Background
In 2022, our client, an emerging small business lender, was underwriting approximately 100 loan applications per day. Their existing credit model relied on a comprehensive but expensive data report, costing $24 per report. Recognizing the financial strain, while appreciating the importance of the data, we sought an alternative solution.
Discovery
While reviewing their model, we noted that they primarily used 17 specific data attributes from the costly report. These attributes were critical for risk assessment and informed lending decisions. However, purchasing the entire report for each application was neither efficient nor cost-effective.
Solution
- Strategic Inquiry: We reached out to the data service provider and inquired about purchasing individual data points "à la carte", rather than having to purchase the full report. To our delight, they offered a customized product that allowed us to select specific attributes.
- Smart Selection: Of the 17 essential data points, we were able to purchase 12 individually for a total cost of $8.50. This targeted approach significantly reduced expenses while maintaining data quality.
- Supplemental Data Sourcing: Recognizing that a few critical data points were still needed, we explored other data service providers. We identified a second provider offering the remaining 5 data points at a competitive cost of $2.50.
The Impact
Cost Savings: By transitioning from thecomprehensive report to targeted data points, this cost dropped from $24 to $11per application; a material reduction. Extrapolated over the course of a year,the small business lender saved an impressive $325,000.
Ongoing Collaboration
Process Optimization: Buoyed by our success, we continue to collaborate with our client. We’ve explored process efficiencies, including streamlining data acquisition workflows and automating data retrieval.
Waterfall Testing: We’ve implemented a waterfall approach, testing different sequences for obtaining data based on pre-determined hard stops and eligibility criteria. By strategically prioritizing data sources, we further minimize costs while improving decision-making efficiency and accuracy.
Conclusion
This case study underscores the importance of periodic assessments of an organization’s data stack, and the consideration of tailored data procurement. By identifying the necessary datapoints and leveraging different purchasing options, including through multiple providers, our client achieved significant savings without compromising quality. As they continue to grow, we remain committed to optimizing their data strategies and driving further efficiencies.
We realize that financial institutions of all sizes and in all stages of development suffer in this regard. In a matter of weeks, the results of our Data Vendor Review Service will provide you with an organized and detailed matrix of your current data obligations, along with recommendations that will bring your organization immediate value.
