Financial Institutions Innovate with Alternative Credit Data Insights
Forty percent of financial institutions report rising delinquencies amid growing economic pressure.
Recently, LexisNexis Risk Solutions shared the findings of its groundbreaking study on global consumer lending confidence, illustrating significant changes in how financial institutions assess consumer creditworthiness. As the economic landscape shifts, lenders are increasingly relying on alternative credit data to enhance their decision-making processes.
Financial institutions worldwide face various economic and regulatory challenges, prompting a shift towards alternative data collection to better understand consumer risk. Traditional credit data, while valuable, often leaves gaps that hinder accurate credit assessments. In fact, a staggering 97% of lenders surveyed reported that addressing delinquent loans remains their main challenge, with 40% noticing increased delinquencies in recent times.
Amid these circumstances, lenders have become less confident in making consumer lending decisions based solely on traditional credit measures. A notable 78% of respondents indicated they struggle with visibility into consumers' negative payment histories, which has catalyzed a broader consideration of alternative credit data to supplement traditional methods. Approximately 66% of those surveyed are now exploring the integration of such data to refine credit risk assessments and foster more reliable lending decisions.
Kevin King, vice president of credit risk at LexisNexis Risk Solutions, emphasized the importance of embracing alternative methods: "Financial institutions attempting to assess creditworthiness with traditional credit data alone are competing with one hand tied behind their back. By leveraging comprehensive data insights, they can vastly enhance their risk assessment capabilities and achieve superior financial outcomes."
Understanding the Key Findings
The study encompassed feedback from 434 employees at various financial institutions across nine countries including the United States, Colombia, Mexico, South Africa, India, Italy, the Philippines, Spain, and the United Kingdom.
Challenges Faced by Lenders
A significant finding revealed that 91% of respondents anticipate that delinquencies and defaults will either remain the same or increase over the coming year. In addition to this pressing issue, organizations face challenges in attracting new borrowers, maintaining current customers, and effectively utilizing external data.
Declining Confidence in Traditional Data
Compared to the previous year, 59% of global lenders reported diminished confidence in their ability to compete in consumer lending decisions using only traditional credit data. The survey pointed out that changing regulations, the rise of non-reported financial products, and shifts in credit reporting practices all contribute to a decline in the reliability of traditional credit data.
The Rise of Alternative Credit Data
Interestingly, 86% of lenders expressed increased confidence in utilizing alternative credit data for making consumer lending decisions. The insights gained from this data close critical visibility gaps, enabling lenders to better understand consumer credit health. The current applications of alternative credit data include pre-screen marketing, loan origination, portfolio management, and collections.
Methodology Behind the Study
The methodology of this study involved surveying 434 professionals from financial institutions responsible for lending or risk management. Participants were equipped with in-depth knowledge of these areas at various banking structures, credit unions, and lending institutions with diverse asset sizes. The study focused on the industry challenges faced by these institutions, their confidence in traditional versus alternative credit data, and the potential of alternative scores in consumer lending.
About LexisNexis Risk Solutions
LexisNexis Risk Solutions harnesses the power of data and advanced analytics to offer insights that assist businesses across numerous industries and government entities in minimizing risks and making improved decisions. Operating from its headquarters in Atlanta, Georgia, the company is part of RELX (NYSE: RELX), a leading global provider of information-based analytics and decision tools that cater to professional and business clients worldwide.
Frequently Asked Questions
What is the main focus of the LexisNexis Risk Solutions report?
The report highlights how financial institutions are shifting towards alternative credit data to enhance consumer credit assessments amidst rising delinquencies.
How many financial institutions participated in the study?
The study involved 434 professionals from various financial institutions across nine different countries.
What are the top challenges identified for lenders?
Some of the primary challenges include increasing delinquencies, attracting qualified borrowers, and leveraging external data effectively.
How has confidence in traditional credit data changed over the past year?
59% of lenders expressed decreasing confidence in traditional credit data as adequate for making competitive consumer lending decisions.
Why is alternative credit data becoming more popular?
Lenders find alternative credit data more reliable as it bridges visibility gaps in understanding consumer credit health, thereby enhancing their decision-making processes.
