FCA panel: ‘the consumer is the only person that matters’

Chaired by the FCA’s Deputy Chief Economist, Aire joined a panel of experts to debate the opportunity alternative data has to bring greater equality to mainstream credit decisioning.

The Women’s Economic Empowerment TechSprint took place last month.

As the world’s economies now look towards recovery, the FCA’s focus towards vulnerability — particularly in relation to women — is timely.

And of the many discussions that took place over the three day conference, one in particular shone a spotlight on alternative data. Hosted by the FCA’s Karen Croxson, Aire’s Founder and CEO, Aneesh Varma, joined panelists from both sides of the Atlantic: Emma Davies from Experian, Melissa Koide from FinRegLab and Louise Maynard-Atem from Women in Identity.

Defining alternative data

Alternative data — understood more broadly as data that previously hasn’t been used by lenders to make financial decisions about us — can now be used to provide a fuller picture of our individual financial circumstances, including those previously deemed ‘credit invisible’.

Emma began the discussion by providing her take on the greater level of detail that alternative data sources can bring to a lender’s overall visibility of the consumer.

Once niche, alternative data is now seen as complementary and in some ways equal in value to traditional data. It is particularly useful for those underrepresented in the formal credit system and within emerging markets.

Louise went on to explain:

‘Alternative data is largely available for lots of people, whereas traditional financial data is only available to certain segments of society. It’s always a bit of a misnomer to call it alternative data because it is so ubiquitous — and it stretches across all markets too.’

The need for mainstream adoption

Alternative data can therefore allow us to bring previously invisible groups into the more formal credit system, unlocking access to data never before available.

For this reason, Aneesh highlighted the importance of alternative data being seen less as an experimental, research based phenomenon and instead as an opportunity towards building a more equitable credit system:

‘If we can make this more mainstream and get it further into high street banks and lenders, more consumers will be able to access it.’

Melissa contextualised this by providing the US perspective.

With 26 million in the US categorised as ‘thin file’ or ‘no file’, Melissa highlighted the imperative importance of alternative data in addressing economic and racial inclusion for underserved consumers.

Citing FinRegLab’s own empirical assessment in response to the pressing questions of regulators regarding the implications of using alternative financial information, Melissa referenced the encouraging signs around the predictive, inclusive and fair indicators cash-flow data can provide for lenders.

Regulation and the consumer

But consumers must also be properly protected as well as informed about the use of their data, at every stage of the credit process.

Melissa explained that in the US existing laws under the Fair Credit Reporting Act are now seen by many as insufficient in their expectations and requirements around data accuracy.

Aneesh added Aire’s perspective to show how an intentional approach to consumer engagement can empower the individual:

‘We do this by putting our brand front and centre. All consumers, regardless of the lender they have come through to reach us, is introduced to Aire in that journey.

‘Customers must affirmatively consent. The consumer has full rights to access that data, to correct it and to update it while the lender only sees a series of outputs. This allows consumers to understand the part they play.’

‘We’re trying to make it the best possible outcome for the individual — the consumer is the only person that matters in all of this.’

Consent and understanding the value exchange

Panelists went on to highlight the importance of the data value exchange. Transparency is one element, the second part is understanding what the consumer will get in return.

According to Louise, it is this value exchange that has previously been missing in credit and alternative data looks to change this:

‘What I like about the Aire model is that by building out this picture of myself as a consumer I can then see how that changes the access I get to different financial products.’

A wide ranging debate, we’ll leave the final word with Melissa:

‘This is not just credit for credit’s sake — credit is an essential step for everyone’s growth and evolution.’

Thanks to the FCA for including Aire in this important conversation. You can access a recording of the panel discussion via their website.