Technology for alternative consumer credit scoring will be a large and fast-growing market

Traditional consumer metrics, most notably FICO scores, are becoming inadequate as a basis for deciding whether to extend consumer credit. Lenders and other stakeholders increasingly understand this and are seeking ways to assess consumer creditworthiness more accurately.

A wide range of alternative consumer metrics, including data from bank account statements, rent payment records and utility bill payment records, provide information that addresses this need, but for much of the history of consumer credit, it was impractical to use this type of data due to the cost and logistical challenges of collecting and analyzing it. In today’s increasingly connected and digitized financial ecosystem, these barriers are shrinking, and innovative companies are using technology to offer consumer lenders credit analysis and decision tools based on these alternative metrics.

Given the large size of the market for traditional consumer credit metrics (we estimate at least $5.6 billion annually) and the compelling value these tools can provide for consumer lenders, we think companies that provide these tools can grow quickly and achieve substantial scale as they displace the use of traditional consumer credit metrics and enable lenders to tap new consumer segments where they previously lacked sufficient information to make credit decisions.

We think there is ample room for multiple winners and profile several companies leading this emerging segment.

In our August 2020 white paper on lending as a service, we detailed commercial lenders’ increasing use of nontraditional credit metrics to underwrite decisions to extend credit to small and medium-size businesses. Since then, we’ve continued to research the use of nontraditional credit metrics in a variety of lending markets. In this report, we examine the growing market for nontraditional credit metrics in the consumer lending market.

In our August 2020 white paper on lending as a service, we detailed commercial lenders’ increasing use of nontraditional credit metrics to underwrite decisions to extend credit to small and medium-size businesses. Since then, we’ve continued to research the use of nontraditional credit metrics in a variety of lending markets. In this report, we examine the growing market for nontraditional credit metrics in the consumer lending market.