‘Credit scoring has to look at behavior over time’: Nav’s innovative approach to credit scoring

Fintech innovations seem to be predicated on unbundling and rebundling, starting from scratch or working with traditional systems. This dichotomy is particularly clear in credit scoring, which has seen fintech pushes for two distinct, opposing tracks of innovation. On the one hand, some alt lenders and credit scorers are coming up with their own alternative credit scoring algorithms based on big data from monthly rent, electric, or cable bill payments, or even court filings and criminal convictions. For the underbanked and unbanked, these algorithms are what make it possible to get a loan for their small businesses. On the other hand, many alt lenders still rely primarily on traditional credit scores, and certain fintechs are innovating by trying to simplify the credit scoring process for SMB owners. One such fintech is Nav, a business credit and lender marketplace company. Nav is fully aware of the alternative credit scoring movement. “The one misconception about scoring and lending is that it's easy to come up with a better mousetrap,” said Gerri Detweiler, head of market innovation at Nav. However, when it comes down to it, the company doesn’t believe these new datasets are going to replace traditional credit scoring overnight. “When you go out to look at alternative data sets, it takes time to monitor that data and compare that to the behaviors of the customer sets,” Detweiler explained. “So it'll take time to determine what's really predictive and what's not so useful.” A 2013 McKinsey report largely supports this approach to alternative credit scoring, noting that "many practitioners are not yet skilled in these [data sets] and are unfamiliar with aggregating diverse and oblique data to derive meaningful insights." Instead of trying to invent the wheel, Nav’s online offering is part educational, part matchmaker. The company aims to help the 160,000-plus business owners registered on its platform overcome any credit score fears they may have by making their personal and business credit scores clear to them, and by providing them with tools to improve their credit scores. Nav isn’t a lender itself. It has over 100 lenders on its platform, with its own MatchFactor technology that predicts the likelihood of a business being able to get financing from a lender. “If [an SMB owner] is more likely to get approved, it's a better experience for them, and the lender is happier, because they're not wasting time on someone who's likely to be approved,” said Detweiler. However, while financial education may be at the heart of Nav, the company is trying to make this education as unintrusive as possible. “We understand that SMB owners are very busy. And in the end, they don't need, or necessarily want, to be credit experts,” Detweiler noted. This is, of course, one reason why SMB owners might turn to one-stop-shop alt lenders with their own credit scoring algorithms. But for SMB owners who are interested in getting started or building an existing business within the existing credit score system, online companies like Nav are trying to make that simple and attainable.