Alternative Credit Data Makes Customer Acquisition Uncomplicated

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Customer acquisition leads to higher revenue streams and the possibility of gaining profitable customers for financial institutions (FIs), but some customers are hard to reach. Alternative credit data can help FIs reach new markets and acquire customers who are profitable assets to the institution.

When assessing the credit worthiness of customers, FIs can use traditional and/or alternative credit data. Traditional credit data includes credit bureau files and credit scores while alternative credit data can include information about previous addresses, payday lender information, state licensing, or any other public record. Alternative credit data is cost-effective and, in addition to demonstrating the credit worthiness of those customers who have no, or very little, credit history, it can be used to make more informed lending decisions and prevent fraud.  

The term underbanked refers to consumers who choose not to use traditional financial products or have very little access to them. Recent high school graduates with no credit history, new immigrants, and consumers that don't trust traditional financial products are all examples of underbanked individuals. Because this population has little or no credit history, FIs have a difficult time accurately assessing their credit worthiness. These consumers are not necessarily bad credit risks, but there isn't enough information in their traditional credit history to tell. Alternative credit data can be used to find more information about these consumers. A consumer that has little to no credit history may have records of rental or utility payments that they have made on a monthly basis. By using this type of information, FIs can acquire customers in a market that is currently underserved and could represent billions of dollars in profits.

By using alternative credit data, FIs gain new perspectives on consumers. It gives FIs a more holistic view of their behavior so the bank can make better and more informed lending decisions. Customer acquisition is an important part of any FI's strategy, and it is also important that new customers are profitable and don't abuse their financial products. By using alternative credit data, FIs can acquire customers who are financially sound. An example of this would be a consumer who, according to their traditional credit data, looks financially stable and has made all of their payments, but when the FI looks into their alternative credit data, they find the consumer has recently borrowed money from several payday lenders. This suggests that the consumer has recently become financially unstable and may be a risk to the institution.

Changing fraud tactics have made customer acquisition complicated, but using alternative credit data can help FIs prevent fraud by giving them a more holistic view of consumers. Identity theft is the fastest growing form of fraud and costs US banks and consumers billions of dollars each year. Alternative credit data providers store information about past addresses and monthly bills that can be used to verify application information. Alternative credit data can even be used identify devices used during online or mobile account opening-a consumer whose address is listed in Arizona shouldn't be using a mobile phone in Turkey to open a new bank account. By using alternative data to reduce fraud FIs can reduce losses and increase the likelihood that each customer acquired will be profitable.

Although customer acquisition can mean greater revenue and profitability for FIs, it can also have bad side effects such as increased account abuse and fraud. By using alternative credit data, FIs gain a better understanding of consumers and can move into new markets, make better lending choices, and prevent fraud. 

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