In the wake of the financial crisis, a lender’s magnifying glass has been firmly placed on the ability of a creditor to pay back the money they have borrowed. In the last couple of years, technology has caught up with the needs of lenders, ushering us into an era where huge amounts of customer data can be analysed and used to produce more in-depth and individually accurate credit scores.
Prior analysis tended to be based exclusively on financial history – previous loans, credit card history and history of repayments – as well as geographical location, information typically gleaned from a major credit bureau. Nowadays, there’s an ocean of information – thanks to big data – that can be brought into the mix.
The impact of Fintech
That information has been brought to us by fintech, the technological revolution that has disrupted the entire financial industry over the last few years. Fintech has allowed us to collect enormous amounts of data – so-called “big data” – which has revolutionised the way we conduct our financial transactions.
According to research by PwC, by 2020 consumer banking and fund transfers and payments are likely to be the most disrupted by fintech. Indeed, some fintech start-ups have focussed on providing credit to customers through digitised lending, including lending to previously untapped markets.
Their ability to do this is thanks to the advent of big data, and the wealth of information now available on consumers, which allows companies, through sophisticated algorithms, to decide within seconds whether that customer is safe to lend to. One such example is Buy with Affirm, the lending app launched by Max Levchin, co-founder of Paypal.
The app goes far beyond the traditional credit scoring systems and includes hitherto untapped data streams that run in their thousands, including data from social networks, to build a profile of the user. Completed in seconds, the results allow it to offer small personalised loans in a buy-now-pay-later approach.
“We price every loan to the transaction, the consumer, and the merchant,” Levchin told Fortune magazine last year. “There’s no compounding interest, hidden fees, or debt calculators here. This is a simple, fixed-term loan, and the approval is in real time, so you know how much you’re borrowing, and what your payments will be each month, before you make your buying decision.
“We think of it as the future of honest finance.”
Multi-bureau decision engines
Larger organisations such as high street banks are also changing the way they assess their customers, as James Snook, Risk and Regulation at Orgtel explains:
“One of the things we’re seeing is an increasing use of multi-bureau decision engines. These pull information from the 3 major credit bureaus, to give a clearer – and fairer – picture of the financial standing of a consumer.
“The use of multi-bureau decision engines is proving quite popular among large retail banks as well as smaller alternative lenders, because they will get a much more accurate picture of their clients’ ability to pay back the credit. Because of the emergence of multi-bureau decisioning, it’s giving banks the ability to offer improved interest rates to their clients and reduce the risk of that debt not being paid.”
The talent pool
Much of the candidate requirement for implementing a multi-bureau decision engine within an organisation involves hiring contractors:
“We’re involved in supplying project managers, business analysts and test managers, on the contract side, but also more permanent staff on the analytics side of it,” explains James.
“Candidates need to have a good background in credit risk and retail banking, with at least five to 10 years’ experience within credit risk, as well as SAS or SQL. People are not easy to find, it’s a very competitive market. Typically credit risk teams are based outside of London, sometimes several hundred miles away, making them less attractive places to work for those that want to be in or near the City. From a bank’s point of view, it’s simply too costly to have everything in London. There are also hubs of talent outside of the capital that banks can leverage, particularly near red brick universities.”
To find out more about the technology behind credit scoring, fintech or to have a general conversation, then please contact James Snook ([email protected])
Established in 2001, Orgtel is a specialist provider of recruitment solutions to the Investment Banking, Financial Markets, Finance and IT sectors.