Leveraging Alternative Data for Smarter Lending and Top-of-Wallet Status

Alison Heller, Sales Director, Equifax Workforce Solutions

In 2023, 32% of payments made by U.S. consumers were made with credit cards, marking a 14% increase over a seven-year period. This rise in credit card usage among U.S. consumers may be attributed to a combination of factors such as inflation, higher interest rates and the adoption of contactless payments.

Given the state of the credit card landscape, credit unions must adapt their lending practices to serve an expanding pool of credit card users in a risk-responsible way. Layering alternative data like utility, telco and specialty finance data enables credit unions to make fast, informed decisions from application and throughout the credit card lending lifecycle. This approach helps build trust and provides value to new and current members.

Achieving a top-of-wallet relationship with members

A major concern for credit unions and other card issuers is achieving top-of-wallet status. Consumers typically have one or two cards in their wallet that they consistently choose first. Often, this decision is based on factors like rewards and points. Depending on a credit union’s resources, it can be difficult to match what larger banks and institutions are offering in terms of rewards, cashback incentives, and travel perks.

To maintain a competitive edge in a growing and hypercompetitive environment, credit unions must determine how to elevate their card programs to a top-of-wallet position. One factor to consider is affordability, which has become even more crucial as U.S. credit card debt has risen 8% over the past year. To help keep pace, credit card origination limits are on the rise, also checking in at 8% higher than a year ago. Credit unions must ensure that they are making smart affordability decisions when determining line assignments and setting terms. Meanwhile, they are also under pressure to make fast decisions in order to win customer loyalty, which makes access to instant, reliable data a necessity.

In terms of credit line increases, far too many card issuers take a manual or reactive approach. Credit unions can differentiate themselves through a more proactive, automated strategy. For example, by using verified employment and income information, credit unions can run streamlined portfolio reviews to determine which cardholders may be best suited for line increases. With reliable data, they can make these decisions with more confidence – helping build member loyalty and supporting their quest to gain and maintain top-of-wallet status.   

Rapid changes in technology are another challenge in creating a top-of-wallet relationship with members. It can be difficult to keep up with ever-present technological changes on top of managing customers and risk. Many institutions address this challenge by partnering with third-party providers that help them take changes in the technology landscape in stride. 

Increased interest around alternative data

Rising credit card usage positions alternative data as an increasingly valuable tool for credit unions and their credit card programs. Credit unions can harness alternative data to help them serve consumers who may be overlooked through a traditional credit score process.

Employment and income information, education data, and telco and utility data can help lift nearly 8.4 million U.S. consumers into scorable credit bands and allow them to secure financial products and services – including credit cards. Moreover, these alternative data sets can be used to increase credit approvals across all credit bands. This potentially expands the borrower pool by tapping into underserved markets like young adults, gig workers, and other consumers who may lack traditional credit histories but are still creditworthy. 

Rising credit card usage can lead to an increase in debt levels. By using alternative data, credit unions can determine appropriate credit limits and offer more personalized and responsible lending options that are based on each borrower’s unique needs and circumstances. As card usage increases, so do the risks of debt and defaults. Having access to more complete financial profiles enables credit unions to minimize default risk during a period of rising credit balances and credit card dependency.

Incorporating these data sets into decisioning along with a traditional credit report allows lenders to better evaluate a potential borrower’s financial position, enabling credit unions to make more informed and quicker decisions.

With more consumers applying for and using credit cards, credit unions have the opportunity to safely grow their card business and better serve members throughout the entirety of the credit lifecycle.