More Data, Less Friction: Growing Your Customer Base Without Sacrificing Experience

Mitigating Risk, Increasing Revenue, and Improving the Customer Experience Amidst Economic Uncertainty

Author: Cheryl Woodburn, Country Manager, Canada – Provenir

In this time of economic uncertainty (including global political instability, challenging macroeconomic conditions, and post-covid rebounds), Canadian lenders are finding it more challenging than ever to drive revenue and business growth while still managing risk and combatting increasing fraud attempts more effectively.

Pre-Covid, consumer behavior was more predictable. But the pandemic changed things and consumer behaviours are not as cut and dry anymore. Throw in the current challenging macroeconomic conditions, and it’s not clear yet if traditional data and our analysis of that data will be enough to accurately predict consumers credit behaviour. What is clear is that the demand for credit is changing: mortgages are down, unsecured lending is up, and there is an increase in the number of insolvencies and consumer proposals, as well as rising debt levels. According to Equifax Canada’s Market Pulse Quarterly Credit Trends Report from March 2023, the total consumer debt in Canada was up 6.2% last quarter and the total number of credit-active consumers rose by 3.2% over the previous year (which is up 4.7% compared to pre-Covid levels in the same quarter). The total consumer credit card balance has also increased, up 15.3% and crossing the $100 billion line for the first time. On top of this, according to recent RCMP statistics, fraud attempts in Canada have increased 40% year over year – and 72% of respondents to a TransUnion Canada survey are concerned about sharing personal information online thanks to identity theft and other privacy concerns. That’s a lot to navigate!

Despite these challenges, there is still plenty of opportunity for growth. Digital adoption is up, consumers are looking for unsecured credit, and the spring housing market is looking promising. At the same time, consumers have increasingly high expectations around the user experience in lending and financial services. This poses an interesting mix of opportunities alongside challenges, wrapped up in a market that is evolving rapidly. So how do we get ahead of this uncertainty and capitalize on these growth opportunities without sacrificing the customer experience? One answer is data. And lots of it. 

The Power of Diverse, Real-Time Data:

In 2021, 983,000 new-to-credit consumers opened their first credit product, and in 2022, we welcomed  437,000 new immigrants. Many of these new-to-credit consumers do not have traditional credit scores and require alternative data sources to assess creditworthiness accurately and fairly. As the lending landscape evolves, what our changing market conditions underscore is the need for more data. But not just any data – more useable, easily integrate-able, actionable data. 

In order to achieve more efficient risk management, improve fraud detection/prevention, increase financial inclusion and gain a more accurate, holistic view of potential customers, we need more diverse, real-time, actionable data. Part of that need for data includes alternative data like social media/web presence data, rent and utilities info, cash flow/financial data, and telco details. According to TransUnion’s Report on Alternative Data, an increase in the use of alternative data to assess creditworthiness has measurable benefits. Sixty-four percent of lenders see improved risk assessment among unbanked customers, 48% have seen an increase in offer acceptance rates, and overall, 64% see tangible benefits in under a year. As McKinsey points out, there is immense value in having a variety of data sources: “industry leaders tap multiple internal and external data sources to improve the predictive power of credit signals… both the internal and external data sources used in a credit-decisioning model will affect the decision quality.” 

The Right Data + The Right Technology: 

However, simply getting more data isn’t as easy as it sounds. According to IDC, last year alone, “over one hundred thousand exabytes of data will be generated, crossing the 100k threshold for the first time.” Yet 74% of decision-makers we surveyed said they struggle with their organization’s credit risk strategy because data is not easily accessible. 

Not only that, but 95% of lenders are dependent on outdated legacy systems, and 70% lack resources to process and analyze data, much of which may be in siloed environments and difficult, time-intensive and costly to integrate. In other words, the data is there, but there could be an incredible amount of wasted effort if you don’t know which data sources to use when or can’t integrate them and action them efficiently.

Complicating the which sources/when issue is that lenders definitely don’t want to introduce more friction on consumers when they are applying for credit (longer, clunkier application processes, a ton of manual effort, the burden of providing multiple pieces of information, receiving non-personalized offers, etc.). Eighty percent of consumers rank speed as a key buying factor, and 71% of consumers expect personalized offers. 

So how do you get the right data and use it more effectively to grow your business all while improving the customer experience? To solve these challenges and capitalize on opportunities, while staying ahead of the competition, lenders today need to unleash the power of automated decisioning, real-time data and advanced analytics. Companies like Provenir power data orchestration and risk decisioning processes across identity, credit and fraud to help lenders get ahead, and stay ahead of risk. 

The key to winning in this novel time and environment is to effectively balance risk mitigation with growth and agility; to find revenue opportunities without exposing yourself to incremental risk; to mitigate fraud and prevent losses without introducing any additional friction in the customer experience journey. It seems like a tall order, but with the right integrated data and  technology platform, it’s a lot easier than it sounds.