Big data analytics firm Hello Soda is today disputing claims that banks need to ‘ditch’ customers to lower their risk.

A study by the Financial Conduct Authority (FCA) this week found that banks were turning away or closing the accounts of customers deemed to be high risk, which includes foreign nationals and students, with two large British banks closing around 1,000 personal accounts a month to curb these risks. In addition, the FCA warned that banks could fall foul of competition law if they refuse new business or close accounts without good reason.

But today, Hello Soda has said it believes that banks could be turning customers away unnecessarily because their practices are antiquated and not giving them reliable, accurate risk assessments. The firm’s claims are evidenced in a recent study Hello Soda published with Visa Europe Collab which found that social media profiling can be effectively used to verify consumer identify and boost financial inclusion.

“Traditional data sources such as credit checks are not sufficient for modern banking,” James Blake, founder and CEO of Hello Soda, commented. “There has been a significant rise in the number of thin credit files – that is consumers without a credit footprint. Traditional credit scoring methods rate the lack of a consumer’s credit history as high risk – even though they may be more responsible and reliable than those deemed as low risk. The problem is that credit scoring techniques are becoming increasingly archaic and are leaving banks unable to service both existing and potential customers. Traditional ID verification techniques fall down for the 9.5 million consumers who don’t have a passport or a driving licence – that’s 17% of the population. Consumers with no permanent address or who move often can also be flagged as high risk and therefore have problem opening bank accounts and accessing credit – which particularly affects members of the Armed Forces and students or even those who have travelled a lot and lived abroad. All financial services firms have a responsibility to treat customers fairly. We believe that banks turning away consumers is verging on breaching Treating Customers Fairly regulations particularly as there are now effective pioneering methods of being able to credit assess consumers through big data analytics.”

The FCA report highlights that consumers’ ability to access financial services helps to improve market integrity, drive competition and promote financial stability and economic growth. However, potentially millions of UK consumers cannot use the services that would help them meet their needs and play their wider role in financial markets and the economy.

Blake continued: “The implementation of big data analytics can enable individuals who are traditionally viewed as high risk to access credit – potentially for the first time. Individuals who could benefit include young people without a long-standing credit history who are struggling to buy their first home and foreign immigrants unable to transfer credit history between countries. We’ve already seen this have a big impact in its ability to verify ID and increase loan accepts.

“It’s understandable that banks can’t make meaningful decisions such as on loan acceptances or even something as fundamental as verifying identification if the data isn’t available through traditional routes. However, this is where big data steps into the breach and as financial institutions begin to utilise it, we’re starting to see a revolution.”