Alternative data

Alternative data refers to information gathered from non-traditional sources, used to supplement or replace traditional data in various contexts, such as credit scoring, investment decisions, or market analysis. It is akin to a seafarer navigating by the stars when conventional maps are unavailable. By tapping into unconventional sources, decision-makers can gain additional insights, fill gaps in traditional data, and enhance their decision-making processes.

Example

Consider a small business owner, Jane, who applies for a loan to expand her venture. Traditional credit scoring methods might not be sufficient to assess her creditworthiness, as her business is relatively new, and she has a limited credit history. In this situation, a lender can use alternative data, such as Jane's utility bill payments, rental history, social media activity, or online sales data, to evaluate her financial responsibility and risk profile more accurately. By incorporating this alternative data into their assessment, the lender can make a more informed decision about whether to approve Jane's loan application.