The Growing Interest in Alternative Data Sharing
The use of alternative data for credit risk assessment is increasingly embraced by consumers and lenders alike. But in an age of scrutiny around data privacy, are consumers really willing to share their data? To find the answer, Urjanet surveyed more than 300 U.S.-based adults, with an annual household income level above $25,000, to better understand consumer sentiment around alternative data sharing within lending processes.
The first finding is that out of the available alternative data sources, utility and telecom data are nearly universal. More than 90 percent of survey respondents have at least one household service (between electricity, gas, water, telecom, and cable) in their name. Hence, more than 90 percent of the U.S. population could benefit from the increased visibility that utility and telecom data adds to a credit file.
Bridging the gap for the underbanked
Lenders have a unique opportunity to drive financial inclusion by incorporating alternative data. Thin-file populations, often disproportionately comprised of young adults, immigrants, minority groups, and elderly populations, make up approximately 25 percent of the total consumer universe. This 25 percent is an enormous market that can gain better access to credit through alternative data sharing.
To put this into perspective, the FDIC estimates the underbanked population in the U.S. alone to be about 50 million adults. For these underbanked adults, a lack of sufficient credit history substantially impacts their ability to get a loan on affordable terms. Our survey results demonstrated this impact: about a third (33.69 percent) of respondents who had previously applied for a loan were denied at least once.
Alternative data sharing sentiments
As a result, consumers are willing to participate in alternative data sharing if it increases their chances of being approved for a loan. Approximately 59 percent of the total sample population said they would be likely or very likely to share utility and telecom payment data with a lender. Those who had previously been denied a loan were even more willing (66 percent) to do so.
66% of consumers who have been denied a loan are willing to share utility and telecom data with a lender.
However, how they share that data matters. When asked how they would prefer to share their utility or telecom data, most respondents chose an automated process using an online form, for security and convenience. Less popular options included uploading e-bills to a portal and emailing bills as attachments.
This is unsurprising, given that consumers are moving towards all things digital ⎯⎯ from loan applications to everyday purchases. With the increasing prevalence of document forgery and fraud, alternative data sharing through secure, direct-from-source methods like the linking of utility and telecom accounts becomes important to both the consumer and the lender.
Ultimately, our survey results support two resounding conclusions:
- A large number of consumers stand to benefit from the use of utility and telecom data in credit scoring models.
- Consumers are ready to share their utility and telecom data with lenders in pursuit of better credit access.
Learn more about how utility and telecom data can be used in practice for building a credit risk model in our white paper.
You might also be interested in:
- eBook: From Underbanked to Understood
- Phone Payment Data Grows in Value & Availability
- A Comprehensive Guide to Alternative Data Sources
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About Amy Hou
Amy Hou is a Marketing Manager at Urjanet, overseeing content and communications. She enjoys writing about the latest industry updates in sustainability, energy efficiency, and data innovation.