The Future of Approving Loans Lies in Alternative Data
As the world begins to emerge from COVID-19, a whole new set of financial habits are becoming increasingly evident among younger generations of consumers.
It might sound a bit crazy to some, but alternate methods to banking are being used more every day. In fact, a survey found that millennials are choosing unconventional banking options more often than previous generations.
Instead of building a good credit score the traditional way (i.e., by opening a checking account and applying for a credit card), a large portion of millennials are looking to get away from big banks.
These trends have caused traditional credit scores to become less accurate, and in some cases, nonexistent, resulting in difficulties when judging the risk factors involved in giving someone a loan.
That is why alternative credit scores are being used more often when determining the risk value of a customer; and where tools like Connect become so important.
But you may be asking, "What's causing the changes in how young consumers rethink their finances?" Let's take a look!
Debit Cards Over Credit Cards!
It's surprising but true. Debit cards are now the primary way Americans make their daily purchases. Nearly 68 percent of millennials prefer to use debit cards over credit cards.
The primary reason for this is that younger generations have dealt with a wide array of unstable economies. A good example is a great recession. But if you are looking for something closer to the present, look no further than last year and the COVID-19 pandemic.
Many consumers have learned to be wary of the economy and are saving money rather than spending it.
These experiences, in tandem with the average millennial being over $27 thousand in debt, have new consumers looking to avoid credit cards.
New Electronic Payment Methods
Applications like Venmo, Cash App, and Chime have taken the world by storm. These new payment methods allow people to transfer money to one another without worrying about taking cash out or using a check.
All customers have to do is link their credit or debit card, and they can easily transfer money. The person receiving the money doesn't even need to have a checking account of their own to complete the transaction.
These apps have many consumers calling into question where is the value of using big banks. In fact, more than one-third of millennials – over 29 million workers – believe that their employers should offer paycards instead of direct deposit.
Make Way for Alternative Credit Scores
If consumers aren't using credit cards and are instead using new alternative methods to manage their finances, where does that leave traditional credit scores? The answer: In the past!
So, where is the best place to get started? Check out Connect! Our alternative scoring platform will allow you to accept a larger number of loan applicants by providing you with an accurate readout of your client.
Alternative scores don't rely on old methods of developing traditional credit. Instead, information associated with regular expenses (such as phone and internet bills) is used to better understand the risk involved in investing in a customer.
Be sure you are not being left in the past and instead look towards the future. Start using Connect and expand your client base today!