July 02, 2023

The Credit & Behavior Risk Scores: Unlocking In-Depth Creditworthiness Insights – Part 3

The Credit & Behavior Risk Scores: Unlocking In-Depth Creditworthiness Insights – Part 3

Credit risk assessment traditionally has been dominated by credit bureau data, a convention that has not fully served a diverse, inclusive population. In this third article of our Living Identity Scores series, we dive into how 1datapipe has brought a new dimension to this field with our Credit & Behavior Risk Score.


Reflecting on history provides insights into why innovation in credit risk assessment was due. Several financial institutions, both in Brazil and America, experienced severe setbacks due to inadequate risk assessment systems. In Brazil, one of the prominent financial corporations faced a considerable loss, running into millions, because of ineffective risk assessment models.


To draw upon a specific incident, let’s look at Banco Panamericano, which in 2010 reported a deficit of R$2.5 billion (nearly USD 1.5 billion at the time) caused by an accounting fraud and gaps in risk assessment. The bank had to be rescued to avoid a potential collapse, emphasizing the grave implications of inadequate credit risk systems.


The 2008 financial crisis in America also underscored the flaws in conventional risk assessment models. Major banks, such as Lehman Brothers, suffered billions in losses due to the inadequacies of traditional credit risk assessment. These instances demonstrate the importance of an effective, data-driven approach to credit risk assessment.


Our Credit & Behavior Risk Score seeks to fill these gaps in the current credit risk assessment landscape. We’ve developed a unique system based on two critical components: Payment Behavior and Affluence.

Payment Behavior forms the first part of our analysis.


Here, we meticulously examine both positive and negative payment histories. But what sets us apart is our usage of alternative data sources. We analyze information such as energy and telecommunication bills that go beyond conventional credit bureau data. This approach allows us to evaluate payment behavior for everyone in Brazil and beyond, not just those with pre-established credit history. This inclusivity gives us an edge over conventional bureaus that primarily rely on traditional data.


Affluence, our second pillar, indicates an individual’s capacity for payment. We delve deep into their employment history and income details. Further, we conduct a detailed assessment of the total value of their assets, which include property ownership, company shares, and investment portfolios. These additional data points provide a broader, more holistic measure of an individual’s wealth, thereby allowing us a more accurate prediction of their ability to fulfill credit commitments.


We leverage machine learning to combine Payment History and Affluence data, calculating the Credit & Behavior Risk Score. Scores range from 0 to 1, with higher scores indicating better creditworthiness.


Our approach to credit risk assessment stands out for its breadth and depth of data sourcing. We go beyond what most vendors offer by incorporating more data from a larger pool of sources. The story of Wells Fargo in the U.S. serves as a poignant reminder of the value of such comprehensive data sourcing. The bank had to pay $3 billion in settlements in 2020 after a scandal that arose from the absence of a robust data analysis system.


Our integrated pipeline consolidates diverse products like web screening into one single solution. This method not only eliminates the complexity of integrating multiple solutions but also offers a more comprehensive view of a customer’s credit risk profile. Having all the information in one place facilitates easy access, understanding, and streamlines decision-making processes.


The Credit & Behavior Risk Score is a testament to our commitment to advancing financial inclusion. By offering a nuanced, multi-faceted understanding of an individual’s creditworthiness, we make strides towards a more equitable and inclusive financial ecosystem.


In our next blog post, we will introduce the Underbanked Inclusion Score, which underpins our mission to expand financial accessibility. Stay tuned to learn more about this exciting innovation.


If you’re interested in learning more about our Credit & Behavior Risk Score and how it can transform your institution’s credit risk assessment process, contact 1datapipe today. Let’s enhance your credit risk assessment initiatives, leveraging alternative data, and AI/ML technology to ensure a more inclusive financial future.