Jacaranda Finance turns to bank statement scores and advises other lenders to do the same
Brisbane-based lender Jacaranda Finance announces it is turning to bank statement scores to determine borrower eligibility and encourages other lenders to do the same, after a successful 10-month trial.
While a credit score is often the most important eligibility criterion for personal loans, it’s just the start for Jacaranda Finance. The FinTech lender has rolled out a model where a bank statement score will be used to assess an applicant’s creditworthiness. The score is calculated by looking at a person’s spending habits, income, and financial commitments through a read-only copy of their bank statements.
Chief Financial Officer (CFO) of Jacaranda Finance, Pete Wessels, said a bank statement score works much the same way as a credit score but gives a more detailed and accurate picture of a person’s ability to borrow money.
“A bank statement score tells us a great deal about an individual’s capacity to repay a credit product, based on their up-to-date spending patterns,” said Wessels. “This contemporary data is more accurate and qualitative than, for example, a credit score which works on historical credit information perhaps going back several years.”
“Instead, with a bank statement score, we can instantly gauge that person’s ability to repay the debt they seek, based on their latest financial data. The model provides accurate and consistent scoring which will ultimately benefit both the credit provider and consumer.”
From humble beginnings, Jacaranda has built its reputation on lending to individuals most banks deem ‘unbankable’. They say utilising a bank statement score will allow them to create even more financial inclusion for everyday Australians and position them at the forefront of meaningful technological innovation.
“Jacaranda Finance is all about providing enhanced customer service. A bank statement score more accurately portrays a potential borrower’s financial situation than the more traditional credit scoring,” said Wessels.
“Ultimately, this technology will benefit both consumers and credit providers alike.”
The limitations of relying on credit scores to assess a person’s ability to repay a personal loan proved an opportune moment for Jacaranda to explore alternatives, particularly in the wake of the COVID-19 pandemic.
Traditionally, credit scores have often been used by lenders to determine whether someone is suitable for financing. Yet, the rise of credit repair agencies and reporting around repayment holidays have proved to be major challenges for lenders.
Credit repair agencies or lawyers that claim to ‘fix’ a bad credit rating use tactics to remove credit enquiries from a client’s file which run the risk of leaving lenders blind. For lenders, removing a client’s credit enquiry far outweighs the costs of having their case heard through an ombudsman. As a result, this means a consumer’s credit report may not be an accurate reflection of their financial situation.
Likewise, repayment holidays have posed a unique challenge to many lenders assessing new applicants amidst the COVID-19 outbreak. To support Aussies facing financial hardship due to the pandemic, many banks have offered to pause loan repayments for eligible customers. According to the Australian Banking Association, banks can determine how to report customers who were behind on repayments prior to being granted their ‘repayment holiday’ once the deferral period ends. In the meantime, banks will not report this data, as was previously required by comprehensive credit reporting laws.
In light of these issues, Jacaranda Finance urges other lenders to consider adopting their approach to personal loan applications.
“We encourage [lenders] to explore bank statement scoring,” said Wessels “There is a need to have a uniform scoring system that will be meaningful to everyone. The best way to accomplish this would be through collaboration and we invite other lenders to contact us to discuss how this can best be achieved.”
