Recognizing the Power of Big Data for Alternative Lending

Alternative Lending Solutions

As we discussed in yesterday’s blog post, high-definition credit scores and alternative credit data are becoming a priority to banks that are looking to refine lending practices. This shift was partly a result of the industry’s reaction to the financial recession, though many more banks now view high-definition credit scores proactively as a way to uncover new lending opportunities.

The discussion parlays well into a larger conversation focused around big data – the catch-all term used to describe the increasing use of large and complex data sets by businesses desiring improved productivity and profitability.

Big Data in Financial Risk Management

With regards to big data, one of the major main points for corporations in any industry – not just the financial sector – focuses on capture and storage. That is, what are the most effective tools for capturing this data and keeping it on hand for later analysis?

For financial risk management teams, an ideal solution can be found with credit management software that offers customizable scorecard building capabilities. A rules-based management system can offer lenders the tools needed to construct a risk management framework that can cultivate, secure and analyze alternative sets of data.

This could be particularly valuable to the growing list of alternative lenders – those that offer financing through merchant cash advances, accounts receivable financing or microlending. Data from Biz2Credit showed that these lenders increased their loan approval rates by nearly 12 percentage points in July 2012 from July 2011, showing that this segment of the lending population is stepping in to serve the underbanked. With a stronger risk management framework, these businesses could continue to see approval rates and opportunities climb higher.