LexisNexis Risk Solutions Report Reveals How Financial Institutions Are Regaining Visibility into Consumer Creditworthiness Through Alternative Credit Data

10/30/2024

ATLANTA — LexisNexis® Risk Solutions unveiled the findings of its inaugural Global Consumer Lending Confidence Report. The study, conducted by Datos Insights, reveals that as visibility into consumer risk provided by traditional credit data shifts, financial institutions worldwide are expanding their use of alternative data throughout the consumer lending journey.

Global financial institutions and consumers are navigating economic and regulatory changes. Lenders are seeking more effective ways to predict risk by increasingly turning to alternative credit data to supplement the traditional credit data used by lenders for decades to assess consumer credit risk. According to 97% of global respondents, lenders identify collecting delinquent loans as their primary challenge. The report shows that 40% of respondents have observed an increase in delinquencies over the past 12 months.

Compared to 2023, lenders are less confident in making consumer lending decisions based solely on traditional credit data. Seventy-eight percent (78%) of global respondents cite challenges with limited visibility into consumers' negative payment history. To address gaps in traditional credit data and improve decision-making processes, 66% of respondents are considering expanding the use of alternative credit data to enhance credit risk assessments and make more reliable lending decisions.

“Financial institutions attempting to assess creditworthiness with traditional credit data alone are competing with one hand tied behind their back. Lenders must embrace alternative methods,” said Kevin King, vice president, credit risk at LexisNexis Risk Solutions. “By leveraging comprehensive data insights, financial institutions enhance their risk assessment capabilities, optimize loan portfolio performance and achieve superior financial outcomes.”

The study involved 434 financial institution employees across nine countries, including the United States, Colombia, Mexico, South Africa, India, Italy, the Philippines, Spain and the United Kingdom.

Key Findings on Consumer Lending Confidence:

• Top Challenges for Lenders: Ninety-one percent (91%) of global respondents expect delinquencies and defaults to remain the same or increase over the next 12 months. Organizations also encounter challenges in attracting new qualified borrowers, retaining existing customers and accessing and using external data.
• Waning Confidence in Traditional Credit Data: Compared to a year ago, 59% of global lenders are less confident in their ability to compete in making consumer lending decisions with traditional credit data alone, noting gaps in traditional data’s ability to assess credit risk. As regulations change, the use of non-reported financial products increases and credit reporting practices shift, the predictive performance of traditional credit data may be waning.   
• Adoption of Alternative Credit Data: 86% of global lenders are more confident when making consumer lending decisions using alternative credit data compared to a year ago. This confidence stems from alternative credit data closing visibility gaps in understanding consumer credit health. Lenders currently use alternative credit data for pre-screen marketing, loan origination, portfolio management and collections.

Download the 2024 Global Consumer Lending Confidence Report. 

Methodology
The study surveyed 434 individuals globally from financial institutions responsible for lending or risk operations, all possessing significant knowledge of these functions at banks, credit unions, and non-bank lending institutions of varying asset sizes, to explore industry challenges. The survey evaluated their confidence in traditional credit data and the use of alternative credit data and scores in consumer lending. Alternative credit data includes decision-making information that integrates life event insights such as professional licenses, asset ownership, and public records, along with modern credit-seeking behaviors from sectors like online and short-term lending.

About LexisNexis Risk Solutions
LexisNexis^® Risk Solutions harnesses the power of data, sophisticated analytics platforms and technology solutions to provide insights that help businesses across multiple industries and governmental entities reduce risk and improve decisions to benefit people around the globe. 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-based analytics and decision tools for professional and business customers. For more information, please visit LexisNexis Risk Solutions and RELX.