Mar 02, 2017 Sean Albert
Fintech companies from Avant to FinMkt are challenging conventional lending practices. Both millennial and immigrants, two groups which are defining America's demographic composition, have no trouble finding alternatives to lenders that exclusively rely on traditional credit data to provide loans.
In response to this competition, some financial institutions (FIs) are reviewing the merits of integrating alternative credit data into the loan assessment process. From an operational perspective, what must IT departments do to accomplish this goal?
A quick review of alternative credit data
For those unfamiliar with the terminology, alternative credit data refers to information regarding an individual's monthly bill payment habits. For example, alternative credit reports contain data detailing whether individuals pay their rent, utility and mobile phone accounts on time and in full. Depending on the agency from which these reports originate, loan officers will also be able to review a person's:
- Bankruptcy, lien, judgment and eviction records.
- Personally identifiable information such as date of birth, Social Security number and so forth.
- Banking inquiries.
- Positive and negative retail bank transactions.
- Current and previous address history.
Which sort of data governance policies should upper management establish and enforce?
Alternative data's place within the infrastructure
How does alternative data fit within an existing infrastructure? The answer obviously depends on existing composition. Do alternative credit reports automatically connect to the company's underwriting systems? How does the business prepare data for later analysis? Does an application route consumer credit information to a data mart that sits on top of a Hadoop cluster?
These are just a few of the many questions CIOs, CTOs and other senior IT personnel need to ask when integrating alternative data into their operations. Finding the answers entails detailing exactly how loan officers, underwriters and other lending professionals wish to work with alternative credit reports.
For instance, some staff may prefer correlating the data within such reports with those from traditional credit resources, which would require some sort of data matching and deduplication program. In contrast, sales may want to send alternative credit reports directly to the enterprise's customer relationship management system. All of these needs and desires have technical implications.
Governing alternative credit data
Given the nature of the information within alternative credit reports, CIOs must establish data governance protocols designed to maintain borrower privacy and enable iterative data analysis. Microsoft provided some guidance on the matter, asserting that identity verification and authorization are two key components of effectively protecting information.
An effective data security tactic entails defining role-based access controls. These policies assign permissions to individuals based on their roles within the company. With respect to alternative credit data, an administrator could enable a loan officer to view all of the details within a loan applicant's report. However, a business intelligence professional may only be able to view anonymized data, given that his job is to find correlations between levels of risk and loan payment details.
Obviously, this article only scratches the surface. Understanding how to fit alternative credit data into your operations requires a thorough assessment that could last up to several months. CIOs may benefit from assembling a team who can assess how such information will impact operations and infrastructure.