Credit Decisioning as a Service: How Does Algoan Leverage Open Banking to Serve the Credit Industry

The credit activity is one of the core activities of banks and financial institutions. It’s not only an activity that generates revenues but also a potentially risky activity.

Risks are an inevitable part of banking and financial operations, but that doesn’t mean they can’t be mitigated.

Credit risk is the risk arising due to the borrower’s failure to comply with the terms of the credit contract. This can happen when the customer is late in debt repayment, does not fully pay the debt amount or fails to pay debt, causing financial losses to the lender.

Credit risk management is therefore the mitigation of this risk through proper analysis by identifying and analyzing risk factors and selecting measures to limit or eliminate risks, and this is where Algoan steps in.

About Algoan?

Algoan is a French fintech that was created in 2018 with the aim to make access to loans fairer and more inclusive by giving access to credit to a larger and broader audience. Algoan developed a set of solutions that help lenders in the process of decision making. These solutions help better assess the credit risk by leveraging Open Banking Data.

What is Open Banking?

Algoan leverages the power of Open Banking, which is a banking practice that provides third-party financial service providers, with the user’s consent, open access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions through the use of APIs. Open Banking adoption was accelerated by the application of the PSD2 (The Revised Payment Services Directive) in 2018.

Historically, only banks had access to account information. Open banking helps consumers and businesses get control over their data.

What are Algoan’s solutions?

Algoan analyzes and enriches the transactional data (retrieved through Open Banking), and runs a set of ML (Machine Learning) algorithms to evaluate and assess a person’s financial behavior. By doing so, Algoan is able to better assess the risk when it comes to granting and monitoring loans.

Current scoring models are mainly based on socio-demographic information, past credit history information and very often on outdated traditional scoring data (credit bureaus’ data).

Algoan has a set of products that help lenders in the entire loan/credit lifecycle from origination to debt collection.

Algoan Credit Insights is a product that categorizes and enriches Open Banking transactional data. It is tailor-made for credit use cases and it gets financial institutions main information they need to assess a person’s financial situation. Algoan Credit Insights:

1. Categorizes all transactions into meaningful categories (Income, expenses, rent, gambling, etc.)
2. Automatically calculates budget-related metrics such as the monthly regular income, the monthly regular expenses, the residual income, the debt-to-income ratio, etc.
3. Automatically detects and calculates indicators related to a person’s payment and credit history as well as its financial behavior such as the overdraft, seizures on salary or bank accounts, recent credit line drawdown, gambling habits and many more.

More information about Algoan Credit Insights can be found here.

Algoan Score is a behavioral scoring model exclusively based on Open Banking data that helps lenders assess the creditworthiness of a person based on its financial behavior. This scoring is way more efficient than actual scoring models as it takes into consideration the financial behavior of a person and it leverages up-to-date transactional data directly retrieved from the person’s bank accounts. Algoan Score helps lenders grant loans to more people (especially those who were excluded because of their socio-demographic status such as students, people who don’t have a permanent contract, etc.) while reducing the risk for lenders.

More information about Algoan Score can be found here.

Algoan Dashboard is a visual dashboard that customers can leverage especially as an underwriting tool or a decision-making tool. Algoan Dashboard allows customers to visualize all the financial information that matters in a single view. It contains mainly the information that is provided by Algoan Credit Insights and Algoan Score. Algoan Dashboard helps automate processes, save time and improve productivity. Algoan Dashboard is customizable (it consists of various widgets) and is easy to use.

More information about Algoan Dashboard can be found here.

Algoan Chatbot is a custom-made conversational chatbot that helps Algoan customers with the onboarding process of their end customers in the context of Open Banking. Algoan Chatbot helps with collecting main information as well as the collection of end customers consent to share their bank transactions data. Thanks to Algoan’s technology partners, Algoan Chatbot combines Open Banking data aggregation, KYC (Know Your Customer) and electronic signature technological bricks to ensure a slick onboarding, with no interruption. Compared with traditional forms, Algoan Chatbot increases the conversion rate by up to 60%.

More information about Algoan Chatbot can be found here.

Why is Open Banking data valuable in the credit industry?

In countries where credit bureaus coverage is high, Open Banking data is very valuable and complementary to what lenders can get from credit bureaus. Open Banking provides banks and lenders with up-to-date insights about a person’s income, ongoing loans and financial and risk behaviors.

In countries with low credit bureaus coverage or non-existing credit bureaus (such as France), Open Banking data provides a mine of information to banks and lenders as this data is a great source for assessing creditworthiness instead of basing their risk models on socio-demographic information and outdated credit bureaus’ data.

If you are interested in Open Banking Credit Decisioning, feel free to download our last White Paper entitled ‘Open Banking Credit Decisioning: An essential development for credit risk management’ here.

Interested in building the future of Credit Decisioning? Check out our open roles at Algoan.