Optimizing loans with data solutions

When it comes to evaluating creditworthiness, data plays a pivotal role. With higher quality data and elegant automated solutions, making informed decisions has become much easier for both borrowers and lenders. However, open questions remain around issues such as data rights, privacy, potential bias of the algorithms and fraud prevention.
To explore these topics, we invited three leading experts to join our host Oona Ylänkö in the new episode of the Data Insiders podcast.

Egil Årrestad is the CEO of Gjeldsregisteret AS (The Norwegian Debt Registry). With a decades-spanning career in the field, his work history covers the topic from a variety of perspectives, from public agencies and municipalities to banking.

Gry Arnesen, Head of Data Services at Tietoevry Industry, has played a key role in data-driven digitalization projects that are critical to both businesses and society.

Marcus Bergquist, Chief Product Officer of Bislab, a Nordic fintech company founded in 2022. In collaboration with Tietoevry Industry, they have been developing cutting-edge solutions for credit assessment and fraud detection.

All three guests are based in Norway – a country that provides a fascinating case study for the discussion. It is among the most technologically advanced societies in the world yet also has the highest debt-to-income ratio of all OECD countries. 
What innovations has the unique situation created – and which challenges are yet to be solved?

Quality data yields immediate results

In 2017, Norway faced a growing concern: household debt was increasing faster than income, creating serious problems for both individuals and the wider economy. In response, private companies were permitted to support financial institutions in creating new innovative solutions for more reliable risk evaluation.

This allowed Tietoevry to establish the Norwegian Debt Registry to create a solution that combines unsecured consumer debt, such as credit cards and consumer loans data from all financial institutions operating in Norway – making it easier for credit issuers to make informed decisions. The initiative has proven to be an immediate success.

“Banks are able to make better decisions with the credit evaluations and report fewer problems than before”, Årrestad explains. “And most importantly, the private consumers’ debt issues have decreased”.

In addition to institutions giving out loans, every private individual in Norway has the legal right to access their personal data in the registry. This offers people a clear overview of their current situation – and has already helped many avoid falling into the notorious “luxury trap”.

This case clearly demonstrates how high-quality data, when combined with efficient digital tools, can have a significant impact on a nation’s economic health. One such tool is the risk assessment solution built by Tietoevry Industry and Bislab. Compiling data from Norwegian registries, debt collectors and even transaction histories, the tool offers a revolutionary way for banks to evaluate loan eligibility.

The effectiveness is evident in the tool’s exceptionally high ROC (Receiver Operating Characteristic) score – a key metric for measuring the reliability of predictions, which the tool delivered with a ROC score over 90%. 

“It’s the most precise model in the market”, says Bergquist. “Additionally, we have created both industry and company-specific models that take this even further because they’re tailor-made for our customers”.

Navigating the changing credit assessment landscape

With both legislative changes and new technological possibilities, the world of lending is evolving fast.

“The role that the banks previously had has been replaced by digitalization. This places a greater emphasis on the data models and the quality of data,” Arnesen suggests. 
The collaboration between Tietoevry Industry and Bislab is a prime example of this transformation. Until very recently, such a partnership between a small agile agency and a large established corporation would have been almost unthinkable in the field. Today, it represents the kind of innovative spirit that both the fintech sector and progressive economies can benefit from.

“This is a field that has been stagnant for a very long time, with just a few big players competing in the market. Fostering innovation has been a high priority for us in our work together,” Arnesen elaborates.

Arnesen emphasizes that the winners of this more flexible environment are the end users. Individuals or companies who would earlier have had a harder time receiving loans can now do so due to more accurate, data-driven assessments.

“For businesses providing loans, this naturally also presents an economic upside: more loans and higher income linked to borrowers with repayment ability, as well as reduced losses in the portfolio. And from a societal standpoint, improved credit scoring models also help drive economic growth.” 

However, the shift comes with concerns around security and the level of transparency of the decision-making algorithms. Bergquist, however, sees potential for progress in this regard too: “Automated loan decisions are likely to be less biased than a caseworker sitting behind a desk. Improving the objective performance of our data models will, over time, reduce bias rather than increase it.”

New approaches for preventing fraud

An important side-effect of improved credit assessment data is its potential in preventing financial crime. In addition to its assessment tools, Bislab has developed an API-based anti-fraud solution for banks and corporations. Designed for seamless integration into existing system, the platform has proven to be highly efficient: it collects data from carefully selected and diverse sources, detecting red flags via sophisticated predictive models.

“Anti-fraud is becoming an increasingly important strategic goal for financial institutions,” Bergquist reveals. “In Norway, there have been a few court cases that have ruled that it’s often the responsibility of banks to cover fraud costs.”

Combined with the rising levels of fraud threats, these precedents have only accelerated the need for more robust safety tools. However, challenges remain – in Norway, for instance, the police still do not have access to debt registry data, which can hinder financial crime investigations.

 If anything, this emphasises the importance of preventive measures – reinforcing the value of having the right data, in the right hands, at the right time.

Interested in learning more about this topic? Listen to the full conversation on our Data Insiders podcast below!