Analysis Featured

How Big Data is Changing the Lending Industry

xor data exchange

Data is the driving force underlying market disruptors such as Uber, Lending Club, and Amazon. It’s no surprise that IDC’s most recent forecast for the big data and business analytics market shows a revenue increase of more than 50%, from nearly $122 billion in 2015 to $187 billion in 2019. The segments that are expected to witness the fastest revenue growth are utilities, resource industries, healthcare, and banking. By 2019, expected revenue generated by the US market for big data and business analytics solutions will exceed $98 billion accounting for over 50% of the market. One such data exchange corporation carving its own niche is XOR Data Exchange.

Data is the Biggest Challenge to the Lending Industry

The biggest obstacle the industry has come across is the non-participation of big banks in the data consortium. Banks felt that sharing data had no equal reciprocal advantage. So the XOR team built two data exchange systems to develop software that enabled data sharing through permission-based controls and audits: Small Business Risk Exchange and Compromised Identity Exchange.

In Compromised Identity Exchange, users can access the data of a player who has suffered a data breach. This data is leveraged by non-affected players to ensure they can prevent fraud before it happens. The Small Business Risk Exchange allows data sourcing from different industries like utilities, telecommunications, and lending. This allows companies to analyze a particular consumer’s creditworthiness even if he has little credit history. Its focus is on telecommunications providers & utilities who have to face fraud and credit risks with respect to small businesses and consumers.

How XOR Data Exchange Is Changing an Industry

When XOR set up the Credit and Fraud Risk exchange, they noticed communication companies had a significant exposure in the small business segment. Most of the companies were taking a big hit on their bottom line because the data provided by Experian did not have any information on new small and micro businesses. After tasting success with Credit and Fraud Risk Exchange, XOR launched Small Business Risk Exchange in late 2015. Through this exchange, communication companies are able to send and receive real-time information about an applicant’s credit and fraud risk. Based on that, companies can decide whether to increase or decrease the minimum deposit.

Currently, XOR is working on a new concept that will allow them to take account data from banks and match it with compromised data. The result will lenders decide whether a particular bank customer is on the list of data breaches and whether the breached data is being used or not. This will accordingly allow the bank to limit its exposure. The concept is attracting attention in banking circles and has managed to secure three distribution agreements with big bureaus. But the biggest deal it has managed so far is partnering with National Breach Remediation Company.
Among the host of features the company provides, one functionality that sets XOR apart from competitors is its ability to let exchange members set their own rules. They can decide who can access data, for what purposes, and other intricate details. Gone are the days when data consortia set rules for all members.

XOR has to stick by its own rules. If you are not sharing data with a particular company, you would not receive anything in return. It is based on a give-and-take relationship between the members. XOR uses a unique reciprocity algorithm to provide a level playing field for the participating exchange members. The company decided the amount of data each member can access depending on the amount and predictive value of data made available to others. This path-breaking algorithm will help to change the pattern where some industries don’t share information but buy all the data that is available.

The biggest conflict using this method is deciding what permissions are fair and unfair. To address this, XOR created a permission structure. If a lender asks to access particular information, they would be obliged to share the same. To participate in the SMB exchange, every participant has to provide at least three years of data.

The path XOR is treading on is a difficult one as it tries to break the monopoly of established players in the industry. The company has a unique product that is not easily replicated. As its membership grow, its information would become even more valuable due to the network effect. The company is on the path to becoming a staple for industries dependent on reducing fraud, managing SMB, and calculating consumer risk.

Who is Behind XOR Data Exchange?

Founder and CEO Mike Cook is a proven entrepreneur with over 25 years experience building data solutions for the financial services, communications, and consumer lending industry. Cook was a member of the team that developed Consumer Credit Associates (CCA), which was later sold to FDR (now known as Innovis). He also co-founded ID Analytics, a profitable company that served 280 enterprise clients and was later acquired by Lifelock. Additionally, he’s held senior management roles with Experian, Early Warning Services, and American Express.

The biggest obstacle the industry has come across is the non-participation of big banks in the data consortium. Banks felt that sharing data had no equal reciprocal advantage. So the XOR team built a data exchange system to develop software that enabled data sharing through permission-based controls and audits.

Authors:

Written by Heena Dhir.

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