1. The document discusses how small businesses can have difficulties obtaining loans from traditional lenders due to having little credit history. It suggests that using alternative data sources in lending models could help assess risk for these businesses. 2. Two new alternative data approaches are described: alternative lending models that use alternative lending data to build predictive models, and social media scores that analyze social media data about businesses. 3. The models showed improved approval rates and reduced bad rates compared to traditional credit scoring. Around half of businesses analyzed had their risk assessment significantly impacted by social media data.

1. 1 © Experian 27/06/2019
Sip and Solve
Alternative Data in Decisioning
Models
Featuring:
Emily Garrett
Analytics Consultant
Experian Business Information

2. 2 © Experian
“Growing firms need resources, but many small firms may have a hard time obtaining loans
because they are young and have little credit history. Lenders may also be reluctant to lend to
small firms with innovative products because it might be difficult to collect enough reliable
information to correctly estimate the risk for such products. If it’s true that the lending process
leaves worthy projects unfunded, some suggest that it would be good to fix this “market failure”
with government programs aimed at improving small businesses’ access to credit.”
Small businesses can be at a disadvantage when trying to
access capital and credit
27/06/2019 Experian Public Sip and Solve: Alternative data in decisioning models
Source: Congressional Research Service https://fas.org/sgp/crs/misc/R40985.pdf

3. 3 © Experian
“Growing firms need resources, but many small firms may have a hard time obtaining
loans because they are young and have little credit history. Lenders may also be
reluctant to lend to small firms with innovative products because it might be
difficult to collect enough reliable information to correctly estimate
the risk for such products. If it’s true that the lending process leaves worthy
projects unfunded, some suggest that it would be good to fix this “market failure” with
government programs aimed at improving small businesses’ access to credit.”
Small businesses can be at a disadvantage when trying to
access capital and credit
27/06/2019 Experian Public Sip and Solve: Alternative data in decisioning models
Source: Congressional Research Service https://fas.org/sgp/crs/misc/R40985.pdf

4. 4 © Experian
1. Inability to expand – many businesses rely on people to
be successful, especially in our heavily service-based
economy
2. Inadequate capital investment in the company
3. Business failure – some new businesses cannot
generate enough early stage working capital to build to
self-sufficiency
What are the implications of inadequate capital and credit
for small businesses?
27/06/2019 Experian Public Sip and Solve: Alternative data in decisioning models

5. 5 © Experian
1. Alternative Lending Model
2. Social Media Score
Two new approaches
27/06/2019 Experian Public Sip and Solve: Alternative data in decisioning models

6. 6 © Experian
1. Alternative Lending Model
2. Social Media Score
Two new approaches
27/06/2019 Experian Public Sip and Solve: Alternative data in decisioning models

7. 7 © Experian
New and well-established businesses need working capital to thrive… but many
traditional banks decline most loan applications
Growth of alternative lending
Funding rate in 2018
* Bix2credit.com/small-business-lending-index
2X!
27%
40%
50%
57%
Big Banks Credit Unions Small Banks Alternative Lenders
Small business loan open rate

8. 8 © Experian
Business owner risk
Consumer score distribution
27/06/2019 Experian Public Sip and Solve: Alternative data in decisioning models
6%
15%
54%
25%
Subprime Near Prime Prime Super Prime
Alternative Traditional
Subprime + Near Prime
21% Traditional Lending
Prime + Super Prime
79% Traditional Lending

9. 9 © Experian 27/06/2019 Experian Public Sip and Solve: Alternative data in decisioning models
18%
25%
6%
15%
54%
25%
Subprime Near Prime Prime Super Prime
Alternative Traditional
Subprime + Near Prime
21% Traditional Lending
43% Alternative Lending
Prime + Super Prime
79% Traditional Lending
Business owner risk
Consumer score distribution

10. 10 © Experian 27/06/2019 Experian Public Sip and Solve: Alternative data in decisioning models
18%
25%
39%
18%
6%
15%
54%
25%
Subprime Near Prime Prime Super Prime
Alternative Traditional
Subprime + Near Prime
21% Traditional Lending
43% Alternative Lending
Prime + Super Prime
79% Traditional Lending
57% Alternative Lending
Business owner risk
Consumer score distribution

11. 11 © Experian
Using alternative lending data to build new models that
predict lending performance yields positive results!
27/06/2019 Experian Public Sip and Solve: Alternative data in decisioning models
18
67
22
36
47
21
43
23
38
50
30 28
44
57
KS KS % increase Bad cap 10% Bad cap 20% Bad cap 30%
Consumer Blended Alternative lender

12. 12 © Experian
0%
1%
2%
3%
4%
5%
6%
7%
0% 20% 40% 60% 80% 100%
Consumer Blended Custom
Alternative lending model performance
Comparative performance gain
Portfoliobadrate
Approval Rate
At 50% approval rate
Bad rate by score:
- Consumer: 4.3%
- Blended: 4%
- Custom: 3%

13. 13 © Experian
0%
1%
2%
3%
4%
5%
6%
7%
0% 20% 40% 60% 80% 100%
Consumer Blended Custom
Alternative lending model performance
Comparative performance gain
Portfoliobadrate
Approval Rate
At 4% bad rate
Approval rate by score:
- Consumer: 22%
- Blended: 49%
- Custom: 75%

14. 14 © Experian
1. Alternative Lending Model
2. Social Media Score
Two new approaches
27/06/2019 Experian Public Sip and Solve: Alternative data in decisioning models

15. 15 © Experian
Social Media development for commercial risk
Research findings demonstrated impact of adding social media data
Business Information
Services credit-only
With social media
The Monkey Paw
Proper Gastropub
Total of 22 San Diego gastropubs analyzed:
• 5 dramatically better with social media view
• 10 confirmed / little difference
• 4 dramatically worse with social media view
• 3 no hits / firmographic-only with social
media confirming business activity
Social media data could
have made a difference
in approximately half
of these businesses
Note — Proper Gastropub later closed

16. 16 © Experian
Attributes with major impact on predictive models
• Risk associated to the business category in the business trade area
• Risk based on business category
• Average rating on social media over various timeframes
• Number days since first review within last year
• Risk based on price level and hours of operation
Social media descriptive attributes
• Detailed description of business category, more in depth then SIC
• Hours of operations, licensing, other
Available via batch or API
Social media attributes for risk assessment
Key social media attributes utilized in model
27/06/2019

17. 17 © Experian
• Logically businesses that generate social media activity have higher “coverage” or
availability of social media data. Higher coverage lines of business include:
– Restaurants, stores, entertainment with the highest coverage rates.
– Health and professional services (doctors, accountants, plumbers, etc.) with high
coverage.
• Increasing each year, by noticeable percentage, with growth in social media.
Social media coverage rates
Significantly higher availability of data on consumer facing businesses
57.38% 59.40% 62.74% 57.14%
68.00%
83.90%
0%
50%
100%
merchant processor
1
bankcard 2 merchant processor
2
insurer1 insurer2 satellite tv1
Restaurants
37.17% 43.70% 45.48% 52.86% 58.70% 55.07%
0%
50%
100%
merchant processor
1
bankcard 2 merchant processor
2
insurer1 insurer2 satellite tv1
Beauty Shops
Average coverage rate
is 20%+ with range
from 10% to 62%

18. 18 © Experian
Social media insight score- fully developed
37% boost overall / 177% gain for new/emerging businesses
* Baseline is IPV2 model
23% 19%
65%
177%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
LiftOverBaseline*
Segments
Performance Boost by Intelliscore v2 Model Segment
Thick
Derog
Thin
Emerging

19. 19 © Experian 27/06/2019
Thank you!
Have questions or want to learn more about alternative data models?
• Chat with us: bit.ly/sip-solve-chat
Upcoming Sip and Solves:
• Join the list to stay in the loop: bit.ly/sip-and-solve

20. 20 © Experian 27/06/2019 Private and confidential Presentation Title
https://bit.ly/2X7upTi
Register Now!