In a previous analysis, we laid out the machine learning process we conducted for Destacame.cl, an investee of the Catalyst Fund, which provides alternative credit scoring to underbanked consumers in Latin America. For a firm like Destacame.cl, the investment in predictive algorithms for credit scoring is a no-brainer. It is an inherent part of their digital product and data-driven business model, and can be seamlessly incorporated. But what about for a brick-and-mortar financial institution that is just beginning to explore digital or more sophisticated technology applications? How should the financial service provider and its leadership weigh the potential benefits against the initial investment in high-tech credit scoring?

Let’s look at this question from the perspective of a mid-size financial institution that provides low-income clients with non-collateralized loans. We’ll demonstrate that credit scoring optimizes three business layers that improve the overall bottom line for financial institutions.