Traditional financial organizations lend to a limited range of people. Their customers are potentially only people with a credit history and a credit score based on that history. This is the information on which traditional scoring relies.
This situation negatively affects all market participants. Lenders lose a significant share of profits because they are unable to lend to a huge number of favorable borrowers. In turn, the population lacks credit, which is often necessary to meet basic needs.
The way to get rid of this situation is the rolling out of credit scoring using digital footprints by financial organizations. Let’s talk about how it helps to optimize the lending process.
Table of Contents
The concept of digital footprints
Digital footprints are commonly understood as data that remains on the Internet as a result of the online activity of a user. This can be blog posts, registration of various profiles, subscriptions, online purchases, and more.
Depending on how this data got on the web, a digital footprint can be active or passive. For example, creating an account or posting personal photos can be classified as an active digital footprint.
After all, this is done personally by the user. And a lot of information about the location or the kind of device of a person – to passive. The web resource collects them independently, without the consumer’s participation.
The digital footprint can be positive or negative. The starting point into the hands of the client, improving reputation. For example, timely payment of paid subscriptions or use of premium services will have a good effect on the digital rating of a potential borrower.
However, a recent registration in social networks or inconsistency of the information found with the data in the loan application is a reason to assign a high-risk level to the applicant.
Data available as a result of digital footprint analysis
Through digital footprint research, fintech companies, credit unions, and other financial companies have access to a variety of consumer information. These go far beyond credit bureau data.
Such data includes:
The material status of the applicant
When it applies to ordinary credit scoring, a person who does not have an official source of income cannot expect to receive a loan.
However, in the present-day world, the phenomenon of freelancing is very common. This form of employment does not involve official registration, but the income of self-employed persons often exceeds the average earnings of employees.
The examination of the digital footprint allows you to figure out the true financial situation of the applicant. For example, good income will be evidenced by:
- The use of an expensive device
- Joining paid premium services
- Making expensive online purchases
- Creating a mailbox on paid hosting, etc.
Features of consumer behavior
With the aid of digital footprint analysis, the creditor will be in a position to get responses to questions such as:
- Does the consumer make late payments on paid subscriptions?
- Is the consumer registered on gambling platforms?
- How often does a consumer make online purchases?
By knowing such details, one can infer the level of trustworthiness, impulsiveness, and risk-taking behavior of the expected borrower. These character traits have a direct impact on the amortization of the loan in the coming years.
This wide range of statistics allows lending organizations to come up with a conclusion about the creditworthiness of an applicant based on real facts.
Credit scoring best practices using digital footprints
Digital footprint analysis is a real step towards completely transforming the assessment of a potential borrower. This approach to credit scoring opens up a wide range of possibilities for the lender.
Building an objective portrait of the applicant
Digital footprints include a large list of online activities. It includes social media check-ins, purchases on ecommerce platforms, data from mobile apps, and more. This allows a lending organization to build a broad picture of a person’s trustworthiness.
Lending to the unbanked population
Modern scoring platforms use alternative data to evaluate borrowers. These revolve around e-commerce transactions, online subscription payments, mobile phone payments, and more. Such data sources can tell you about the applicant’s financial circumstances no worse than a typical credit history. Thus, even people who are not covered by banking services can get a loan.
Use of up-to-date data
The metadata made available to traditional banks by credit bureaus extends to the entire financial history of a consumer without considering life circumstances. However, one cannot ignore the fact that events from ten years ago may have no relevance to an applicant’s current financial status.
Digital footprint analysis, on the other hand, provides real-time data on an individual. Thus, the lender will be able to find up-to-date information about the potential borrower’s income and habits.
Risk assessment and fraud prevention
Digital footprints help identify potential attackers by analyzing inconsistencies in an applicant’s data or identifying anomalies in their online behavior. For example, a sudden change of location or a change in spending patterns may require close attention.
Creating personalized offers
As a result of assessing a borrower using digital footprints, a digital credit score is assigned to the borrower. On the basis of this rating, personalized credit offers can be developed. A high score allows the applicant to be offered a lower rate of interest or a longer loan period. A low score may require additional conditions. For example, the inclusion of a guarantor in the transaction or the provision of collateral.
The integration of digital footprints into the credit scoring process represents a shift to a more holistic approach to assessing the reliability and creditworthiness of borrowers. It enables lenders to create a detailed picture of an applicant’s behavior and make a reasoned decision on a loan application.
Digital footprint analysis at RiskSeal
RiskSeal’s digital scoring system gives financial institutions access to hundreds of data points from 140+ online resources.
The RiskSeal platform enables lenders to:
- Double the number of loans originated by accelerating application decisions.
- Reach 98% of the underbanked population with lending services.
- Save KYC budget by 75% through early fraud detection.
- Utilize progressive approaches to verify borrower identity online.
With RiskSeal, you will be able to make informed decisions on whether to extend credit. As a result, you’ll reduce default rates and reach a new target audience.
