Open Banking for post-COVID credit analysis

In March 2020, against an already gloomy economic backdrop, the Covid-19 health crisis hit. The consequences for the country's economy quickly spread to the micro level, severely impacting businesses and households alike.

The latter are anticipating difficult months ahead, and are reacting swiftly by saving heavily and requesting debt adjustment for those with consumer and/or property loans - i.e. half of all French households, according to the Observatoire des Crédits aux ménages. As a result, credit institutions have been faced with a surge in requests for deferment of repayments and an increase in overdue debts on their portfolios.

Against this backdrop, Algoan, a French fintech specializing in "Credit Decisioning Open Banking" (credit analysis based on banking information provided by the borrower), wanted to take a closer look at the effects of the Covid-19 economic crisis on household credit risk, and shed some light on consumer credit repayment in France.

The facts are clear: the drop in income recorded during the crisis has prompted many households to request deferrals or even default on their monthly loan payments, placing them in the so-called "at-risk" category. The number of at-risk customers quadrupled in the second quarter of 2020 compared with the previous quarter.

Through this study, and in the context of the Covid-19 stress test, we attempt to demonstrate that traditional scoring methodologies are no longer sufficient to determine the risk profile of borrowers. The obsolescence of these methodologies can be largely offset by the use of Credit Decisioning Open Banking.