Three Trends Impacting the Lending Landscape

Emerging trends such as AI, alternative data, and a strong job market are helping shape the financial services landscape.

Alexandria Franks from Equifax Workforce Solutions discussed topics and trends impacting the lending landscape on the Bankadelic Podcast in December of 2022. Some topics discussed were artificial intelligence (AI), alternative data, and the implications of a recovering job market. 

Financial Inclusion and Alternative Data Lending

Given the current economic conditions and the shifting nature of today’s economic environment, lenders should look beyond just using traditional credit data. Financial inclusion and alternative data in lending is becoming more prevalent in the current landscape despite traditional credit reports still being the primary indicator of credit history and past financial reliability. 

Around 91.5 million consumers have minimal credit history, making it difficult for them to qualify for loans. Alternative data can provide lenders with a clearer picture of an applicant, identifying information such as their repayment behavior. Forms of alternative data provided by Equifax include telecommunications and utility data, specialty finance data, income and employment data, and education data.

Lenders that strategically adopt alternative data expand their ability to assess creditworthiness, thereby giving consumers the potential for more loan and credit opportunities. Alternative data can also benefit financial institutions (FIs) by increasing their portfolio growth, widening lending opportunities, and managing risk.

AI Making Waves in Alternative Data 

Automation and artificial intelligence (AI) have taken the finance industry by storm. AI has transitioned from simply being a novelty to an innovative tool that is pushing the needle in data and analytics along with enhancing the customer experience. In our fast-paced society customers are relying on quick and efficient decision capabilities 

Lenders are grasping and adopting artificial intelligence in addition to implementing secure alternative data, such as income and employment verification, which has led to the underwriting and lending process becoming more streamlined. Through automation and AI, the lending landscape is seeing an uptick in accepting more borrower types and expanding the idea of what a well-rounded applicant looks like.

Job Movement and Employment Status Changes 

Trends in the job market are continuing to change. Through The Work Number®’s access to verified income and employment data, lenders have insights on job movement and employee status. For the past few years there has been an increase in job movement and employment status changes. In 2022 alone many people changed jobs or started new jobs. 

That number continued to go up throughout the year. The Work Number is seeing more movement and more nontraditional jobs. This finding has prompted Equifax to look at how this change is impacting the way people are handling and borrowing money, and what lenders can do to respond to this shift.

The trends discussed on the podcast continue to play a role in shaping the financial services landscape. To maintain a competitive edge, institutions must adapt and ensure their lending practices and business models keep up with the ever-changing economic environment and rising trends.