Social media, software make alternative credit more transparent

When people turn to alternative credit lenders to help them get out of a financial bind, some of them are somewhat confounded by what they've gotten themselves into. In turn, those on the other side of the deal find they need a better way to keep track of the customers they're assisting.

Therefore, the best choice both parties have is to make transactions more transparent. With the appropriate operation model and software, alternative credit bureaus will be more capable of notifying their clients whenever payments are due or running late.

Not a critic

Ami Kassar, a contributor to The Wall Street Journal, asserted his belief that seeking unconventional means of obtaining credit is a legitimate practice. In his opinion, the reason why many people are apprehensive, even outright opposed to alternative lending, is because they simply don't understand the protocols. Therefore it's important for organizations participating in the process to:

• Inform potential customers of their options
• Disclose any fees that may be applied to their loans
• Outline interest rates
• Divulge a step-by-step process for how borrowing actually works

To back up his opinion, Kassar noted that micro lenders, hard-money lenders, equipment-leasing companies and other such alternative loan offices are all regulated by the Federal Deposit Insurance Corporation, which obligates them to periodically satisfy audits.

A new definition of customer retention
Kassar noted that an alternative lender's primary goal is to make sure consumers can handle their finances without coming back. Some would argue that this contradicts the goal of retaining customers, but it doesn't work that way for companies conducting business with borrowers.

For instance, an alternative lender could implement high interests rates in order to:

• Return a higher profit
• Get them trapped in debt so they have a steady stream of revenue

There are two reasons why such an operation model doesn't make sense to loan officers. First, getting people stuck in debt works against them financially because borrowers won't be able to pay loans back. Second, public perception can either support or cripple an organization, so a poor reputation can ultimately put an enterprise out of business.

Supporting a transparent environment
How do these companies ensure their customers will be able to pay loans back? By leveraging data analysis. Efficiently managing a large database detailing thousands of daily transactions can help loan officers keep track of their customers' financial histories, enabling lenders to set up payment plans that are applicable to them.

Operating on the right platform
Data analysis software can be particularly useful to lending companies that work in the digital realm. For example, Rainy Day Capital requires applicants to request loans through their Facebook accounts, allowing them to take out loans with no interest or fees for five days. In order to qualify, individuals must receive a reference from a current Rainy Day customer.

The startup requires thorough, helpful data analysis because of the manner in which it turns a profit. As opposed to charging an exorbitant up-front cost, the company issues a daily fee that starts at $2 and decreases with every loan a person takes out.

Such a system necessitates an infrastructure that can keep good track of itself, ensuring that no mistakes in payment or lending are made.