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The Analysis Comment

Making risk decisions in 60 seconds

New technology has helped in the development of a more innovative and holistic approach to lending

Tony Pegg UK managing director, Capify

Since the financial crash, risk profiling has changed tremendously; banks are now far more reluctant to lend. This has come as a result of mainstream banks curbing lending and hoarding money, as they try to manage much higher capital requirement demands in the wake of the financial crisis. Because of this, there remains a massive

funding gap for small and medium-sized enterprises (SME). One of the responses SMEs have had to this lack of funding is to turn to alternative lending, or ‘altfi’ for short. Our own altfi company, which was

recently formed by five companies coming together from the UK, USA, Australia and Canada, is powered by its own proprietary technology and analytics. Banks’ approach to risk identification is

still very black and white, whereas we take an innovative and holistic approach to lending. New technology – especially advances in data analytics – enable us to access more data than ever before. We look at vast amounts of data points, which is far more than any bank, and this gives us a far clearer picture of the potential borrower. We look at the projected performance of a

business over six to 12 months as opposed to a traditional credit profile which looks at cashflow, outgoings and the like.

October 2015

We look at the projected performance of a business over six to 12 months as opposed to a traditional credit profile which looks at cashflow, outgoings and the like

The data points we use range from the

type of business, its trading history, and future predictions for the three to 12-month lending period. We also look at other data points such as social-media metrics, including profile footprints and Google news. Our own internally-developed platform also looks back at older decisions and demographic data to help score each application. Our own risk-model scoring looks at all

of these data points, as well as previous decisions made, to help make decisions about new loan applications. This means that we can give a decision within 60 seconds. These data analytics capabilities also allow

us to field finance methods such as their merchant cash advance, which allows businesses to pay back in micro payments from credit and debit-card purchases on a daily basis. Customers seem to be impressed, with

78% of them renewing their facilities. By our own estimations, the daily repayments option is open to around three and a half million UK SMEs for loans, and about one and a half million SMEs for the merchant cash advance, meaning that our lending models have a potential scale to become every bit as mainstream as traditional bank lending in the future. CCR


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