This week FICO announced that it is piloting a new scoring system using “alternative data” from Equifax and LexisNexis, to enable card issuers to identify potentially credit worthy consumers who currently don’t have access to credit. According to FICO data scientists, information such as utility bills, phone bills and property information can be used to reliably score 15 million of the 53 million consumers who don’t have a credit score, thereby bringing them into the financial services mainstream. So what are the implications for credit card marketers?

1) Competition for the non-prime consumer
Demand for credit is on the rise and, as the economy strengthens and credit card delinquency rates remain low, card issuers have started to change their marketing strategies. Instead of predominantly targeting consumers with high FICO scores, some are now extending new card offers to consumers with less than stellar credit. The FICO announcement suggests that competition for the non-prime consumer will intensify in the coming months.

2) Demand for financial inclusion
The reported 70 million unbanked/underbanked US consumers represent a huge segment of interest for many financial institutions.

The reported 70 million unbanked/underbanked US consumers represent a huge segment of interest for financial institutions

There is demand, from lenders, for a score that makes consumers creditworthy. Last year FICO launched its FICO 9 product to reduce the impact of outstanding and unpaid medical bills which have suppressed the scores of some consumers unnecessarily. The number of people excluded from the financial mainstream is too big to ignore and, as the economy improves, more products and solutions will be targeted towards the unbanked/underbanked segment.

3) Bureaus will roll out “alternative data” solutions
Equifax isn’t the only credit bureau looking into alternative data solutions. Last November, TransUnion announced that it had acquired L2C, a consumer scoring and analytics company, in order to provide a more complete picture of “non traditional and underbanked consumers.” Experian started including rental data in its scores back in 2011. Marketers can expect bureaus and others to roll out competing “alternative data” solutions in the near future.

4) Traditional models will be challenged
Like the rest of financial services sector, the credit reporting industry is being disrupted by tech start-ups. Companies such as the recently launched Happy Mango, which provides scores based on a persons income, savings and spending after gaining access to their accounts, or Lenddo, which operates in emerging economies to provide a credit score based on social data are challenging traditional models with a vision of providing credit to those who are excluded by the current system. Fintech investment is expected to boom this year and marketers will likely see more start-ups emerge that will challenge the traditional models.

Using alternative data is not a new concept but an improving economy, a better understanding of Big Data applications and an appetite for disruption is creating an environment for innovation that may bring some of the 70 million unbanked and underbanked Americans into the financial services mainstream.

Andrew Davidson, SVP Mintel Comperemedia, is a multi-channel marketing and payments expert with 20+ years of marketing research experience. Andrew is a regular speaker at Card Forum and other high profile international industry events.

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