Leveraging Alternative Data to Energize Your Lending Portfolio

The retail lending sector has become a battleground for established banks and new innovators as the market changes due to increased competition, new regulations, emerging technologies, and changing customer expectations.

Banks aren’t just dealing with customers who want lending and credit information faster. Government regulations are also requiring them to do so, such as Australian banks requiring affordability checks as part of new consumer loans.

We recently hosted a webinar, Leveraging Alternative Data to Energize Your Lending Portfolio, that brought together four industry experts to discuss these issues: Jason O’Shaughnessy, Senior Vice President, EMEA & Australia, Envestnet | Yodlee; Phil Grady, CEO of Castlight Financial; Roger Vincent, Head of Banking & Innovation, Equifax; and Venkat Srinivasan, Head of Lending for Monzo. Gary Wright, Director of Content, Finextra served as the moderator.

The goal was to discuss the trends driving change in retail lending and credit risk management, the use of alternative data sets to come up with more accurate predictive ratings models, and the future of retail lending and credit risk management.

Each speaker explained their views on the subject matter as seen through the lens of their own companies, especially in international markets.

Venkat Srinivasan, Head of Lending at Monzo, said that as a new digital bank, they began to question why it was often a month or two months before consumers could see the transaction come through on their banking or credit card. Venkat noted that while technology is improving and customers are evolving, data availability is evolving at the same time.

While most new technology seems to focus on the customer experience or analyzing the data through new machine learning and artificial intelligence, new and traditional data are being made available through new methods and technology as well. Venkat said it’s important for the tech providers to be able to keep up with new data delivery methods.

Roger Vincent, Head of Banking and Innovation at Equifax, discussed how they’re finding new ways to store data, facilitate data movement, and turn data into insights in the form of scores and characteristics. Equifax is focused on data analytics and technology, which can be securely shared with banks and tech partners like Castlight Financial.

Phil Grady, CEO of Castlight Financial, discussed how they created a business that has taken traditional credit data from consumers and integrated it with transactional data. This involves categorizing income and expenditures, and then determining essential expenditures versus non-essentials. This enables Castlight to determine consumers’ real disposable income, which in turn helps lenders make better lending decisions. This type of granular level data has allowed Castlight to create the first real-time Financial Capability Formula.

Jason O’Shaughnessy, Senior Vice President, EMEA & Australia at Envestnet | Yodlee, discussed how our data aggregation and analytics platform provides secure, quick and easy access to consumer-permissioned financial data from over 16,000 data sources. By using a consumer’s most recent bank transactions, lenders can improve the accuracy of critical credit risk measurements and streamline the underwriting process by reducing manual intervention and digitizing the process.

The discussion soon turned to legislation and how it has been a major driver in some of the technological developments and the availability of certain types of financial data.

Phil Grady mentioned how Castlight Financial built a product that would have struggled to get a foothold in the UK without the new Open Banking legislation. Instead of chasing banks, the banks began coming to Castlight asking them how to maximize benefits from a product that enables them to make better lending decisions with aggregated financial data.

Over the past few years, we have seen tremendous innovation in fintech driven through regulatory change in various marketplaces. Jason O’Shaughnessy mentioned that Australia was the first place where he saw this regulation-driven change. Regulators went to the lending industry and required them to conduct proper and reliable affordability checks for their loans. Lenders (banks, P2P, consumer lenders) realized this would lead to a huge slow down and drop off in loan applications, so they integrated the Envestnet | Yodlee platform to securely access consumer bank statement data in real-time, enabling lending decisions in a minute or less.

Roger said the speeding up of loan decision making has helped consumers become more empowered, as they’re expecting a lot more in terms of service, speed, and even personalization. They’re getting more comfortable with how they’re accessing and sharing their financial data, and they’re expecting their banks to keep up as well.

If you’d like to listen to the on-demand webinar on Leveraging Alternative Data to Energize Your Lending Portfolio webinar, please register here.