How Data Science in Consumer Lending Drives Market Efficiency

David Johnson
Cane Bay Partners
Published in
5 min readFeb 5, 2021

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A risk analyst works from his office at Cane Bay Partners, a fintech consulting agency based in the USVI.

About 16 percent of Americans have really bad credit and another 17 percent have poor credit, according to 2020 Experian reports. Unable to get approved for conventional loans, many seek out alternative products. Thanks to big data analytics in consumer lending, fintech consultants and alternative lenders are steadily expanding loan options for the people who don’t have perfect credit scores.

The Need for Expanded Loan Products

A Bankrate survey in 2020 reported that nearly four in 10 Americans wouldn’t be able to handle a $1,000 emergency from their own savings. This suggests that nearly half the population has potential financial gaps.

In times of need, some of those people don’t have the option of using a credit card or borrowing from a family member or friend. But if someone who desperately needs a loan has a credit score under 620, their chances of getting approved from a traditional financial institution are slim.

Historically, a person’s credit score has been the measuring stick for whether or not they are likely to repay a loan. That’s why nonprime or subprime borrowers don’t qualify for conventional loans. Their credit scores say to traditional lenders that they are too high of a risk.

But not all nonprime borrowers are necessarily risky. Some are just too young and haven’t had a chance to build a credit history. Some are people who never needed a line of credit in the past. And some may have just had one bad experience where they struggled financially. All it takes is a single medical emergency, death in the family, divorce process, or unexpected bout of unemployment to wreck a credit score.

Data Science in Consumer Lending

While the people in these categories may appear to be less than credit worthy, many non-traditional lenders are taking a deeper look. Many employ fintech consultants with data science teams to evaluate applicants. Data scientists do this by searching for the data points that are the best indicators of someone’s likelihood to repay a loan. In other words, they examine behavioral habits and spending patterns. For example, a data scientist may look at someone’s checking account and think about what…

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David Johnson
Cane Bay Partners

David Johnson is a co-founder of Cane Bay Partners VI, LLLP, a financial services, consulting and technology company in St. Croix, U.S. Virgin Islands.