Responsible, Reliable and Robust Credit Decisioning
There are around 15 million people in the UK struggling to access affordable credit, who are just one unexpected bill or bit of bad luck away from a crisis. High cost credit, especially to those in a vulnerable financial position, is extremely damaging and urgently requires attention and alternative solutions.
Added to this, 5.8 million adults in the UK have no access to formal credit options. They are ‘invisible’ to the mainstream credit economy as they have little or no available credit history or identity information. Their thin credit files prevent them from accessing the financial products they desperately need.
Financial exclusion in today’s society is therefore more prevalent than ever.
The failure to provide reliable alternatives to high cost credit lenders and to continually exclude a large proportion the population from financial products gives rise to huge social costs. The mental and physical health problems related to financial stress are also becoming more and more evident and well documented.
The need to make fairer, faster and more informed credit decisions has never been more pressing.
It came as no surprise therefore that in a survey conducted by Woodhurst, business leaders revealed that digital Credit Decisioning capabilities are one of the key areas requiring vast improvement across the organisation.
To better serve those that consistently struggle to access affordable credit, banks must use smarter data sources, make instant decisions and create flexible products – without increasing risk.
Use smarter data sources
- Open Banking provides a rich source of data to assess credit worthiness with a greater degree of accuracy
- Drawing on wider data sources to determine the credit decision will allow low-cost credit options to be offered to the often financially excluded population
- Automate the lending decision end to end using intelligent tools based on established risk models
Flexible, customised products
- A wider data set allows the organisation to better mould products towards customer needs
- Consider flexible lending approaches across cards, loans and other credit products based on an agreed credit limit
- Provide flexible repayment options to suit the customer’s own income stream. E.g They can over-pay, which reduces the total interest they pay, and can arrange payment holidays
Predict and pre-empt
- Preauthorise credit limits across the customer base, where possible, to allow funds to be exchanged immediately
- Use intelligent analytics to predict credit needs across the customer base and target the best product for those needs – particularly for retail and small business customers
- Pre-empt the credit decision by providing advice and support on building healthy financial behaviours and how to proactively and positively impact their own financial situation
Harness data to deliver better decisions
Access to a greater variety of alternative data on financial behaviour would allow companies to deliver fairer, more affordable solutions and positive credit decisions. It would also lead to a better customer experience, with lenders able to make more informed, more appropriate decisions. Finally, the ability to analyse and understand more about the true creditworthiness of these individuals would enable companies to generate more business and reach a wider audience with more tailored solutions, without adding risk to their business.
In a world that we hope will be increasingly driven by Open Banking and Open Finance initiatives, companies need to harness intelligent analytical tools and the plethora of data to make better credit decisions to get funds into the hands of the right customers, at the right time.