Business lending to undergo alternative data revolution
(30 October 2019 - Australia) Jacaranda Finance forecasts alternative data to turn business lending markets on their head as credit approval turnaround times are slashed.
The group utilises machine learning and advanced algorithms ‘to be able to make those decisions much quicker than 99 percent of competitors in the space’.
The algorithms work by effectively directing lenders in the right direction, using bureau data like a bank would but also application and day-to-day transactional data to determine the how, where and why of the borrower's expenditures. In the future, Jacaranda Finance expects loans will be made based on big data assessments of character to reach an approximation on that second question, as highlighted in East & Partners recent Research Note “Banks Must Learn to Know Their Customers Better Than They Know Themselves”.
"We use thousands of data points to determine if someone is likely to pay back their loan. Our back-end machine learning platform, has automated what a human would traditionally have done to gather average income, expenses, how many dependants they have, and we've built that in line with how ASIC (Australian Securities & Investments Commission) measures minimum affordability - we use the Henderson Poverty Index” states Jacaranda Finance founder Daniel Wessels.
"We might ask someone how many dependants they have and they put in four, and then they go to the next step and back and change it to two. Then they might change their weekly income as well. We're using identifiers and behavioural patterns in the application process, and behavioural patterns in the bank transactions. In South Africa the biggest indicator whether someone has the character to repay is mobile phone records, and if they are paying their mobile phone bills on time. Using alternative data to make better decisions is the name of the game. All the technology, processes and procedures that we build are constantly evolving, and I think that's what's separating us from the giants in our space and the legacy lenders” he added.