SPARK Insights: FinServ Leaders Reveal Alternative Data Is an Essential Data Source
In September, Urjanet held its premier alternative data conference: SPARK 2020. Attendees from banks and financial technology providers across the globe gathered virtually to discuss how they’ve leveraged alternative data to overcome today’s market challenges. We conducted a series of live polls during the event in which participants revealed that alternative data is becoming an essential data source for businesses across the industry. Keep reading to learn more about the results of our poll and the growing need for additional data sources and automation in the era of COVID-19.
Remote interactions and the need for efficiency are driving digital transformation
At the onset of the pandemic, shelter-in-place orders across the U.S. accelerated mobile adoption, and teller transactions decreased by 30 to 40 percent. The shift to more remote interactions started the transition to what is now considered the new digital reality. During SPARK, 89 percent of survey respondents said they saw a greater need for automated and digitized processes as a direct result of the pandemic.
89% of financial services leaders see a greater need for automated and digitized processes as a direct result of the pandemic.
With the right internal infrastructure, banks can handle customer transactions digitally while their employees work remotely. With fewer onsite employees and customers visiting bank branches, occupying brick and mortar spaces has become less economical. Taking action to increase automation has the potential to both improve the customer experience and lead to greater operational efficiency.
Alternative data moves from the fringe to the center
Today, alternative data is becoming more than just an option for banks and lenders; it’s becoming an essential data source. At SPARK, 92 percent of survey respondents stated that they’re currently using at least one alternative data source. The majority cited bank account data and utility/telecom account data as their alternative data sources of choice.
Consumers’ willingness to share personal account data is also increasing. Experian’s latest report highlights that the top financial information that consumers are willing to share includes utility payment history at 84 percent, cell phone history at 83 percent, and rental payment history at 80 percent. Sharing personal account data helps consumers better demonstrate creditworthiness and leads to better offers – a trend likely to continue throughout the economic downturn.
96% of lenders agree that in times of economic stress, alternative data allows them to more closely evaluate consumer credit risk.
96 percent of lenders agree that in times of economic stress, alternative data allows them to more closely evaluate consumer credit risk. As relying only on traditional credit data becomes less reliable, the use of this newly essential data source will continue to grow.
Broader and deeper visibility into consumers are equally important
Understanding the consumer’s complete history and profile is critical for businesses and banks. SPARK survey respondents stated that identification of more valid identities and enhanced risk assessment were the biggest benefits they expect to gain from using alternative data, at 34 percent and 31 percent respectively.
As the negative impacts of COVID-19 take a toll on financial stability and consumer borrowing decreases, finding more qualified borrowers will be challenging for the foreseeable future. While current risk models were built for an economic downturn, they were not properly equipped for the sudden halt in both supply chains and the demand side of economic activity. The acuteness of the pandemic’s impact has made current risk models less reliable.
Updating current risk models to include non-traditional data sources can restore reliability and enhance predictiveness.
Updating current risk models to include non-traditional data sources can restore reliability and enhance predictiveness. It’s important to note that in order to protect the credit of consumers adversely affected by the pandemic, it doesn’t have to mean a cessation of reporting. Rather, it should be revamping the credit scoring models that currently consider only credit payments and no other alternative data sources.
Tap into this essential data source
Whether you are a lender, loan origination software platform, or identity verification software provider, alternative data offers a unique opportunity to benefit you and your customers. It’s fair to say the industry will be forever changed by COVID-19. To help meet the new needs of financial services customers, lenders and software providers can rely on the insights gained from rent and utility payment history.
Interested in learning more about what utility payment data can do for your business? Speak with one of our experts today.
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About Honor Donnie
Honor Donnie is a Marketing Intern at Urjanet, with a passion for content creation. When she’s not at Urjanet, she can be found studying Political Science at Clark Atlanta University.