Using Predictive Analytics to Address the Challenges faced by Growing Online Lenders

Online lenders typically deploy state-of-the-art technologies to directly challenge traditional lenders such as banks, microfinance institutions and credit card companies, or to lend to certain niche customer segments that are underserved by those lenders.

When rolling out and growing their service, online lenders are required to apply tools, methodologies and strategies relating to credit scoring, credit fraud, credit pricing and collections. However, unlike traditional lenders such as banks, which have proven processes, systems and methodologies which have been implemented and enhanced over the course of decades, online lenders are by nature high growth start-up organizations that need to build, test and deploy tools within a very short time period.

In some segments and markets  such as payday loans in the USA or in the UK, new online lenders can simply license off-the-shelf, tried-and-tested lending solutions that most often leverage credit reference data to bootstrap their operations. By contrast, in most emerging economies and in specific segments such as SMEs, such tools simply do not exist, forcing newly established online lenders to develop them from scratch. In addition, in order to build and maintain a competitive edge in their respective target markets, online lenders seek to build out proprietary analytics that apply to their proprietary data.

Pareto Pulse offers a comprehensive analytical solution that is designed to address the unique requirements of online lenders.

Pareto Pulse - A Modular Approach to Analytics

Online lenders typically compete with traditional lenders by having a lean cost structure and providing fast response times to loan applications. Therefore, analytics are at the heart of an online lender's competitive advantage.

Analytical processes should include credit analysis, credit fraud identification and prevention, credit pricing, collections and portfolio management. Most online lending start-ups lack some of the expertise required in order to develop these analytic capabilities in-house.

Pareto Pulse can complement an online lender's internal team or its internal tools in specific areas in which such gaps exist.

A Step-by-step Approach to Analytics

Most online lenders are start-up organizations that are looking to grow their business with a high level of online automation but with a degree of prudence and risk management. Online lenders therefore require analytics to support automated credit analysis, credit fraud identification and prevention, credit pricing, collections, etc. In a typical start-up online lending environment, it is impossible to kick off operations using “perfect” analytics since the analytics that are relevant to each online lender’s unique business model and target market may simply not exist at the onset.

The Pareto Pulse approach is to provide analytics in a manner that supports, rather than impedes, the online lender’s growth, in the following manner:

  • Start off with baseline rules-based analytics. Initially, analytics would be driven by various types of business rules that are defined using a combination of industry-wide best practices together with rules that reflect the online lender’s industry-specific know-how and strategy.
  • As the online lender grows, actual performance data is gathered and real credit performance information is gathered (e.g. fraud events, default events). At this point, rules are further fine-tuned and enhanced.
  • Once a statistically significant data set is available, statistically-validated models (such as for credit application scoring or a credit fraud scoring model) are developed and rolled out to replace or enhance the initial rules-based models.
  • Statistically validated models are monitored on an ongoing basis and constantly enhanced as additional performance data is gathered.
  • In addition to analytics that are deployed at the point of credit origination (e.g. credit scoring, credit fraud identification, credit pricing), after-the-fact analysis is also applied to the credit portfolio via built-in dashboards in order to identify outliers and to track ongoing data anomalies.

BYOD - “Bring Your Own Data”

Online lenders typically build their unique capabilities, efficiencies and competitive advantage by analyzing their own, customer-specific data.

Pareto Pulse has been designed to facilitate efficient and focused analysis of an online lender’s proprietary customer data. Having spent years gathering and analyzing data on behalf of several financial institutions, we know that the process of gathering and analyzing proprietary data can be lengthy, complex and error-prone. In order to facilitate the analysis of proprietary data in a timely and efficient manner, Pareto Pulse takes the following approach to data gathering and analysis:

  • We have mapped the right amount of data (not too much, not too little) that is required in order to provide meaningful, proprietary analytics.
  • The Pareto Pulse platform requires the data to be provided on an ongoing (e.g. daily, weekly or monthly) basis in a format that most financial institutions can extract from their operational systems in a straightforward fashion.
  • Once the data is available, the Pareto Pulse platform runs built-in routines that stage the data in a manner required for our advanced analytics, statistical modeling, model validations, etc.

An Integrated All-in-One Cloud-Based Solution

Pareto Pulse is a complete, end-to-end solution for providing advanced analytics.

Pareto Pulse includes the following capabilities, features and services:

  • Consulting relating to best practices, roadmap, data strategy and product strategy as these relate to credit analytics.
  • All-in-one analytics including development of customized models (rules-based or statistically validated), as well as deployment of those models within the Pareto Pulse run-time engine.
  • A complete cloud-based solution that integrates with the online lender’s own systems via an extensive set of APIs.
  • A comprehensive datamart which maintains your own proprietary data and which powers the analytics and the dashboards.
  • A full set of administrator tools that empower the online lender to directly control various parameters relating to analytics, business rules, credit strategy, etc.
  • No need to license or integrate different solutions such as modeling tools, business rules engines, reporting tools, etc.

On-Demand Team of Top Notch Data Scientists

At Pareto Pulse, we have an in-house staff of 40 data scientists that have worked with financial institutions on most elements of credit analytics, including credit scoring models, credit fraud identification models, collections models, pricing models and more. This level of experience allows us to provide our clients with analytics that reflect extensive experience coupled with tried-and-tested industry best practices.

The bulk of the Pareto Pulse experience is in providing analytics to financial institutions in regions that lack credit reference bureaus and thus force each financial institution to develop its own analytics based on proprietary data.

More Comfort to Your Investors

In order to growth your business, you need to raise capital. Early investors in an online lender are typically the type of investors that feel comfortable with a relatively high level of risk, such as hedge funds or venture capital firms. As on online lender leverages its portfolio and wishes to continue growing, however, a more scaleable business model with higher volumes and lower cost of capital is required, which could attract lower risk institutional investors such as pension funds, banks, etc.

Being able to share portfolio-level tools and analytics that are based on the more advanced risk management methodologies currently being used in the financial sector, and that are based on your actual data, will make those investors more comfortable and therefore reduce your cost of capital and maximize your growth potential, both in the current climate as well as under more adverse conditions.


Online lenders face a unique challenge. In addition to building an online lending operation that competes with established lenders such as banks and microfinance institutions, these online lenders also need to build an entire credit-related set of analytics tools completely from scratch.

The Paretix digital solution solution is ideally positioned to assist bringing these online lenders to market quickly using a combination of an agile cloud-based environment, know-how related to industry best-practices and a platform which helps expedite the process of defining, deploying and enhancing credit-related analytics.