How Digital Transformation Can Help You Work With ‘Gray-Zone’ Clients

Lending to 100%-verified, reliable clients is straightforward — the risk is clear and, so too, are the terms. However, not every customer who approaches your business will fit neatly into this box. Some may fall into the “gray area” between reliable and risky.

Does this mean you should discount this group and concentrate only on certainties? No. In taking this approach, your business is missing out on a massive potential market. Simply put, you can’t build a profitable lending business by focusing only on “good” clients.

In recent years, it’s become clearer that the old metrics do not fit the current market reality. How then can you tap into the “gray area” potential but protect your business from unnecessary risk?

The gray zone is an untapped market

In the world today, 1.7 billion adults don’t have access to a bank account. Known as the unbanked, this substantial grouping cannot access financial services that many take for granted. What does this have to do with gray-zone lending? The same problems that affect the unbanked apply to millions, perhaps billions, of adults worldwide who cannot access lines of credit when they need them most. 

This is a huge untapped market and can offer real potential, not just risk. Clients who fall into the gray zone often find challenges when taking out loans due to a variety of factors. Some of the most common we’ve come across are:

• Graduates seeking to start a business.

• Self-employed people needing mortgages.

• Women on maternity leave.

• Those changing jobs.

• People without a credit history.

• Many others.

Does this mean that these clients are unworthy of a loan? Not necessarily, providing they haven’t been proven not to be by some sort of criminal activity.

That’s where the art of working in the gray zone comes in. It’s all about utilizing technology to become smarter than your competitors and assess and access an untapped client base, which might not just be profitable for your business but help to contribute to the overall economy as a whole.

How can digital transformation help you access untapped potential?

Handling risk in an intelligent way enables you to work with a broader range of clients safely while ensuring or even boosting profitability for your business. The only question is how? Let me break it down into three essential components. 

1. Be data-driven.

To work with the gray zone, your business needs to be data-driven. By focusing on the statistics, you can accurately assess the level of risk you are willing to take on, how risky your potential clients actually are and more. For companies just starting out, establishing this level is all about trying and testing hypotheses. Explore current data trends and market strategies and you’ll soon find one that works for you.

Where can you get the data that you need? Often such data is collected via apps, mobile banking solutions, store cards, discount cards and other lines of credit that your potential client may have access to. These deliver the potential to assess your potential clients’ spending habits and current debts and commitments, which will go on to inform your strategy.

Remember, it’s vital that you keep testing hypotheses when it comes to consumer data. The market is continuously changing and once you find a good data source, it’s likely your competitors will soon pick up on it. That’s why, to stay ahead, it’s essential to keep testing.

2. Analyze data accurately.

It’s one thing to acquire the data. It’s another to be able to use it accurately and effectively. Setting the bar too far in one direction or the other can impact your profitability. Too relaxed and you create unnecessary risk, too strict and you reduce the size of your market. Here, it’s vital to remember two key points:

1. Data is not always accurate and needs to be verified.

2. The market is always changing. For example, what was risky once is now the norm.

By onboarding big data tools and other smart digital transformation tools, you make it possible for your business to work with large amounts of data that will help ensure accuracy in your business plans for the future.

3. Implement a smart strategy with the right tools.

Plan, review and plan again. Just as the market is constantly shifting, so too should your approach. To keep ahead of the market, it’s vital you adapt to suit new opportunities and challenges. Armed with intelligent data, you can adjust your business strategy to suit the market need and have the tools to do so at your back. For example, many businesses consider credit scoring, artificial intelligence, machine learning, predictive models and product matching tools as the backbone of their data-driven strategy when entering into digital transformation.

Working with so-called “gray-area” clients isn’t a good fit for every business. However, for some, it can be an exciting potential market that is relatively untapped. No one can guarantee a 100% possibility of return on any loan. However, you can lower risk and explore new potential business opportunities faster than your competitors with the right tools at your back.