A key component of financial services is access to credit. Credit is at the foundation of financial growth, but for many credit-constrained, historically disadvantaged and underserved consumers, simply establishing (or improving) a credit score is challenging.
Worldwide, 1.7 billion adults lack access to basic financial services, critical to day-to-day tasks like online payments, mobile deposits, preparing for emergencies (“financial shocks”) and more.
5 Reasons Why Financial Inclusion is Important
SEPA for Corporates
The Credit Conundrum
Consumers who are credit invisible (no credit record with the NCRAs) or unscorable (limited or “too new” credit records) face a conundrum: they need a score to qualify, but to generate a score, they need to have borrowed before.
An estimated 20% of U.S. consumers do not have a conventional credit score. Also referred to as “no-file” and “thin-file” consumers, this population includes disproportionate numbers of low-income households, young adults, consumers of color, immigrants, and the general population of renters. For financial institutions (FIs), no-file and thin-file consumers present an opportunity to expand their market while supporting financial inclusion.
Alternative Credit Data
Integrating supplemental, FCRA-compliant information into credit decisioning is a win-win for FIs.
Alternative data sources like payments for utilities, telecommunications and rent (UTR) can be helpful to consumers trying to establish a credit score. Trended data from deposit and card accounts (e.g., payroll deposits, recurring payments, spending and withdrawal activity, average account balance, etc.) provides FIs with a clear picture of how applicants manage their finances on an ongoing basis.
A recent study revealed when expanded data sets are combined with additional decisioning resources, an estimated 96% of applicants can be scored. This includes all conventionally unscorable consumers and 65% of credit invisible consumers. Plus, 6 million subprime consumers could potentially score higher, shifting to near-prime or better.
Financial Inclusion & Scalable Growth
Consumer demand and regulatory pressure surrounding social responsibility show no sign of waning. In a survey of 300 senior financial services executives, almost half said their organizations plan to scale financial inclusion efforts over the next 6-12 months.
“Improved technology is opening the door for FIs to strategically look at data that opens more doors to credit.”
Early Warning Systems
Ravi Loganathan, Chief Analytics Officer
The overall economy is more likely to flourish as more people gain access to the financial system. Likewise, FIs benefit from new customer segments they can cultivate over the long term.
[SOLUTION]
Driving ROI by Matching Consumers with the Right Products
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Project REACh: Putting Credit Invisibility in the Spotlight
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FinTech Innovation: Credit-as-a-Service
