Just think of it! Without credit and lending businesses, we would not be able to buy a house or appliances when we need them. Business would not be able to grow, expand and innovate at the desired pace. Credit is the fuel of any country` economy and this is not a secret. But what is fueling credit and lending businesses? How do they decide if you are eligible for a particular loan or not?
Meet AI & Predictive Analytics
A credit score is a number reflecting the likelihood of paying a credit back. It is widely used by banks and non-bank financial institutions like leasing companies, telco vendors, and micro-financing lending businesses. Most of the lenders rely on a scorecard to determine if a borrower is fitting within their desired risk levels.
Scorecards are a product of data analytics. They are the bridge between a credit score and the lending business. The scorecard function is to tell if a credit customer will pay the debt by examination of different data points. Adding multiple data strings into the scorecard equation makes it more flexible and open new business opportunities for lending businesses because they are capable to expand their credit portfolio by reducing missed business opportunities.
AI is hot and trendy right now but it is a fact that machine learning techniques, an essential tool of AI, can be used into scorecards in order to enrich and educate the scoring model with data of existing credit customers. Even more, AI is able to utilize even more external data sources, which might be assembled within the scorecard. Utility bills, social networks data, you name it! This is how some of the modern online loaners are running their businesses and they are more than successful.
At its core, lending is a big data problem, making it a business naturally suited for machine learning. Part of the value of a loan is tied to the creditworthiness of the individual or business that took out the loan. The more data you have about an individual borrower (and how similar individuals have paid back debts in the past), the better you can assess their creditworthiness.
Lending business flexibility is crucial for its ability to change and align with the potential customers in any market, even more, if it operates in multiple markets. This is why credit scoring-as-a-service is a great tool for lenders, especially small ones. Such businesses do not have to develop a scorecard of their own, just to rent it. This way they are saving huge upfront costs for something, which will be in static condition while credit consumers and the market is changing. This is even more viable if a lending business needs multiple scorecards.
Need more info on the features of credit scoring-as-a-service? Just hit the link.