk

Traditional methods of credit risk scoring already had their warts before COVID-19, but the pandemic has exposed a key flaw, which is driving lenders to seek better ways to assess risk.

Enter CredoLab, which assesses metadata from smartphones and the web to produce digital dashboards that help lenders make better decisions, especially for the light-banked and underbanked.

More than one in four Americans do not have enough credit history to be properly assessed by traditional bureaus. Many low-income people struggle to open the bank accounts that will help them start building that story.

There is a better way, said Michele Tucci, CPO of CredoLab. CredoLab uses POS decision making among other methods to help companies find reliable customers among those whose creditworthiness cannot be accurately assessed by traditional PII methods. With the pandemic increasingly pushing commerce into digital channels, such solutions are needed.

The types of data available depend on where you are, Tucci explained. In North America, alternative data is limited to transactional data such as utility bills and bank transactions. This can create friction for the customer as some systems will need to ask more questions to make a decision. In parts of Southeast Asia, online banking penetration is rare. You still end up with a lot of data, but it’s not as diverse as you’d like.

Another option is to buy data from companies that generate it for a desired market, but this tactic creates its own problems, Tucci explained. Most companies are reluctant to give it up and therefore charge a flat rate. And because they only have part of a particular market, you need to buy sets from three or more vendors to develop a representative sample.

If only there was a reliable, cost-effective source of data available in every region of the planet. Wait, there are, and these are the volumes of data that can be gleaned from smartphones.

CredoLab has ambitious expansion planned in the coming months and a look at their target markets shows just how much mobile penetration has happened in society. They started with an assessment of 100 countries in the developed and developing worlds and considered factors such as GDP growth, GDP per capita, smartphone penetration and the number of unbanked people.

The five markets chosen are the United States, Mexico, Nigeria, India and Indonesia. While there are unique characteristics to each of these regions, CredoLab’s solution is scalable and applicable to all because it accesses the same types of data in the same way, building on the consistent patterns that users view, whether they are in Bangor or Bangalore.

Mr. Tucci believes CredoLab offers the right value proposition to lenders impacted by the COVID-19 pandemic. In addition to the 35 million credit-blind Americans (scores below 500 FICO), there are the millions more granted payment holidays, which means lenders cannot report customers to credit bureaus.

“This means US credit bureau data is unreliable for the next six to nine months,” Tucci said.

So lenders have a choice: lend only to the richest 10% and deliver a horrible customer experience to others while watching their customer acquisition costs skyrocket or consider other solutions, or develop better methods. of scoring.

CredoLab’s offering fits the bill as it has been tested in parts of the world that are beginning to emerge from the pandemic and has been shown not to lose its predictive power. It was also tested before and during the pandemic and the predictive power of the digital dashboard has not changed, Mr Tucci reported.

In a rapidly changing environment, solutions need to be implemented quickly, Tucci said. CredoLab can get a digital onboarding application with a cloud-based decision engine online for a client in less than 60 days.

“It’s the new normal,” Mr. Tucci said. “With more digital origins, there will be more openness to test new solutions.”