ATLANTA — In a recent case study, Informa incubator Ovum wrote a case study outlining the California-based Kinecta Federal Credit Union’s decision to confront the challenge of financial inclusion by offering mainstream credit at more affordable rates to its underbanked customers. Kinecta achieved its goal by partnering with LexisNexis® Risk Solutions for a more robust and richer analytic data set than traditional credit scores are able to provide.
The Ovum study, which gives an overview of Kinecta’s search for a path to sustainable lending to underbanked communities, notes that for this project, LexisNexis® Risk Solutions adapted its RiskView™ product to meet the specific needs of Kinecta’s Los Angeles area community. Kinecta selected LexisNexis Risk Solutions from among a range of vendors as they sought a solution that would provide more data to its in-branch representatives when doing the credit analysis for a customer. By creating an in-house alternative data-based credit score, the aim was to replicate what has traditionally been sourced from credit agencies, but using a wider range of data that may give a better and more transparent indication of subprime customer risk.
Within the first year of launching, RiskView had shown its value as a credit analysis tool by turning Kinecta's loan refinancing offering into a sustainable product, with the charge-off rate reduced from 20 percent to just 7 percent.
Thomas C. Brown, senior vice president, U.S. Commercial Markets and Global Market Development, LexisNexis Risk Solutions, comments: “Every day the strategists and data scientists at LexisNexis Risk Solutions work to solve two of the greatest issues facing companies, regardless of industry -- financial inclusion and transparency. The fact that Kinecta has lifted more than 15,000 families in L.A. out of the payday lending debt cycle and into the mainstream financial system shows the power of alternative data-based risk-scoring models, which LexisNexis Risk Solutions pioneered more than 20 years ago.”
Ankush Tewari, senior director, Credit Risk Decisioning, LexisNexis Risk Solutions, comments: “LexisNexis RiskView is viewed as a competitive advantage by global and community financial institutions that use it to expand their addressable markets and bring more people into the financial system. The accessibility of these loans for people who were previously excluded means that completely new markets will be open to financial institutions and businesses alike. And it gives access to a better quality of life for people who may have been living on the edge.”
The Ovum study calls out the Kinecta-LexisNexis Risk Solutions partnership as a successful “example for credit unions and banks to follow in how to offer affordable unsecured credit products to underbanked communities by using additional data in a broader credit scoring model… Kinecta has been supported by a collaborative relationship with LexisNexis Risk Solutions, which adapted its RiskView solution to confront the challenge. Drawing on a wide range of variables, RiskView has shown that customer repayment behavior, and therefore risk profiles, can be adequately predicted using nontraditional data sources, even when dealing with consumers ordinarily assigned as being high-risk subprime, particularly when that has been due to lack of information. Ovum believes that Kinecta's experience provides a valuable example that could help open a large market of customers to mainstream financial institutions for long-term profitable relationships, while also bringing reputation gains as well as commendable benefits for society as a whole.”
“Unlocking underbanked communities requires a sustainable and robust new approach to credit analysis. While not without challenges, the use of broader data sources in that analysis may provide a key to achieve that goal,” says Matthew Heaslip, analyst, Ovum, and report author.
About LexisNexis Risk Solutions
LexisNexis Risk Solutions harnesses the power of data and advanced analytics to provide insights that help businesses and governmental entities reduce risk and improve decisions to benefit people around the globe. We provide data and technology solutions for a wide range of industries including insurance, financial services, healthcare and government. Headquartered in metro Atlanta, Georgia, we have offices throughout the world and are part of RELX (LSE: REL/NYSE: RELX), a global provider of information and analytics for professional and business customers. For more information, please visit www.risk.lexisnexis.com and www.relx.com.