Lenders Fight Fraud and Find Borrowers With Alternative Data

Watch more: Concora Credit Exec on Giving Credit Infrastructure a Data-Driven Overhaul

When federal agencies dial back funding for statistical programs, or when traditional credit bureau files run thin, where do banks and FinTechs turn for insights?

Increasingly, the answer lies in alternative data.

“We use a wide variety of credit bureau data as well as alternative data in making our credit decisions. Alternative data is super useful because it allows you to maintain or reduce risk while also providing access to credit to more people,” Concora Credit Chief Financial and Risk Officer Kyle Becker told PYMNTS during a discussion for the August What’s Next in Payments series, “Searching for Reliable Signals in Banking’s New Data Reality.”

The credit landscape stands at a crossroads moment. The old models of risk assessment are being stress-tested, while new sources of intelligence, from cash flow underwriting to real-time fraud signals, are becoming central to decision-making.

The shift isn’t just about plugging in new data streams. It’s about rewiring the infrastructure of credit, with implications for stakeholders across the entire ecosystem.

Unlocking the Promise of Alternative Data

For decades, the credit bureau file was the cornerstone of credit decisions. But traditional bureau data doesn’t always tell the full story. Many consumers have “thin” files, meaning they lack extensive histories with loans or credit cards, Becker said. Others simply don’t fit into the neat boxes designed in an analog era.

That’s where alternative data comes in. It provides a more comprehensive view of applicants, especially those who might otherwise be excluded. Cash flow underwriting, for example, where consumers log into their primary checking accounts to verify income and expenses, is becoming a popular tool. It not only helps lenders gauge repayment ability but also doubles as a fraud defense, he said.

“There’s increasingly more access to these kinds of alternative data sets,” Becker said. “If we talk about cash flow underwriting … you’ll get to see some information about real-time ability to pay bills. And that’s very, very useful on top of credit history, especially if it’s a thinner credit history.”

The result can be a win-win scenario where lenders reduce exposure while extending access to more borrowers.

The Race for Data Differentiation

Still, if alternative data is so promising, why isn’t every stakeholder deploying the same playbook?

Not all data is created equal, and not all of it stays useful. Model degradation is a constant challenge.

To counter this, Concora Credit uses data science to monitor its own models, tracking when predictive power begins to slip and determining the optimal schedule for rebuilding.

The key is not just having access but knowing how to integrate and validate the data, Becker said.

“Having digital expertise, having strong data science and having scale are all things that have made it so we can really take a lot of advantage of these alternative data sets,” he said, adding that Concora Credit evaluates around a dozen new data sources each year.

If data is the new lifeblood of finance, then integration is the circulatory system. However, bringing a new alternative data source into production isn’t as simple as flipping a switch.

Some datasets make sense to pull early in the customer lifecycle, while others are more valuable later. The challenge for institutions is balancing these trade-offs with cost structures that make sense at scale.

While underwriting and fraud prevention are the low-hanging fruit, the real opportunity for alternative data extends across the entire customer lifecycle, Becker said.

“I’m a big believer that data science can help you everywhere,” he said. “For example, you want to make your customers happy and improve your customer service. People don’t wake up and want to call their financial institution. The more you can use data science to understand why somebody’s calling you and get the proper solution to their problem right away, the happier they’re going to be.”

At the heart of Becker’s vision is a layered approach to credit. Traditional bureau data remains the foundation, but alternative data builds progressive context around it, whether through cash flow, digital behavior or fraud analytics, he said.

“We often find one or two [new data sources] per year that we add, and we just keep layering that into this stack in our underwriting and fraud defenses that makes us a little bit better over and over and over again,” Becker said. “And that compounds into being able to provide a lot of access to credit to people who normally wouldn’t have access to credit.”

“The credit bureau data will always matter,” he added. “It will always be important. But I think alternative data is going to play a big role.”