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Credit Scoring as a Competitive Differentiator

  • ID: 4031666
  • Report
  • November 2016
  • Region: Global, United States
  • 28 Pages
  • Mercator Advisory Group
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Alternative Models of Credit Scoring: New Options, New Risks


  • Barclaycard US
  • Discover
  • Experian
  • Lenddo
  • LexisNexis
  • On Deck Capital
  • MORE

Automated credit scoring, an innovation pioneered by FICO during the 1950s, serves the global credit card business well, but saturated markets need to develop new customer streams to fuel growth and offset attrition.

New methods to discover potentially creditworthy new customers outside the bounds of traditional credit scoring are emerging for both consumer credit and small business credit. Credit cards have a particular need to reach beyond traditionally saturated customer segments such as high net worth and mass affluent. Small businesses with limited credit history also have an urgent need for credit.

The author’s latest research report, Credit Scoring as a Competitive Differentiator, discusses how traditional score functionality adapts to the current market and the potential of disruptive models.

"In order to maximize lending opportunities, lenders must stay at the forefront of credit scoring innovation," comments Brian Riley, Director of Credit Advisory Services and author of the report. "Some innovations are exciting but have not been proven through stressful business cycles, so be certain to balance risk and reward."

Highlights of the research report include:

  • Alternative lenders posing retention issues for traditional institutions
  • Reaching underserved customers
  • Alternative methods for determining creditworthiness
  • A new approach to customer engagement
  • Using credit scoring to build deeper customer relationships
Note: Product cover images may vary from those shown
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  • Barclaycard US
  • Discover
  • Experian
  • Lenddo
  • LexisNexis
  • On Deck Capital
  • MORE

1. Executive Summary

2. Introduction

3. Acquiring and Retaining Prime Customers
Alternative Lenders Pose a Puzzling Retention Problem for Traditional Institutions

4. Reaching Underserved Customers
Focusing on Underserved Verticals
Identifying and Accurately Evaluating Underserved Customers
Small Business Lending
The Unscorable Consumer Population

5. Alternative Methods of Determining Creditworthiness
Alternative Repayment and Public Record Data
Social and Behavioral Data
Two Different Approaches

6. A New Approach for Customer Engagement

7. Consumers Don’t Understand Credit Scores
A Suboptimal Credit Reporting Infrastructure
Today: Engaging Customers and Prospects with Credit Score Monitoring

8. Tomorrow: Using Credit Scoring to Build Deeper Customer Relationships

9. Conclusions

List of Figures

Figure 1: 61% of U.S. Households Use General Purpose Credit Cards; 32% Use Private Label Credit Cards
Figure 2: Young Adults, Especially Age 18-24, Are Less Likely Than Older Adults to Use General Purpose Credit Cards
Figure 3: 3 in 5 Consumers Using Alternative Lenders Self-Report CrNear Prime
Figure 4: You Say Algorithm. I Say Decisioning Rules
Figure 5: Lending Club Claims to Shave Lend Underwriting Cost
Figure 6: Alternative Data Can Increase Lenders’ Addressable Market
Figure 7: FICO Score Distribution
Figure 8: Figure 8: 53 Million U.S. Consumers Are Unscorable Using the Traditional FICO Score
Figure 9: Self-Reported Creditworthiness Diverges from Actual Score Distributions, 2015
Figure 10: Consumers’ Understanding of How Credit Scores Work Is Limited
Figure 11: U.S. Credit Reporting Infrastructure Is Prone to Errors
Figure 12: Credit Scoring as a Customer Engagement Tool
Figure 13: Credit Scoring Can Play a Critical Role in Emerging Customer Engagement Models

List of Tables

Table 1: FICO XD Score Distribution
Table 2: Two Different Approaches to Scoring Traditionally Unscorable Consumers

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  • Barclaycard US
  • Branch.co. Consumer Financial Protection Bureau (CFPB)
  • Capital One
  • Discover
  • Equifax
  • Experian
  • FICO
  • Federal Reserve Bank of Philadelphia
  • Federal Trade Commission (FTC)
  • Lenddo
  • Lending Club
  • LexisNexis
  • Mintel Compremedia
  • On Deck Capital
  • Prosper Marketplace
  • Small Business Financial Exchange (SBFE)
  • Social Finance (SoFi)
  • TransUnion
  • US Department of the Treasury
  • ZestFinance
Note: Product cover images may vary from those shown