Enhancing decision making with machine learning: The case of aurora crowdlending platform

The crowdlending industry is a fast-growing financial technology (fintech) sector that brings together borrowers and lenders. As an alternative financial intermediary, the crowdlending industry plays an essential role in reducing the financial exclusion of small and medium-sized enterprises (SMEs) struggling to obtain funds from traditional financial intermediaries such as commercial banks. With the onset of Covid-19 and the deteriorating economies worldwide, Singapore crowdlending platforms have come under pressure due to the increasing default rate of their borrowers. This case study illuminates the challenges faced by Aurora (pseudonym), a crowdlending platform that operates in Singapore, Indonesia, and Malaysia. In response to high default rates during Covid-19, Aurora's management made improvement to its current machine learning-based credit scoring model in June 2021. This case study describes the challenges Aurora faced in identifying relevant features for the machine learning model, data preparation and cleansing, and selecting the appropriate credit model algorithms to replace its current approval process. AD -, Singapore ;, Tangerang, Indonesia ;, Singapore

The role of web browsing in credit risk prediction

Online mail order and online retail purchases have increased rapidly in recent years worldwide, with Covid-19 forcing almost all non-grocery shopping to move online. These practices have facilitated the availability of new data sources, such as web behavioural variables providing scope for innovation in credit risk analysis and decision practices. This paper examines new web browsing variables and incorporates them into survival analysis as predictors of probability of default (PD). Using a large sample of purchase and repayment credit accounts from a major digital retailer and financial services provider, we show that these new variables enhance the predictive accuracy of probability of default (PD) models at account level. This also holds in the absence of credit bureau data, therefore, the new information can help people who may not have a credit history (thin file) who cannot be assessed using traditional variables. Moreover, we leverage on the dynamic nature of these new web variables and explore their predictive value in short and long- term horizons. By adding macroeconomic variables, the possibility for stress-testing is provided. Our empirical findings provide insights into web browsing behaviour, highlight how the inclusion of non-standard variables can improve credit risk scoring models and lending decisions and may provide a solution to the thin files problem. Our results also suggest a direct value added to the online retail credit industry as firms should leverage the increasing trend of consumers embracing the digital environment. © 2022 The Authors

Predicting Credit Ratings using Deep Learning Models – An Analysis of the Indian IT Industry

Due to the complexity of transactions and the availability of Big Data, many banks and financial institutions are reviewing their business models. Various tasks get involved in determining the credit worthiness like working with spreadsheets, manually gathering data from customers and corporations, etc. In this research paper, we aim to automate and analyze the credit ratings of the Information and technology industry in India. Various Deep-Learning models are incorporated to predict the credit rankings from highest to lowest separately for each company to find the best fit model. Factors like Share Capital, Depreciation & Amortisation, Intangible Assets, Operating Margin, inventory valuation, etc., are the parameters that contribute to the credit rating predictions. The data collected for the study spans between the years FY-2015 to FY-2020. As per the research been carried out with efficiencies of different Deep Learning models been tested and compared, MLP gained the highest efficiency for predicting the same. This research contributes to identifying how we can predict the ratings for several IT companies in India based on their Financial risk, Business risk, Industrial risk, and Macroeconomic environment using various neural network models for better accuracy. Also it helps us understand the significance of Artificial Neural Networks in credit rating predictions using unstructured and real time Financial data consisting the influence of COVID-19 in Indian IT industry.

The role of web browsing in credit risk prediction

Online mail order and online retail purchases have increased rapidly in recent years worldwide, with Covid-19 forcing almost all non-grocery shopping to move online. These practices have facilitated the availability of new data sources, such as web behavioural variables providing scope for innovation in credit risk analysis and decision practices. This paper examines new web browsing variables and incorporates them into survival analysis as predictors of probability of default (PD). Using a large sample of purchase and repayment credit accounts from a major digital retailer and financial services provider, we show that these new variables enhance the predictive accuracy of probability of default (PD) models at account level. This also holds in the absence of credit bureau data, therefore, the new information can help people who may not have a credit history (thin file) who cannot be assessed using traditional variables. Moreover, we leverage on the dynamic nature of these new web variables and explore their predictive value in short and long- term horizons. By adding macroeconomic variables, the possibility for stress-testing is provided. Our empirical findings provide insights into web browsing behaviour, highlight how the inclusion of non-standard variables can improve credit risk scoring models and lending decisions and may provide a solution to the thin files problem. Our results also suggest a direct value added to the online retail credit industry as firms should leverage the increasing trend of consumers embracing the digital environment.

CREDIT SCORING AS AN ALTERNATIVE TO MINIMIZE CREDIT RISK IN MICROFINANCE INSTITUTIONS DURING COVID-19

In Peru, the success and sustainable development of microfinance has been based on such important aspects as the institutional regulatory framework of support, especially the financial information and transparency standards, credit bureaus, interest rate dissemination, appropriate credit technologies, and the promotion of price transparency and market competition. However, this market niche is becoming more and more competitive due to the natural effects of globalization, expressed in the entry of oligopolistic companies imposing themselves with new capital and, fundamentally, with updated technologies in risk management. The objective of this paper is to propose a Credit Scoring model to minimize the credit risk of the microcredit portfolio of the microfinance sector in Peru.

Auto ABS Loan-Level Data: Improved Risk Analysis

In 2014, the US Securities and Exchange Commission’s Regulation AB mandated loan-level data disclosure for public auto loan asset-backed securities (ABS). As a result, the loan level data from 2017 to 2021 display a rich set of loan-level variables that shed light on collateral performance patterns and improve risk analysis, especially for credit risk. Statistical predictive models that incorporate these loan-level drivers substantially improve the accuracy and granularity of default forecasts for auto ABS loans, and can provide benefits for investors and risk managers who use them.

BACS: blockchain and AutoML-based technology for efficient credit scoring classification.

Credit evaluation is of high scientific significance and practical use, especially in today's plight of the world suffering from the COVID-19 epidemic. However, due to the difficulties inherent in credit scoring model building which involves a large number of data mining steps and requires a lot of time to process the data and build the model, efficient and accurate credit scoring methods are are urgently required. Aiming to solve this problem, we propose BACS, an blockchain and automated machine learning based classification model using credit dataset so that the credit modelling processes are performed in the pipeline in an automated manner to eventually obtain the classification results of credit scoring. BACS scheme consists of credit data storage to blockchain, feature extraction, feature selection, modelling algorithm and hyperparameter optimization, and model evaluation. Firstly, we propose a mechanism for credit data management and storage using blockchain to ensure that the entire credit scoring system is traceable and that the information of each scoring candidate is securely, efficiently and tamper-proofly stored on the blockchain nodes. Next, we design a pipeline using a random forest model to effectively integrate the key steps of credit data feature extraction, feature selection, credit model construction, and model evaluation. The experimental results demonstrate that our proposed automated machine learning-based credit scoring classification scheme BACS can assess the credit condition efficiently and accurately.

Research on Default Prediction for Credit Card Users Based on XGBoost-LSTM Model

The credit card business has become an indispensable financial service for commercial banks. With the development of credit card business, commercial banks have achieved outstanding results in maintaining existing customers, tapping potential customers, and market share. During credit card operations, massive amounts of data in multiple dimensions—including basic customer information;billing, installment, and repayment information;transaction flows;and overdue records—are generated. Compared with preloan and postloan links, user default prediction of the on-loan link has a huge scale of data, which makes it difficult to identify signs of risk. With the recent growing maturity and practicality of technologies such as big data analysis and artificial intelligence, it has become possible to further mine and analyze massive amounts of transaction data. This study mined and analyzed the transaction flow data that best reflected customer behavior. XGBoost, which is widely used in financial classification models, and Long-Short Term Memory (LSTM), which is widely used in time-series information, were selected for comparative research. The accuracy of the XGBoost model depends on the degree of expertise in feature extraction, while the LSTM algorithm can achieve higher accuracy without feature extraction. The resulting XGBoost-LSTM model showed good classification performance in default prediction. The results of this study can provide a reference for the application of deep learning algorithms in the field of finance.

Rethinking SME default prediction: a systematic literature review and future perspectives.

Over the last dozen years, the topic of small and medium enterprise (SME) default prediction has developed into a relevant research domain that has grown for important reasons exponentially across multiple disciplines, including finance, management, accounting, and statistics. Motivated by the enormous toll on SMEs caused by the 2007-2009 global financial crisis as well as the recent COVID-19 crisis and the consequent need to develop new SME default predictors, this paper provides a systematic literature review, based on a statistical, bibliometric analysis, of over 100 peer-reviewed articles published on SME default prediction modelling over a 34-year period, 1986 to 2019. We identified, analysed and reviewed five streams of research and suggest a set of future research avenues to help scholars and practitioners address the new challenges and emerging issues in a changing economic environment. The research agenda proposes some new innovative approaches to capture and exploit new data sources using modern analytical techniques, like artificial intelligence, machine learning, and macro-data inputs, with the aim of providing enhanced predictive results.