26 July 2021: Auckland, New Zealand: Leading data and analytics firm illion has developed an innovative new credit risk score based on key trends from income and expense transactions that have traditionally been hidden.
It is a new consumer risk score called the illion Transaction Risk Score (iTRS), and sits alongside illion’s existing Credit Risk Score.
“iTRS provides a more sharply focused lens which gives decision makers a clearer picture of consumer risk than they have had before,” said Simon Bligh, CEO of illion.
“Banks and credit providers already hold a raft of data that shows both the financial state and spending behaviour of their customers. What the new score does is mine this data and make sense out of it in a straightforward manner.
“While the data offers the capability to understand spending behaviour, most credit providers have made limited use of it for this purpose. For example, it has rarely been used to understand a consumer’s propensity to modify consumption habits in-line with their economic wellbeing.
“Furthermore, by their nature, smaller banks have traditionally had limited access to transaction information, as they have generally held a secondary relationship with the consumer. This has disadvantaged them when competing with Tier 1 banking institutions for prime borrowers,” he said.
There are upsides for everyone, he said, with the new score delivering the insights needed to unlock more tailored lending terms and conditions and a broader range of products through enhanced credit underwriting and more suitable loan pricing.
Financial institutions can now price more efficiently, lend more responsibly and do so at lower cost. Regulators have the reassurance that comes from a more informed and robust process, and consumers have an expanded choice, getting the products that are right for them, quickly.
“It’s one of those rare innovations where everybody wins.”
Developing Transaction Scores requires both a technical understanding of banking data structures as well as a deep knowledge of spending and broader consumption behaviour. Illion’s data scientists have coded and analysed more than 1,000 business-interpretable transaction data features, then used a combination of traditional modelling and Machine Learning techniques to develop the iTRS.
“The development of our new score is particularly relevant in light of the New Zealand Government’s recent announcement regarding its intention to implement a Consumer Data Right (CDR), for which it will be a strong enabler.
“Also new to market is a solution that can help credit providers meet many of the challenges brought about by the ongoing implementation of the Credit Contracts and Consumer Finance Act (CCCFA),” said Mr. Bligh.
These include a need for credit providers to take ‘reasonable steps’ to ensure they follow appropriate procedures – and have a clear plan to identify mistakes and fix them quickly. They must also follow a specific enquiry line to establish and verify that a loan is suitable for a borrower. Better record keeping is another clear requirement, and lenders must substantiate how they satisfied themselves as to the loan’s suitability and affordability.
The illion Transaction Risk Score (iTRS)
illion has a market-leading position in New Zealand in bank transaction categorisation, risk analytics and bureau services, meaning that it is ideally placed to develop a scalable Transaction Scoring service that is economically valuable for all credit providers.
The illion Transaction Risk Scores (iTRS) are built using many of the same robust analytical techniques that are used in illion’s consumer credit ratings. The features that drive the iTRS have been hand-crafted using more than one billion banking transactions from more than 2.5 million account holders and 160 institutions.