Credit scoring is the process enabling lending businesses to determine how likely a lender will default its loan. This process is utilizing different data sources and less or more is designed around the business logic of the lending organization. In some markets like USA and UK, there are credit scoring bureaus assigning credit score derived from credit files and history of a particular person. In other markets, the credit scoring is up to the lending institutions, not matter banks or nonbank financial institutions like leasing companies, consumer finance companies, telecommunication companies, etc. Such businesses hold the credit risk and they need a solution like credit scoring. In this blog post, we explain why credit scoring as a service is the most viable option for lending businesses of different size and markets. Let us share with you the three main options in front of a company dealing with such kind of financial risk.
Credit scoring as a service
Pros
- Excellent ROI. Credit scoring-as-a-service is an excellent solution in terms of business efficiency since it allows a lending business to pay as much as it consumes. The upfront costs are not that big, as developing a scorecard of your own, not matter as a project or as internal development.
- Latest & Greatest. In order to be as good as possible, service providers always give their best and you`d like to have it. By picking credit scoring as a service you`ll have an access to innovative solutions.
- High quality. Any customer is going to change its service provider if his quality requirements are not met. This is why credit scoring as a service is a good solution for
- Effortless. Opting for credit scoring as a service has one more benefit and it is about easy and flawless deployment. The service providers have onboarding professionals enabling the credit scoring service to get in production mode as soon as possible.
Cons
- Dependent. There is a clear link between the credit performance and the quality of the credit scoring service, which is making the lending business dependent. This might be a problem if the quality of the service is below expectations.
- Flexibility comes at a cost. Service providers can offer better prices because they are delivering the same thing to different customers, this is known as economy of scale. Well, if you need something more specific or if you want to solve an unspecific issue with the credit scoring service, the provider will charge you extra.
Credit Scoring as a project
Pros
- Fast. To order a scorecard to some of the market leaders means that you`ll have yours working as a charm in a month or so. Any project-based business prefers to finish the job as soon as possible, its matter of money. This way, entitling external professionals with such project, meaning that it’s highly likely to close it fast.
- Done by professionals. You would not outsource such a crucial business tool to a newbie, aren’t you?
- Affordable. As a single effort, such a project might be rather cost efficient especially if it is utilized for a long period.
- Tailor-made. The scorecard is designed by your business preferences and market specifics, which is nothing less than excellent.
Cons
- Tactic rather strategic. The problem with the credit risk scoring is solved with an outside derived scorecard project but just read the next bullet to get what we mean.
- Flexibility. OK, you have your own scorecard, which is working like a charm but does you really think that the market or the customers will be as static as your brand new scorecard is?
- Risk of failure. Any project might fail for one or another reason because it is … a project. Even though you are aiming for high quality and industry-leading businesses, there always is a risk.
In-house built credit scoring modeling
Pros
- Control. By establishing an in-house analytics team to develop a scorecard, you are gaining control. This is a huge advantage on many levels.
- Flexibility. By developing a credit scoring model in-house you got flexibility. A lending business might be able to adjust the scorecard as much as they need. This way such a company is able to be far more effective in meeting rapid market changes.
- Easy digitalization. The scorecard is one thing but scorecard working seamlessly within the online environment through various channels is another. Having in-house built credit score modeling makes things easier.
Cons
- Management. Deploying the entire data analytics team needs its own management resources and they might be insufficient at a particular market.
- Expensive. Having an in-house team of data analytics experts with expertise in scorecards development comes at a cost. Such professionals are scarce and having in mind the market demand, they can be expensive.
- Maturity. Just as the good wine, any team needs time to reach its full potential.
If you are interested in scorecards development? Learn more about a4Lending – Credit scoring as a service
