How Alternative Data Can Help Your Business
Competition in the utility sector has never been hotter, and companies are looking for innovative ways to attract more qualified customers. With the use of alternative data, you can gain a broader perspective of customer creditworthiness and increase the efficiency and profitability of your business.
New data points
Alternative data, also referred to as “nontraditional data,” consists of data points that are not typically considered when evaluating a potential customer’s creditworthiness. These data points may include rent payments; utility payments, including gas, electric and heating oil; telecommunications payments, such as mobile telephones and landlines; insurance payments; and any other recurring fiscal obligations.
Collection and analytics help companies evaluate customers’ ability to pay — even in cases where there is little or no traditional data available. For customers who have little or no traditional credit history, this data can provide valuable insight into their payment history. By providing information on a customer’s payment history for obligations such as utilities, rent and other necessities, even the unbanked and underbanked can be evaluated for their ability and propensity to pay.
Improving credit decisions
The Political and Economic Research Council (PERC) studied the use of alternative data to determine the creditworthiness of those who are outside of the traditional credit system.
The study found that people who do not have mainstream credit are not higher risk than those who do. In fact, the use of nontraditional data in granting credit lowered the risk of default among people previously considered unscoreable. The risk profile of these consumers is similar to that of the population in general. As a result, adding this data to the credit files of this unscoreable group provides more low-risk potential customers for credit-granting businesses.
The study also found that including alternative data makes it easier for businesses to extend lines of credit. In fact, it found that including credit data from utility companies and telecommunications companies increased the rate of acceptance by 10 and 9 percent, respectively.
Another interesting finding was that gathering nontraditional data can actually reduce defaults. The study found that, by integrating energy utility data that was fully reported, the percentage of outstanding obligations that were 90 days or more past due declined by 29 percent.
Acquire more customers with alternative data
Using alternative data will help you better assess customers’ creditworthiness and employ customized collections techniques when required. It will also allow you to increase the number of customers to whom you can extend credit without increasing your risk.
Image source: Flickr
Recommended For You
A More Inclusive Credit Scoring Model Economists refer to the U.S. recovery as ‘K-shaped’, meaning that one segment of the […]
Buy Now, Pay Later FinTechs are Well-Positioned to Drive Holiday Sales in 2020 Buy now, pay later FinTechs are well-positioned […]
Differentiated Data is Even More Critical in 2020 Consumer spending has picked up slightly since the summer lockdowns across many […]
This year has forced financial firms to reevaluate and alter their lending programs. Many lenders have had to work quickly […]