Data waterfall
A data waterfall is a method of calling data sources in a set order, using a later source only when an earlier one returns no answer or an inconclusive result. Lenders can compare the cost of those calls with how often each source provides an answer.
Example
For illustration, suppose a lender checks 100 applications with a first source that costs $1 per call and answers 70 of them. A second source costs $3 per call and is called for the other 30, so the total is $100 plus $90, or $190. Calling both sources for all 100 applications would cost $400.
Ways to call two data sources
A lender can use one source for every application and stop there. The lender can also call both sources for every application, paying both prices each time and receiving data from both.
With a waterfall, the lender can call the second source when the first returns no answer. A different setup can also call it when the first result is inconclusive. The trigger determines which applications go on to the second call.
Comparing source results and costs
For illustration, a 90% hit rate means a source returned an answer for 90 of 100 requests. Compare that share with the price per call. Then estimate how often an additional result could change a decision and what that change is worth under the lender’s policy.
Compare the response time for each source, too. An application that needs the second call waits for that response as well, so consider whether the added time fits the decision’s needs.
Questions we get asked
Does a data waterfall decide whether an applicant gets credit?
No. A data waterfall describes the order of data-source calls, not the credit decision. The lender writes the policy and supplies the data.
Can lenders use a data waterfall for income verification?
Yes. Lenders use data waterfalls for income verification. They can also use them for bureau calls or identity checks.
Does calling a second source guarantee an answer?
No. A waterfall describes when the second source is called, not whether it will answer. The first source may return nothing or an inconclusive result, which can trigger the next call.
Decisimo’s data source waterfall calculator compares four ways to call two sources in a credit decision and shows which earns the most per month on the lender’s numbers.
