The cyber danger is more present than ever. With more people gaining access to the internet and businesses undergoing the digital transformation, criminals gained a whole new set of victims. While everyone is in danger, some industries face more threats than others do. For example, financial institutions are some of the most targeted due to their business natures. Not only do they have access to money, but they also have access to their customers’ confidential information.
Both of these aspects are critical for successful business operations, making financial institutions precious targets for cybercriminals. They accept higher risks when targeting financial institutions, since their gains will also be greater. This is why it is essential that financial institutions have the most up-to-date security strategies. In addition, financial institutions must learn how to take the necessary steps to protect themselves. Tools, such as financial monitoring and alternative credit scoring, make all the difference between staying safe and becoming a victim.
What Is Credit Scoring?
Credit scoring allows financial institutions to assess the creditworthiness of prospective customers to ensure that they provide their services to legitimate and trustworthy individuals or businesses. It is used in different aspects of business, such as marketing or sales. However, it is most commonly used in loan processes such as private loans, mortgages and microfinancing. Traditional credit scoring is conducted by assessing applicants’ credit histories to ensure they can repay the debts and minimize the risks for the financial institutions.
Data in Credit Scoring
Data considered when calculating a credit scoring includes:
- Proof of income;
- Proof of regular utility payments;
- Credit card usage; and
- Debt history.
This data produces results, which indicate if the applicant is trustworthy or if the credit score is just too bad to take the risk.
Sometimes the financial institutions do not have enough data to make good decisions. This is especially true for unbanked individuals that lack trust in financial institutions, make bad financial decisions in their youth, or cannot afford to pay banking fees. This is where alternative credit scoring comes in handy.
What Is Alternative Credit Scoring?
Unlike traditional credit scoring, alternative credit scoring uses additional data sources to confirm the trustworthiness of the applicant. It helps financial institutions to gather alternative knowledge about all applicants. This allows financial institutions to offer loans to individuals that might receive refusals when using traditional scoring methods.
For example, alternative credit scoring can request utility payment history to confirm applicants paid their bills on time. This allows financial institutions to offer applicants more leniencies if their utility payment histories show positive incomes. The same applies to the proof of employment, as it shows the applicants receive regular salaries and they can repay the debt.
While the traditional credit scoring method works well, it also results in a large number of people falling between the cracks and not receiving the lending opportunities. These are bad outcomes not only for the customers, but also for the financial institutions. Moreover, they result in the losses of potentially profitable business.
How Does Alternative Credit Scoring Use Digital Fingerprint?
Financial institutions face great risks when it comes to digital lending, such as identity theft, a customer going AWOL, or even synthetic identities. Luckily, the development of the internet and technology allows businesses to implement methods to prevent them. One of these methods is a digital fingerprint that allows financial institutions to gather more information about applicants through their online presences. The information gathered helps to determine applicants’ intentions, protecting the financial institutions from any dangerous activities in the process.
Compared to the information gathered by traditional credit scoring, possibilities with digital fingerprints are endless. Our online presence is higher than ever, which provides even more data digital fingerprinting can gather. Consider the amount of your data collected from your social media accounts.
Even the lack of an online presence is potentially an indication of the applicant’s intention. For example, you received an application from a user whose details are legitimate. However, the user has no online presence on any social media platforms, and the email is a newly created one. You can then block the user or ask for additional documentation. With traditional risk scoring, you would not be aware of the risk this user could bring.
