Business Insider Intelligence Report finds that Banks Must Seek Innovation in Credit-Risk Assessment Processes
Traditional lenders like banks have long been an important cornerstone of the credit industry. However, the process of finding desirable credit consumers requires large scale data collection and analysis intended to distinguish prime low-risk borrowers from the overall populace of credit applicants. The large scope of these data operations makes it difficult for lenders to accurately gage the risk of consumers, thus leaving a large part of the potential lending market untapped. Hindered by legacy systems, finding suitably credit worthy consumers can be like finding a needle in a haystack for incumbent institutions like banks.
A study published by Business Insider Intelligence (BI Intelligence) found that a great number of potential credit worthy consumers are being neglected due to the legacy data processing systems of incumbent lenders in the banking sector.
A survey of “Underserved US Consumers” found that 16% of the neglected market is composed of “Prime or near prime consumers” and that 24% are consumers with low risk and liability levels. These figures demonstrate a lack of financial inclusion provided by today’s incumbent lenders. The inability of these lenders to effectively process data disadvantages the institutions themselves, while also making the borrowing process more inconvenient for these neglected consumers.
This has allowed for the rise of alternative lenders, competing with incumbents. Using more efficient and accurate risk assessment processes and innovative technologies, alternative lenders are rising in popularity and strength. Banks must look to develop their own data processing and risk assessment technologies, if they wish to remain competitive in this evolving field.
The report published by BI Intelligence found that, “If executed correctly, the payoff [of implementing new technologies of risk assessment] can be huge for incumbent lenders. In addition to boosting financial inclusion and enabling lenders to tap into new demographic segments and markets, new methods and technologies can improve returns on existing demographics."
The findings of the BI Report illustrate that the need for innovation among incumbent institutions is greater now then ever: alternative lenders will benefit from their technological leverage, if banks do not adapt their legacy systems to meet the needs of the market. The disruption of the lending market by alternative lenders is imminent, and incumbent lenders must be prepared to innovate and adapt if they wish to remain competitive.
At Sqirl, we believe that banks have much to offer consumers when it comes to credit, but that financial inclusion of consumers must be made a greater priority for incumbent lenders. That’s why we created the Financial Passport (FINPASS), to bridge the gap between lenders and their potential consumer base.
The FINPASS is the tool banks need to eliminate the data blind spots created by legacy information processing technologies. Our product incentivises consumers to provide the financial data required for accurate and efficient risk assessment, so that banks no longer have to rely on their antiquated data collection systems.
The FINPASS can also direct prime consumers to the lender and product best suited for their risk level. Our data collection and processing system ensures that KYC and AML protocols are followed before a customer applies for a credit product, and that individual consumers are given the access to credit they deserve.
These functions of the Financial Passport benefit both the institution itself and the passport holders, ultimately making the credit application process more efficient, accurate and inclusive.
Follow us on Twitter (@cdnfinpass) to stay up to date on our latest blogs