Big Data is coming for credit scoring

Scandinavian company Big Data Scoring has launched a cloud-based credit scoring service in London for consumer lenders to help improve loans

Big Data Scoring said it works by tapping into the broadest sources of information from across the internet, using “all publicly available information”.

Speaking to Motor Finance, Big Data Scoring chief executive officer and co-founder Erki Kert said that young people and recent migrants often lack the kinds of financial history which traditional credit bureaus use to create their scores.

On the other hand, he said: “Pretty much all people have an online presence. So if you google someone you can find out a lot about them. We’re taking this information, and using it to address the credit scoring issue, and bring lenders into the digital information age, using new sources of information for credit scoring.”

There are two ways Big Data Scoring can assess a customer. One is using public data, that is to say information available freely on the web – such as blogs, comments, entries in search engines, and so on. There’s also a significant amount of data available in various publicly available databases, such as the government and commercial records. Finally, Kert said, the company is able to track how people have behaved on the bank or lender’s own web page, for example whether someone actually read the terms and conditions before applying for the loan.

As this information is ‘public’, Big Data Scoring doesn’t need to ask for permission before using it. However a second layer the company uses is explicitly ‘opt-in’. This is information from social media such as Facebook and LinkedIn. In cases such as this, Kert says a box will need to be ticked by a consumer before the search can be done.

Aside from this opt-in box, Kert says the process is seamless from a customer point of view. “If the bank is only using public sources, the customer won’t see any extra friction in the process. For the customer, everything remains the same; the whole solution will work in the background.”

When Motor Finance spoke to other so-called new credit bureaus in 2015, such as Friendly Score, these companies agreed that they were not seeking to replace the traditional players, such as Experian and Equifax, but were looking to augment their credit scores with additional information.

This is something Kert mirrors. He says: “We provide additional information for the bank. So they’ll still be using companies like Experian, which they used to, but now they have more information at hand when it comes to making the loan decision.”

He says that when companies sign up to Big Data Scoring, typically the result is to see an increase in loan acceptance rates. He says: “If you look at how a bank makes a decision, then usually when credit is denied, it’s because they don’t have a sufficient amount of information to make an informed decision.

“We provide more data to help banks make an informed decision about the loans, so more people can access the products they deserve.”

When asked if he had a case study to back this up, Kert replied: “Looking at a large Central European bank that was active in most of the credit products a bank usually offers. The most difficult part of their business was ‘new to bank’ or market clients who didn’t have any background in other banks, which is many young people. They were also struggling with assessing creditworthiness of unemployed people. Some of the products also had quite low acceptance rates, and credit losses were quite high.

“What we achieved with them was, from the start of the project, the overall in-house scoring improving by 15%, the largest value-
added in the segments I mentioned before.”

Although the majority of Big Data Scoring customers have so far come from regions in which it has operated (Scandinavia and the Balkans), Kert says the company was already selling remotely to the UK. Aside from this, the company looked to launch in the UK due to its size.

“The main reason is that the UK is such a main market in Europe, and was close to us when it comes to financial products. So it was the logical next step for us,” concludes Kert.

Beyond the UK, Big Data Scoring has clients in a number of countries in and beyond Europe, including Chile and Indonesia, where the company may look to open new offices in the future.