The Impact of Non-Traditional Credit Data on Market Recovery

The economic uncertainty that COVID-19 introduced has led finserv leaders to rethink their approach to growth. Loan approval standards have tightened, and organizations are examining consumer creditworthiness with more scrutiny. As businesses enter uncharted territory and look to gain a more complete picture of consumer credit histories, non-traditional credit data will be a critical resource to assess credit stability and worthiness. 

Leveraging non-traditional credit data to sustain merchant sales 

As merchants shift from brick and mortar stores to online sales because of the pandemic, the entire shopping experience has changed. Online merchants are establishing partnerships with buy now, pay later fintechs like Affirm, Afterpay, and Sezzle – allowing them to enhance the consumer’s shopping experience while the fintechs bear the credit risk. Since many of these buy now, pay later firms do not perform hard credit inquiries, non-traditional credit data is needed to evaluate creditworthiness. 

Smaller merchants are not the only ones using non-traditional credit data; big retailers have started partnering with fintech companies as well. Target has entered a pilot with Sezzle to test a small portion of Target.com in hopes of evaluating the impact that the Sezzle financing opportunity will have on two of its product categories. Partnerships like this enable retailers to sustain sales throughout the pandemic by meeting the needs of digital-first millennial and Gen Z consumers. These generations primarily shop online, are cash strapped, or may not have sufficient traditional credit data. 

 

Report: Breaking Through to Generations With Better Data >>

 

Expanding banking access to underserved market segments 

Another impact of non-traditional credit data is expanding financial inclusion. Evaluating the fiscal responsibility of the 91.5 million underserved Americans is more achievable through the use of non-traditional credit data. Visibility into payment behavior of everyday expenses like rent, utilities, and insurance can help better understand consumer  credit history.

 Evaluating the fiscal responsibility of 91.5 million underserved Americans is achievable through the use of non-traditional credit data.

In October of 2020, the American Bankers Association encouraged banks throughout the U.S. to consider offering Bank On-certified accounts. Bank-On certified accounts can be opened with deposits as low as $25 and have minimal to no overdraft fees. These efforts to lower the barriers to banking access are important to the future of financial inclusion, but would benefit from non-traditional credit to better determine deposit amounts and credit offers. 

Helping auto lenders weather the downturn 

Demand for auto loans has been on a steady decline, and even for the consumers who are still seeking auto loans, it’s harder and harder to get approved. According to CarGurus.com, in May of 2020, 35 percent of dealers found that more customers were unable to obtain financing compared to just 28 percent of dealers in April. 

Car buyers with subprime credit scores dropped to less than 3% of loan originations since the pandemic began.

Since the pandemic began, car buyers with subprime credit scores are faced with even more challenges finding a decent auto loan, making up less than three percent of loan originations. To offset these low credit scores, auto lenders require hefty down payments and higher interest rates. 

Access to non-traditional credit data would provide auto lenders with a better understanding of their customers’ financial stability during the economic downturn, enabling better rates for customers and more revenue for lenders. 

Integrate Urjanet’s non-traditional credit data into credit risk decisioning 

Incorporating non-traditional credit data into credit risk decisioning helps to expand informed lending decisions. No matter the market, from banking to auto lenders, leveraging non-traditional data supports accurate decisions and greater revenue opportunities. With Urjanet’s automated alternative data platform, you can gain easy access to non-traditional data that will empower your credit risk decisioning. 

If you’re ready to leverage the power of non-traditional data, speak with one of our experts today.  

 

YOU MIGHT ALSO BE INTERESTED IN:

• Blog: The Economic Impacts of Alternative Data on Financial Inclusion
• eBook: Building a Risk Model with Utility Payment Data
• Blog: Solving the Lending Challenges of Today with Utility Payment History

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