The use of alternative data has the potential to put previously ‘invisible’ individuals on the map, unlocking opportunities for financial inclusion and economic growth. Exponential amounts of data are being created online every single day, but is it being used to its true potential?
Here, we explore how alternative data can really be used to create a more inclusive financial world.
What is alternative data?
Traditionally, when performing some form of identity verification or onboarding, businesses would use methods such as proof of address or sending a copy of a passport and manual checks. These outdated processes can be time-consuming, frustrating and create a poor user experience for customers who may be likely to move to a competitor. Relying on traditional data to verify identity doesn’t just alienate the modern digital consumer, it can also lead to huge demographics being unable to access the services they want.
As we explored recently in our blog post on Financial Inclusion, 21% of young adults aged 20-34 in the UK live with their parents. That is 2.7 million people who are unlikely to be named on utility bills, have a credit card, pay rent or have a mortgage; 2.7 million people who may not have readily accessible bills or statements that they’re named on. Students are another key population that struggle with traditional identity verification processes; 40% of students say that they would find it inconvenient to provide a paper copy of a bank statement, whilst 28% stated that it would be impossible for them to provide a paper copy of a recent utility bill.
This is where alternative data can be used to draw insights on a consumer’s financial profile. Alternative data is the antithesis of traditional data in that it includes anything from mobile phone usage, monthly payments and social media activity, to biometric identities derived from iris scans, fingerprints and hand geometry.
Alternative data offers the opportunity to collate, assess and corroborate the digital footprint of a potential customer in real time, creating a 360° view. This reduces drop-off rates in the onboarding processes and flags fraudulent activity, while offering a truly global solution. Leveraging a multi-pronged approach to analyse digital data in real-time can verify identity robustly, quickly and efficiently all online with less friction than traditional methods; according to Experian, 75% of businesses want advanced authentication and security measures that have little or no impact on the digital customer experience.
How can we use it?
Where ‘unbanked’ customers usually have some form of identification, they often lack the documentation and credit records required by financial service providers to assess creditworthiness and perform consumer due diligence. These are, as such, often referred to as ‘thin-file’ customers.
Comparatively, there are nearly 4 billion active social media users worldwide (more than half of the global population) who have a digital footprint. Alternative sources such as these are less susceptible to fraud; social profiles for example are often built up over a number of years and are verified by their connections. They are also less costly to maintain than traditional paper-based documents, which are more likely to be lost or damaged and require storing, continuous updating and are difficult to quickly navigate. Importantly, these alternatives enable remote account opening, lowering the operational costs for banks aiming to serve often isolated consumers. Utilising alternative data sources throughout the verification process can help to reduce drop-offs and allow good customers through who may previously have been rejected.
By leveraging these alternative data sources, lenders can construct a richer, contextual understanding of individual consumers, enabling both more accurate risk assessment and personalised customer experiences. Combined with emerging technologies like artificial intelligence and machine learning, businesses can automate manual tasks in the onboarding process, significantly reducing time and cost, and financially enabling previously excluded customers.
How we can help
Here at Hello Soda, we’ve a comprehensive family of KYC and AML solutions all working together and delivered via a single API integration. Utilising all forms of data, this integrated approach helps increase pass rates in countries all over the world, which in turn increases revenue and customer acquisition with real-time onboarding, creating a better customer experience.
Traditional checks, such as using credit history mean that many good customers are turned away. A vast number of millennials do not have CRA data so if this source is used, they are rejected. Equally in countries with thin files, where traditional data does not exist or is scarce, our product offering can be used to qualify and verify new customers.
Our global ID, KYC & AML platform, Sodium, is designed to help save you time and money, streamline your customer journey, automate your onboarding process, reduce fraud and achieve regulatory compliance. One simple integration; a flexible 360° solution which is scalable and secure.
A unique and real-time ID scoring system intelligently verifies identity through a combination of data sources, including digital footprint verification, document authentication, facial recognition matching, liveness verification, live utility data address verification and CRA identity checks.
Utilise a single element or multiple processes – it’s entirely up to you. Learn more about how we can help to automate and simplify your verification processes to help you to learn more about your customers.
Book a demo today and see for yourself how powerful our suite of solutions are.