Using Alternative Data in a K-Shaped Economy: Strategies for Lenders
In the latter part of 2024, consumers are navigating a complex financial landscape. Our K-shaped economy is characterized by significant challenges and evolving conditions. Let’s delve into three key market trends impacting consumers. Then, explore how using alternative data is a key advantage for both lenders and consumers.
Current Market Trends
1. Financial strain due to inflation and rising costs
Inflation is still high, though it has eased a bit—falling short of the Federal Reserve’s 2% target.¹ This ongoing economic pressure translates into increased costs for goods and services, squeezing consumers’ budgets.
Moreover, consumer spending is outpacing income, exacerbating financial strain. As a result, many households now in more debt while their savings rates dwindle to near-record lows.²
2. Growing consumer debt and credit challenges
Total U.S. consumer debt soared to $17.37 trillion. This underscores the burden on individuals managing loans and credit obligations.³
Auto loan and lease balances have increased by 3.1% this year, reflecting continued reliance on credit during economic uncertainties. At the same time, credit delinquencies are on the rise, highlighting the financial challenges faced by a significant part of the U.S. population.³
3. Evolution in credit evaluation methods
Traditional methods for assessing creditworthiness often overlook a substantial demographic: about 16 million Americans with little to no credit history, rendering them "credit invisible."⁴ To address this gap, there’s a growing recognition of the need for alternative data sources, like rental payments and mobile phone bills. These alternative data points provide a more comprehensive view of consumers’ financial behaviors. They offer lenders enhanced insights for more accurate risk assessment. For example, because 97% of Americans own a mobile phone, their phone bills could show payment history.⁵
The current financial environment calls for a more inclusive approach to lending. Alternative data offers a solution for lenders and consumers. It enables lenders to better assess creditworthiness and expand access to financial services. It also empowers individuals to achieve their goals. Utilizing alternative data can be a win-win situation. The lending industry can become fairer, more inclusive, and better equipped to meet consumers’ changing needs.
For more information on alternative data and strategies to close out 2024, read our ebook. Explore our Market Pulse offerings — and discover new avenues for growth with confidence.
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