The Customer Effect

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

  • Online credit scoring doesn't have to be alternative to be innovative.
  • With traditional credit scoring still king, helping SMB owners make sense of the system is key.
close

Email a Friend

‘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.

0 comments on “‘Credit scoring has to look at behavior over time’: Nav’s innovative approach to credit scoring”

The Customer Effect

The reversal of Roe v. Wade: Its impact on economic growth, financial wellbeing, and the financial services industry

  • Roe v. Wade has been overturned, after almost half a century -- what does that mean financially for America?
  • Here's how the ruling may hurt the state economies that will have a ripple effect throughout the economic system of the country.
Sara Khairi | August 02, 2022
Sponsored, The Customer Effect

Finance with a face: How personalization drives engagement, retention, and profitability

  • New technology allows for innovative companies to build banking products that cater to the specific needs of each individual.
  • Personalization is the key to meeting key product metrics and competing in this new landscape of embedded finance.
Q2 | March 14, 2022
Library, Modern Marketing, The Customer Effect

Tearsheet’s 2021 guide for marketers: Gens under the lens

  • We closed off last year with a thorough breakdown of the financial consumer profile of each of the generations.
  • The compiled guide for marketers is now available for download.
Tearsheet Editors | January 24, 2022
The Customer Effect

Who led banking app downloads in 2021?

  • Challenger bank Chime led the banking app download charts, ahead of established brick-and-mortar banks like Chase and Bank of America.
  • The top three crypto apps totaled 145 million downloads in 2021, up significantly from 18 million in 2020.
Subboh Jaffery | January 14, 2022
Sponsored, The Customer Effect

The increasing role of personalization in retail wealth management

  • In a recent survey by ThoughtLab and Publicis Sapient, 49% of investors put simple, intuitive digital experience as top priority – but only 18% are very satisfied with their current advisor’s digital experience.
  • With 44% of respondents planning to move their funds over the next 2 years, better personalization has never been more important.
Publicis Sapient | January 06, 2022
More Articles