Long before the COVID-19 pandemic hit an unsuspecting world, information services companies like credit bureaus were increasingly using alternative data for targeting non-traditional market segments. To quote the 18th century German philosopher Arthur Schopenhauer -- All truth passes through three stages: First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as self-evident, sums up the current degree of acceptance of alternative data as truth rather beautifully. Most information services providers have reached stage three in this journey. The focus has already been on the use of alternative data for credit scoring to target sub-prime segments in mature markets and financial inclusion in emerging markets. But the ongoing pandemic has triggered a fresh, unprecedented wave of innovation in alternate data space especially in the context of credit bureaus. Here we attempt to touch upon some of the key movements happening in this space.
Experian, for instance, has created a free COVID-19 U.S. Business Risk Index to help businesses better understand the impact of COVID-19 on their commercial operation. The index is based on several key factors that combine business risk with anticipated impact on business industries and real-time COVID-19 case data to help businesses better simulate various impact scenarios. It includes capabilities to break down operations to the state level to help develop enterprise strategies. Extending the same principle, Experian consumer services is marrying consumer traditional/alternative credit data with real time business impact data to prioritize federal relief for the worst effected parts of the society. Experian’s Social media Insights™ is an alternate data platform that provides lenders with another layer of data that can help better assess emerging/small businesses who have a thin credit profile but have a strong social media reputation. Such techniques could again be used by federal/state bodies to prioritize relief.
Equifax, has launched a new avatar of the Equifax Responses package, called Equifax Responses FREE, a full suite of differentiated data and solutions (including credit, alternative data, employment and income, and wealth information) to address the evolving needs of businesses in the wake of COVID-19. This product provides complimentary access to economic and credit trends and tools for optimizing business performance such as abridged U.S. Credit Trends reports, webcasts with the most current market information, and customer consulting. The FICO Resilience Index helps lenders predict a consumer's ability to pay during economic downturns. The SME Lending Solution provides tools to lenders to expedite Paycheck Protection Program loans to small businesses. This solution has immense potential to be integrated with real time COVID-19 data for further expeditiousness of lending decisions.
TransUnion’s ID Analytics Credit Optics™, an existing alternate data-based product, is being viewed to identify financially struggling consumers to get the best possible aid to them quickly while protecting lenders from the underwriting risks associated in such circumstances.
While credit bureaus have reacted very robustly to the pandemic situation by becoming alternative data providers and taking immediate steps such as launching free credit reports for a year, free products, financial discipline guidelines/blogs etc., the industry is also preparing to support its customers for the long term impact this pandemic will leave on the overall business climate, globally. The credit bureau industry recognizes the centrality of its role in the post-COVID world when entire economies, governments, financial institutions and an unprecedented number of individuals, small and medium businesses will need innovative solutions to chalk out the credit risk management in the future. In such a journey, the industry finds alternative data and technologies like AI/ML/big data/blockchain as key partners to enable the solutions of tomorrow.
In this context, some of the key areas that the bureau industry is expected to focus in the medium/long term are:
Rapid financial inclusion (micro-lending) for thin/no-file consumers
Self-service credit score boosting platforms
Rapid dispute handling through alternate profiling
Identifying risky social behavior
Public health (personally non-identifiable) based risk assessment products
Next gen fraud detection products
Small and medium business alternate risk profiling
World-wide pandemic/epidemic tracking enabled risk management products
Other derivate areas of interest
Online behavior analytics
Digital channel readiness analytics for SMB sector
Social distancing monitors (subject to regulatory limitations)
The implications of the pandemic for the credit bureau industry is still unfolding. This is an area of continued research and opportunity. As bureaus gets challenged by niche players in the alternate data space, the competition and innovation in the space will have the ability to change human life, for the better.