SPARK 2020 Recap: Driving Financial Services Growth with Alternative Data

Each year, we look forward to connecting with leaders from a variety of industries at our annual SPARK conference. The big change for SPARK 2020 – we went digital! Although we missed the fun of gathering in person, we were thankful for the opportunity to expand our reach and have attendees join us from around the globe.

For the first event in our digital SPARK 2020 series, we brought together leaders from the financial services industry to discuss alternative data best practices, trends, and innovations. If you missed the event, you can watch the sessions on-demand, or keep reading to see our key takeaways from SPARK 2020.

Consumer credit needs additional data sources

At SPARK, we quickly addressed the elephant in the room: the COVID-19 pandemic. It has had a widespread effect on the financial services industry, consumer credit, and credit risk decisioning models. As our keynote speaker Mark Begor, CEO of Equifax, said: the power of alternative data has never been more valuable in credit decisioning. 

According to Begor, in pre-COVID times, lenders were confident in decisioning for over 60 percent of the population based on the strength of their traditional credit files, but now they can only be confident about 38 percent due to the uncertainty caused by the pandemic. Unemployment has hit consumers hard with close to 13.6 million people out of work and more than 40 percent of the U.S. population experiencing either job loss or pay reduction. 

Due to the uncertainty caused by the pandemic, lenders can now only be confident in decisioning 38% of the population based on traditional credit files.

As the pandemic and economic downturn continue, so does the negative impact on consumer credit. Begor expects delinquencies to accelerate and could be as much as 23 percent higher than they were pre-COVID in January. Alternative data was once considered as a supplement to the millions of people who are credit invisible, unscorable, or subprime – but under the current circumstances, even prime or near-prime consumers could use a boost.

“A deeper view of traditional credit reports allows nearly 4 million consumers who were moved down due to credit policy tightening to move back to prime and super-prime credit categories through the use of alternative data. This is really important in this challenging time.”

As these conditions worsen, lenders will have more difficulty in credit decisioning without relying on additional data sources. If lenders can’t predict risk accurately, they may be limiting their customer base more than they need to. “Lenders need new ways to transform uncertainty and a better understanding of risk,” said Begor. 

Digitization of the customer experience should be a priority

Like many organizations across the globe, the pandemic has prompted the leaders on our panel to prioritize a digital customer experience. Kathryn Petralia, President, and Co-Founder of Kabbage spoke about the role that automation and robotics played in providing Paycheck Protection Program (PPP) funding to small businesses. 

Kabbage provided over 300,000 small businesses with more than $7 billion in PPP financing, making it the second-largest PPP lender in the country. Petralia said this would have been difficult to achieve without automating the entire document ingestion, classification, calculation, and submission process. Moving forward into the forgiveness portion of the PPP, Kabbage expects to provide its customers with a seamless process to verify funding usage on utilities and rent payments. 

“From our perspective, it makes it easier to get that data directly, digitally, and in real time so that we can work through the forgiveness process for our customers.”

Much like Kabbage, Freedom Mortgage also depends on a digital process to satisfy customer needs, especially in the wake of record-low mortgage rates and an increase in mortgage applications. Compared to August 2019, Freedom Mortgage saw 5x growth to almost 32,000 loans in August 2020 as a result of these unprecedented times. 

Marcus Bontrager, EVP of Call Center Operations at Freedom Mortgage, attributed the company’s use of tech and robotics to its ability to scale, especially when it comes to FHA loans, which require borrowers to provide proof of occupancy verification.

“Typically proof of occupancy is a utility bill: seeing a utility bill with your name and your address there. We partnered with Urjanet to provide a seamless experience for our customer base to get that utility bill. Very simple, very easy, very mobile-friendly. And that allowed us to scale.”

Dan Holt, CEO of BillGO, agreed. He described the changes he’s seen in consumer behavior through recent interactions with banks and lenders. Traditionally, bill payments would require two to three business days and were paid via check. Now, the consumer’s expectation is that everything is to happen instantaneously.

“Giving people the ability to access their bills rather than go through the process of getting their paper bill – if you can automate that for someone, which you’re able to do with Urjanet, that makes a huge impact.”

Consumer-permissioned data is essential for lenders and consumers

With the crisis greatly impacting consumer spending and credit profiles, more and more consumers are inclined to share their data to improve creditworthiness. As our CEO Sanjoy Malik mentioned in his session, 84 percent of consumers are willing to share their utility payment history with a lender, while 64 percent of millennials are actively looking for ways to improve their credit scores.

There’s a caveat, however: consumers want control over who gets their data and how it’s used. By incorporating permissioned alternative data into the credit decisioning process, lenders can gain better visibility into a consumer’s credit profile without violating data privacy. As Begor said: “Consumer-consented data can bring new information into credit decisioning that wasn’t reported in the past. It provides a very powerful lift.”

Petralia added that lenders often underestimate consumers’ willingness to share their information; if consumers can see the benefits they’ll get out of sharing their data, they’ll jump on it. Holt clarified that even with the consumer’s permission, stringent privacy and protection policies are still critical. “There’s a ton of pressure to ensure that we are protecting the consumer’s data.”  

Don’t miss our next SPARK 2020 event

Despite a pivot from our usual format, this year’s SPARK conference was one for the books! If you missed the live event and want to hear the full discussions, watch the sessions on demand. 

You’ll have another chance to join us on November 5th for our next SPARK 2020 event: The Impact of Digitized Access to Utility Data in Energy & Sustainability. Register today!

YOU MIGHT ALSO BE INTERESTED IN:

• Solving the Lending Challenges of Today with Utility Payment History
• Consumers Embrace Sharing Account Payment History for Credit Decisioning
• White Paper: Growth, Risk, and Operational Efficiency in a Growing and Uncertain Digital World

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