Executive Summary
Alternative underwriting and the use of alternative data are quickly changing the way credit unions and financial technology companies make lending decisions. As with any new technology, this change involves both risk and opportunity. Lenders must consider both fairness to the borrower and accuracy of new models in predicting repayment and should carefully evaluate alternative underwriting options without waiting too long to adopt new models.
Credit Union Implications
Alternative underwriting promises a win for both borrowers and lenders: more sophisticated decision-making models that draw on a broader range of data can dramatically improve risk prediction ability while promoting financial inclusion by incorporating millions of previously thin-file or credit-invisible applicants into the system. Credit unions that intentionally implement new underwriting models can:
- Grow loan origination by strategically considering fairness and accuracy to enable less biased decision-making models and more loan approvals.
- Improve financial inclusion in their communities by lending to previously thin- or no-file community members.
- Differentiate in a rapidly changing market through informed and updated underwriting models that could promote both membership and financial growth.
If your credit union is exploring or has already started to implement an alternative underwriting model read the full report to see the potential risks and opportunities for financial institutions and potential borrowers. Also, we've included an analysis of the common approaches, use-cases and examples of how alternative underwriting is already being utilized.
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