Income estimation stands as the bedrock of credit underwriting, a decisive metric empowering lenders to make informed lending decisions. It gauges repayment capacity, allowing financial institutions to identify responsible credit candidates and offer the right loan amount. 

This blog delves into the transformative power of alternative data in income estimation, fortifying it as a dynamic tool for safeguarding both lenders and borrowers.

Estimating income is a complex task, often requiring a blend of various data sources to enhance accuracy. Integrating alternative data with traditional sources can significantly improve accuracy and coverage by up to 50%. 

Traditionally, income estimation relies on data from sources like salary slips, bank statements, and credit bureau records. At FinBox, we go beyond these conventional methods by incorporating device data as an additional, alternative data source. 

The following table outlines the strengths and weaknesses of each data source:

To gain a comprehensive understanding of customers' actual income, it is imperative to employ sophisticated solutions. Alternative data plays a pivotal role in assessing a customer's complete financial profile and enhancing decision-making by offering profound insights into their overall creditworthiness. 

The underlying rationale behind employing alternative data for estimating income is conceptually clear. For instance, when analysing a consumer's financial health, alternative data-based income estimation would check for credit patterns in the borrower’s bank account, GST data, EPFO data, utility bills, and much more to reasonably infer a certain level income required to sustain credit obligations.

The chart depicts the accuracy of income predictions through DeviceConnect. It shows that 70% of the predicted income falls within a 25% variation from the actual income, while 40% of the predicted income has a variation of up to 10% from the actual income.

At FinBox, we  use various methods and algorithms to give an accurate snapshot of each customer/business’ unique situation and consistently fine-tune them. We use fact based methods - like keywords, proxy methods - e.g. using GST data, and estimated methods like using total credit inflow, to arrive at the income with different levels of confidence. To that end, we’ve now created a new version of our income estimation model that is powered by device data that promises - 

• Income estimation for salaried and non-salaries individuals 

• 80% accuracy in income estimation that is a result of employing over 10 statistical models and algorithms 

• Higher confidence levels for underwriters to build flexible business strategies and  seamlessly integrate income estimation into the day-to-day operations of lenders

Real-time validation of consumer income and enhance consumer privacy with an alternative to self-reported income

What does this mean for lenders?

More often than not, there is some hesitation when it comes to employing alternative data, especially when derived from borrower’s devices. FinBox's DeviceConnect is a user-friendly SDK integrated into your app, ensuring a 100% hit rate for all digital customers. We are committed to prioritising data ethics and security(you can find more information here ). 

The data collected is in the form of anonymous metadata, guaranteeing that no personally identifiable information (PII) is ever transmitted from the user's device. This data collected undergoes processing to evaluate various factors, including the probability of customer payment default, detection of fraudulent applicants, and the enrichment of customer segmentations. 

The main goal of income estimation is to gauge repayment capacity. To that end, DeviceConnect ensures  - 

• Reduced lending risk by 30% 

• Increased approval rates by 25% 

• Fewer drop offs 

Implementing a robust method for estimating income can help increase the security of lenders in finding the right customers and making them the right offer. A flexible, practical and compliant measure of consumer’s capacity to take on additional credit enables the achievement of financial success and business growth through enhanced customer experience!