High-Performing Credit Risk Models for Financial Firms of All Sizes? Yes Please.

Big banks are flush with data and analytic resources. Optimizing their credit risk models is a seamless, efficient process.

It’s not as simple for everyone else: Small banks, Credit unions, Subprime and alternative finance (alt-fi) lenders. These types of financial businesses can lack the expertise and data to quickly validate, refresh and test their models. Integrating with an advanced data and analytic platform is often cost-prohibitive, and too cumbersome for limited staff resources to manage.

Knowing this, GDS Link recently integrated to the Equifax Ignite platform to help solve this issue. Now, smaller companies have an opportunity to engage the GDS Link team to leverage the same Equifax data and analytics as their larger counterparts. 

Overcoming barriers to progress. 

It’s one thing to build a credit risk model. All financial lenders do it, but continually validating those models is often overlooked and the models are left to run until a major event occurs. Yet, it's essential to monitor ongoing model performance because market conditions change. Consumer behaviors shift. These can cause models to “drift”; becoming less predictive over time, potentially leading to impacted profits and loss. This is when models can do more harm than good to both lenders, consumers, and the businesses they serve. 

The process of a model validation helps determine if it is still serving its intended purpose. To do this, businesses need access to more of the appropriate data. This includes information on consumer financial behaviors, payment performance, prior defaults, and more. The problem is that it can be difficult for smaller organizations to access this type of data and analytics at scale.

Barriers to access can include: 

• Time. In smaller shops, employees often wear multiple hats. They lack the time and expertise to focus on a detailed process like model validations.
• Technology. Many smaller businesses are unable to integrate with APIs and cloud-based platforms.
• Expertise. Data scientists and analysts are common at big banks, but not in smaller firms.  As we have seen, many organizations lack sophisticated teams dedicated to scorecard performance and re-tuning models as needed
• Budget. Data and time are expensive. Model validations and monitoring are often overlooked because they’re viewed as costly and only completed as a result of an event or on an annual basis.

As a result, comprehensive data and analytics have been deprioritized by smaller firms, leaving them exposed to risk of credit loss, compliance and regulatory changes, and reputation risk. But all that is changing. 

Growing our customer partnerships through solution integrations

The GDS Link integration with Equifax Ignite® simplifies everything for its clients. Equifax Ignite is a cloud-based data and analytics solution.

By leveraging Equifax Ignite®, the GDS Link Analytics and Advisory team gains access to powerful analytics tools, a secure sandbox environment for experimentation, a learning loop that aids in optimization, and multisource Equifax and third-party data. This includes new, differentiated data sets that GDS Link can use to help financial institutions better understand consumers from every angle, such as: 

• Traditional credit data spanning credit accounts, public records, collections, and more.
• Non-traditional data such as account payment data for cable, utility and cell phone bills. This type of alternative data is not normally typically included in a traditional credit report, yet it can be highly predictive of future payment performance. 
• Open banking data which is known to increase model performance by introducing numerous affordability metrics such as cash flow insights, NSF trends, and repeating borrowing patterns.
• Wealth and lifestyle insights on employment, income, wealth, consumer preferences and more. 

“More unique, alternative data can provide more detail about consumer transactions and financial behavior,” says Carl Spilker, EVP of Analytics and Advisory at GDS Link. “Access to rich credit history, augmented with alternative data is the type of detailed information our customers need to quickly discover emerging risk and opportunity.”

Through Equifax Ignite®, GDS Link’s Analytics and Advisory team can work within a single streamlined environment. Not a disjointed network of data sources, scoring systems, reporting facilities, and involving multiple departments. Mass amounts of data can be managed and executed better with cloud-based, scalable computing capacity offered in Equifax Ignite.

Everything is done faster and more efficiently without the need for new technology or adding expert staff.

Building new models in 30 days? You bet. 

Here’s another game-changer. The Equifax-GDS Link integration allows GDS Link to build and deploy high-performing new models in record time. Days and weeks, not months. 

In some cases, companies can go from “analytics to production” in roughly 30 days. That's because the Equifax Ignite analytics environment and GDS Modellica Analytics platform are purposely built to support rapid deployment. 

Likewise, it helps companies tailor models to their niche customer base and population segments. For example, repeatable analytics and scores can be leveraged to determine the expected impact of delinquency rates, predict market sizing, project profit and loss, and more.

“Equifax Ignite is a great go-to resource when we need to answer our customers’ problems,” says Spilker. “It puts everything within a single, secure, cloud-based environment that practically gives us unlimited space to work in. Most importantly, it removes typical bottlenecks and delays in the model development process so our customers can get to the business decisions they need faster.”

Looking ahead, Equifax is committed to innovation through partnerships like this one. Especially when it helps improve financial inclusivity for all consumers and businesses. 

To learn more about this solution and additional partnership opportunities, contact usis.partnersteam@equifax.com.