Credit giants Equifax and FICO have joined forces in a move that has both companies getting into the alternative data market.
The two companies announced in late March they would be pooling their collective consumer financial data sets to offer the Data Decisions Cloud, a data and analytics tool that can help banks make smarter lending decisions. According to the announcement from the two companies, the product allows users access to data collected from non-traditional sources, like whether an applicant has been able to meet other financial obligations.
While it’s unclear exactly how much combined data the two companies have within their cloud product, it’s safe to say that the market and demand for alternative data sources is unlikely to shrink. Reports also indicate that traditional credit score competitors TransUnion and Experian have made plays of their own to get into the alternative data game. But what does more data being available to banks actually mean for the consumer, and what should we expect in the future as this trend continues?
- There is big potential for innovation: If banks and other financial institutions have more data to make decisions on lending, they have more opportunity to customize offerings. Think of the credit applications you currently receive in the mail. These offers may be far more customized — and even much more relevant — as a result of banks having access to more information.
- Ethics and privacy concerns will be raised: Privacy is a particularly touchy subject right now. With Mark Zuckerburg recently declaring an era of privacy at Facebook, and a seemingly unending list of data breaches that make headlines, it is to be expected that the FICO/Equifax partnership will be met with skepticism. It will be interesting to see how the companies respond — while the way credit scores are calculated are relatively well known, adding more data means the reasoning behind decisions might get murky.
- Decisions could be faster: Consumers are already used to quick lending decisions in some aspects of their lives. Store credit card decisions are typically made in seconds, and even big ticket purchases like vehicles have seen decision times improve. However, for larger transactions, like home and business loans, there remains significant red tape. If banks have access to more information about who they are lending to, there is potential to speed up the decision process and get money to consumers faster — a win win.
- Scores may not be so static: Anyone who has tried to improve their credit score knows it can be a lengthy process. But with new ways to determine a consumer’s trustworthiness and credit history, this could change. More data could enable a more real-time view into a consumer’s spending and financial history, meaning it could be easier for consumers to recover after financial setbacks.
It remains to be seen what banks and other lending institutions will ultimately do with access to alternative sources of data, but it is clear that the appetite for this data isn’t going anywhere. While consumers are rightly skeptical of giving up more data to banking institutions, by improving service and credit availability to customers, banks can create a new lending environment where everyone wins.