The Big Data Factor(Trust)

The most important part of the lending process, at least from the point of view of the lender, is the borrower’s ability to repay, or ATR for short.  That may seem a simplistic concept, but it is critical and lies beyond the purview of the snapshot that is represented by the credit score.  The credit score itself, as defined and issued by the traditional “Big 3” credit agencies, may leave large swathes of the underbanked and unbanked uncounted when creditworthiness is monitored across the usual practices.

Though geared primarily across the consumer lending universe, FactorTrust, billing itself as an Alternative Credit Bureau, has been vocal about the issues faced by the online lending community that represent a growing problem, and one that could eventually bleed into the SMB and corporate worlds.

Late last month, FactorTrust raised an alarm about the practice of loan stacking, in which multiple loans are offered up by online lenders, and accepted by consumers – and yet keeping track of all of them becomes problematic.  The loans that add up, and the obligations that are tied to them, mean that cash flow becomes reserved in the service of those debts.

In an interview with PYMNTS, FactorTrust CEO Greg Rable stated that credit reports as they are commonly used do not “work in real time….and there is a 30-day lag (and possibly more) for the lender to report” an event such as a new loan extended. Delays in reporting, he added, would mean that loan stacking could mount in a hurry.  The lagged reporting translates into a lack of transparency and speed, both crucial when it comes to credit underwriting.

The need for fullness of data and consistent access to that data, said Rable, can offer up lessons for corporate lenders too, which he noted tend to rely more on paper based processes and manual data entry even as their lending terms might be a bit more conservative than might be seen with consumer credit. (As Rable pointed out, they typically also are in the business of offering much larger sums of money on credit.)  Warning signs would occur were an SMB getting off the ground taking out multiple loans to, for example, fund inventory or payroll.  The same scenario posited above — the weakening of the ability to repay – becomes writ on a perhaps larger scale.

FactorTrust offers services and data that tie in with risk and compliance, and at an individual level, with insight into the unbanked and underbanked market, might give additional insight into credit risk for Millennials and other adult population segments that (by extension) might offer attractive risk underwriting in a SMB, or even B2B environment.  Rable told PYMNTS that as many as 113 million adults in the US could be defined as alternative lending prospects.  It is real time data, across employment histories, lien and judgement data, and views of consumer bank transactions, that can give crucial insight into acceptable risk prospects.