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April 10, 2023   Digital, NEO, Open Banking, Open Finance, ESG, Financial Inclusion, Sustainable Finance, Fintech AI/ML, Data-driven, FinTech and Alternative Finance, Fintech International, Fintech Opinions, Fintech Services, Innovation and Resources, Marketplace Lending/P2P, Online Lending, BNPL, Research   No comments

Empowering the Next Iteration of Consumer Finance

Medium, JC Bahr-de Stefano | Mar 31, 2023

Access to credit in the US - Empowering the Next Iteration of Consumer Finance

Building the next decade of consumer finance

  • Last week in Las Vegas, I had the great pleasure of moderating a panel at Fintech Meetup re: building the next decade of consumer finance by leveraging real-time data and cash flow forecasting. I wanted to share some of the key insights shared during the session by our amazing panelists, Jose Bethancourt (Co-Founder of Method Financial), Ema Rouf (Co-Founder of Pave.dev), and Zane Salim (Co-Founder of Atlas)!

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  • 1/ Alternative data augments FICO across the entire credit spectrum — this is about FICO+ NOT replacing FICO.
    • The problem of credit invisibility in the US is growing, with an estimated 28 million adult Americans credit invisible and 21 million unscorable. To make decisions about these consumers and offer them financial services and products, alternative data, such as income and employment, can be used. This data can also help lenders make better risk-weighted decisions for many segments of users, not just credit invisible ones, and is particularly important during periods of economic stress.
  • 2/ Real time data powers better products and outcomes by enabling greater access and improving the quality of risk management.
    • Credit bureaus can take up to 45 days to report data, so lenders may not have the most up-to-date information on a borrower's behavior. Atlas, a payroll-powered credit card, uses real-time data to monitor users' financial health and adjust credit limits, allowing for better risk management and loss prevention.
  • 3/ The movement to make alternative data mainstream has to happen outside of the credit bureaus.
    • Credit reports do not provide a complete view of a consumer's debt obligations as there is a lot of data that is not furnished to the credit bureaus, including most BNPL loans. However, companies like Method collect data from over 60k institutions to provide lenders with a more comprehensive view of a person's debt obligations, combining data from credit bureaus with financial institutions' core banking systems.

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  • 4/ Recent innovation in infrastructure has made this data far more accessible than it has been in the past.
    • Recent advancements in infrastructure and tools have made it easier to access and enrich the data. Companies such as Method and Pave are providing infrastructure that helps fintechs and banks adopt and use this data, leading to accelerated adoption.
  • 5/ Mature lenders don’t want scores, they want raw data or attributes.
    • Understanding the data is crucial for them to explain it to originating banks or capital providers, and the use of attribute generation can speed up model development. Pave is an example of a company offering transaction cleaning, enrichment, and their own attributes toolbox for lenders to use in their proprietary models.

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NCFA Jan 2018 resize - Empowering the Next Iteration of Consumer FinanceThe National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org

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