The opportunities big data brings to the credit industry

The term ‘big data’ has become linked to the stories of exabytes of data being created each day, 90% of the data in the world having been generated in the past two years, and companies collecting and analysing every online move we make. What the term really reflects is that we can now manage, store and analyse much more data than before. While the credit industry might not be processing exabytes of data every day, it does open an opportunity for the sector to address the constraints and limitations it has faced historically and adopt new data management, storage and analytical methods.

Data has acted as the foundation for business decision making for decades. As technological capability improves, companies try to make better use of the data they have, and will look for new sources of data to help them make better business decisions. Credit decisions are a great example. When somebody applies for a credit card, how do you decide whether to accept them? How do you know whether they are likely to repay, or what interest rate to give them, if they can afford to maintain it, or even if they are who they say they are?

Looking for patterns in the data can help predict the answers to these types of questions. Big data is about using more data to make those predictions more accurate, as well as using new techniques designed for larger, more complex, data sets. The technology means companies can now start to look at full populations and bring in data from new sources to better inform business decisions. Big data platforms are designed to house and process massive data sets, while new machine learning techniques allow patterns to be identified in new ways, enabling analysts to tell the more complex stories hidden in data.

By analysing more data, companies can expect to find percentage point improvements in various parts of their business, and it’s these marginal gains that could be the key to competitive advantage. Whether that’s identifying and responding to customer risks earlier, or opening up a new population to a product where they would previously have been considered ineligible, more data can lead to better decisions.

One of the main challenges is in regulation, as companies will need to ensure that they’re using these new tools in a compliant manner. Big data techniques, such as machine learning, can help to make better decisions, but are often considered a ‘black box’, meaning nobody can explain why a particular decision was made.

That isn’t acceptable in a regulated credit risk environment, where the decisions companies make about a customer need to be fair, ethical and transparent. GDPR stipulates that algorithms used to make certain decisions need to be explainable. But the credit industry still needs to find ways to open up to the new machine learning techniques available. This means finding a way to work within the definition and the spirit of the regulations, while also making the most of new analytical techniques. With a focus now on Explainable AI (xAI), there’s a clear path for companies to adopt these techniques.

A second challenge is in being able to automate the credit decisioning process. Customers expect instant decisions and updating the technology that makes these decisions can be time consuming and costly. Often legacy systems can make the process of incorporating the new criteria quite lengthy, and the value that could have been gleaned is diminished.   

Big data will help companies and consumers alike, for example, potentially good customers, who are declined credit today because the existing data doesn’t properly identify their good traits, may well be accepted for credit. Big data can also facilitate the identification of pre-existing customers that may struggle to meet credit repayments, which can trigger the implementation of a suitable strategy to support that customer.

Technology platforms and solutions are now available that can not only help address the common big data challenges, but provide tools that specifically help companies in the credit industry realise the big data gains that have traditionally been harder to reach in a regulated environment. Organisations that embrace these opportunities early will find benefits both for themselves and for consumers.

Mark Fish, Senior Insights Delivery Consultant, Europe, Equifax