Alternative data

Beyond the traditional bureau file

Alternative data refers to information used in credit and affordability decisions that does not come from the traditional credit bureau file. For decades, UK lending decisions leaned heavily on bureau data: account histories, defaults, county court judgments, the electoral roll and shared repayment records held by the credit reference agencies. Alternative data widens that evidence base to include sources such as Open Banking transaction data, rental payment histories, telecoms and utility records, and other verifiable signals of financial behaviour.

The motivation is straightforward. A meaningful share of UK adults are "thin-file" or "credit-invisible": younger borrowers, recent arrivals, or people who simply avoid credit. A thin bureau file is not evidence of risk, yet traditional scoring can treat absence of data as a reason to decline. Alternative data gives a lender a richer, more current view of someone whose bureau footprint is sparse.

Open Banking as the leading source

For UK lenders, Open Banking is the most significant source of alternative data. With the customer's explicit consent, a lender can access categorised current-account transaction data: income credits, essential outgoings, existing credit commitments and discretionary spending. This provides a direct, recent picture of affordability rather than a historical, inferred one.

Because the data is granular and verified against the borrower's actual bank account, it supports the kind of affordability assessment the FCA expects under CONC. A lender can see real income rather than stated income, identify existing debt obligations, and spot signs of financial difficulty such as gambling patterns or persistent overdraft reliance before extending further credit.

Using it responsibly

Alternative data is powerful precisely because it is detailed, which raises the stakes on how it is used. A lender must have a lawful basis for processing, must be transparent with the customer about what is collected and why, and must ensure that any model built on alternative data does not produce unfair or discriminatory outcomes. Consent obtained through Open Banking is specific and time-limited, and the data should be used only for the purpose the customer agreed to.

• Secure explicit, informed consent and respect its scope and duration
• Test models for bias and unintended proxies for protected characteristics
• Keep decisions explainable so adverse outcomes can be justified to the customer
• Treat affordability signals as a duty to protect, not only to approve

Fit with the wider decisioning stack

Alternative data rarely replaces bureau data; more often it complements it. A sensible decisioning design uses bureau data for identity, history and shared commitments, and alternative data for a current, verified view of income and affordability. The two together give a fuller assessment than either alone.

For lenders, the practical benefit is broader, fairer coverage: the ability to say yes responsibly to creditworthy applicants who would otherwise be declined on a thin file, and to say no earlier where current behaviour shows genuine strain. Used well, alternative data improves both inclusion and protection, which is the balance the Consumer Duty asks lenders to strike.