LexisNexis® Study Reveals Rising Popularity of New Data and Analytics to
Help Non-Traditional Consumers Qualify for Auto and Credit Card Loans
Young adults, low-income individuals and a growing population of “underbanked”
consumers with non-traditional credit histories among beneficiaries of new
alternative data tools to determine creditworthiness
ATLANTA -- June 11, 2013
LexisNexis® Risk Solutions today announced the results of an inaugural study
which provides the first holistic view of lender, consumer and regulator
attitudes on the use of alternative credit decisioning tools to evaluate
consumer creditworthiness. Alternative data not included in credit bureau
reports could have generated $1.7 billion for credit card issuers and $1.9
billion for auto lenders in 2012 alone. The study also reveals that auto and
credit lenders, consumers and regulators are embracing the benefits of using
alternative data in credit decisioning.
The report, “Evaluating the Viability of Alternative Decisioning Tools: A
Study of Auto and Credit Card Lending Markets,” conducted by Javelin Strategy
& Research, provides insights on the emerging category of Alternative Credit
Decisioning Tools (ACDTs) built on consumer information that doesn’t appear on
credit bureau reports to predict creditworthiness. This information may
include public record information such as property values, professional
licenses and other consumer data.
Findings from the study show that ACDTs provide viable options to evaluate
young individuals who are just gaining financial independence; low-income
consumers; thin- and no-file consumers; and – most prominently – a growing
population of “underbanked” consumers with nontraditional credit histories.
“While independent studies show the predictive capacity of alternative data
tools, there hasn’t been a comprehensive view into the societal, economic and
regulatory effect of their implementation until now,” said Mark Luber, vice
president, data and analytics, LexisNexis Risk Solutions. “The study points
out that while lending is currently rebounding from an economic recession,
traditional measures of creditworthiness are falling short and consumers are
defying prerecession risk categories.”
The study also explains that alternative data is already being used with
success in the U.S. marketplace, and consumers are familiar and comfortable
with it. 93 percent of all consumers have applied for a credit card and/or
auto loan at some point in their lives, and nearly 9 out of 10 applicants were
engaged in an underwriting process in which they were asked to actively
provide information beyond the basics of DOB, name, SSN, and which is not part
of a traditional credit report. When asked to identify the components of a
credit score, three out of five consumers selected a combination of
traditional and alternative credit-scoring factors.
Consumers that could benefit from ACDTs represent an underserved market, which
are more difficult to evaluate through traditional methods and encounter great
obstacles to obtaining credit than all other consumers.
To compensate for the deficiencies of traditional credit scores, lenders
undergo an intensive manual underwriting process to gather supplemental
information for consumers with blemished or insubstantial credit histories.
Auto and credit lending executives interviewed in the study have positive
views on alternative data. The primary reason cited by all categories of auto
and credit card lenders for adopting alternative credit-scoring solutions is
to increase the precision of their risk assessment methods and generate lift
on their portfolios. In fact, one large auto lender interviewed in the study
said it increased its booked loans from 8 to 15 percent for thin and no-file
Regulators are optimistic that ACDTs will increase access to credit and loans
and improve the economic inclusion of underserved segments, and are also
focused on ACDT’s compliance with the Fair Credit Reporting Act (FCRA) and the
Equal Credit Opportunity Act (ECOA).
About Javelin Strategy & Research
Javelin Strategy & Research (@JavelinStrategy), a division of Greenwich
Associates, provides strategic insights into customer transactions, increasing
sustainable profits for financial institutions, government, payments
companies, merchants and other technology providers. Javelin’s independent
insights result from a uniquely rigorous three-dimensional research process
that assesses customers, providers, and the transactions ecosystem.
About LexisNexis Risk Solutions
LexisNexis Risk Solutions (www.lexisnexis.com/risk/) is a leader in providing
essential information that helps customers across industries and government
predict, assess and manage risk. Combining cutting-edge technology, unique
data and advanced analytics, Risk Solutions provides products and services
that address evolving client needs in the risk sector while upholding the
highest standards of security and privacy. LexisNexis Risk Solutions is part
of Reed Elsevier, a leading global provider of professional information
solutions across a number of sectors.
Our financial services solutions assist organizations with preventing
financial crime, achieving regulatory compliance, mitigating business risk,
improving operational efficiencies and enhancing profitability.
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LexisNexis Risk Solutions
Stephen Loudermilk, 678-694-2353
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