Lenders Leverage Alternative Data For Underwriting
October 27, 2022
unveiled The State of Alternative Data in Lending that provides an inside look
into how lenders are currently using alternative data in underwriting, the
market’s perception of this growing trend and the untapped potential for
improved underwriting. The report, which is based on a survey of 185 decision
makers in the lending industry, found that three-quarters (74%) of lenders
believe traditional credit report data does not paint the most complete picture
of consumer credit worthiness, with most (59%) now turning to various forms of
alternative data in their underwriting process to fill the gap.
Lenders are using alternative data sources to create more opportunities for data-driven decisions, but additional opportunities exist: While 50% of lenders are using alternative data to improve the predictability of underwriting processes, not enough lenders are taking advantage of its ability to reach new audiences—a motivator in only 27% of lenders.
Adopting new data is a strategic priority, but cost and integration remain top concerns: Nearly 1 in every 4 lenders (23%) noted adopting new data sources for credit risk assessment as a strategic initiative for their organization, second only to new geographic market expansion (25%). However, nearly 50% of lenders indicate reliability and/or stability of alternative data sources has been a top concern impacting alternative data adoption and 30% cite associated costs for such data and analytics as a top concern.
“The lending industry is on the precipice of major change, coming to terms with
outdated underwriting processes and seeing opportunity with new data sources
that will help them improve predictably, reach new customers and grow even in
the face of economic uncertainty,” said Misha Esipov, co-founder and CEO of Nova
Credit. “This research underscores Nova Credit’s long held belief that
alternative data sources are the path to creating a more fair and inclusive
credit reporting system and it is rewarding to see progress being made in the
industry to do just that.”