India is slowly embracing the concept of digital payments, online loans and internet banking services. Still, a lot of people find it difficult to gain benefit from this, especially in the banking and lending sector. People from remote and rural areas who did not have access to credit accounts before may find it hard to get online loans because they lack a proper credit history. To ensure that this group is not left out, digital lending platforms have to use innovative solutions like alternative data. With the use of alternative data, online lending platforms will find it easier to attract customers as they can easily check the creditworthiness of these individuals.
Check the benefits of implementing alternative data in the lending market:
● People without any previous credit can apply for loans: A large population in India, especially from developing areas, still use cash for their financial needs and payments. As they do not have any previous credit transactions or history, their calculated credit scores using this financial data might be ineligible for digital loans. If online lending institutions use alternative data to check the creditworthiness of their applicants, many people will have a higher credit score which in turn increases their chances of receiving a loan quickly.
● It makes the underwriting process more accurate: Digital lending platforms have started using alternative data for checking the creditworthiness of their loan applicants. Apart from normal digital credit usage history, it also takes into account the alternative ways to score credit. If a certain individual still does not have a credit card or a credit report, the alternative data used during the underwriting process can help to boost their credit score. Some online lending institutions have already implemented the alternative data mechanism into their credit score calculation algorithms.
● The credit underwriting process becomes faster: As alternative data solutions provide additional financial data about the loan applicant. It is helpful in speeding up the credit underwriting and the loan approval procedures. It can benefit people who need a quick loan for their emergency. Although the process has become faster, the credit underwriting process is still more accurate and secure.
● Alternative data allows lending institutions to be more inclusive: The use of alternative data has made it easier for people from all sections of society to get loans. Regardless of their previous lack of financial history, this mechanism allows them to gain a lot from these beneficiary solutions. Apart from receiving digital loans, they can start their credit history which will prove to be crucial in the future credit underwriting process. This is why even governments have started to back the use of alternative data solutions. It allows a large population of the country to become financially active and this huge participation can further drive the economy.
These benefits have popularized the use of alternative data by banks, digital lending platforms, and other financial institutions. It helps them to reach out to more people and helps them get a loan with minimum hassle.
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