The problem of financial inclusion is acute in the United States. The Office of the Comptroller of the Currency said nearly 50 million Americans have no credit rating. And without those scores, it’s hard to get a loan. Without a loan, paradoxically, it is difficult to obtain that credit rating.
Ravi Loganathan, head of early analysis, said financial inclusion could be improved through better access to credit and capital and joint efforts between the public and private sectors. To get there, we will see cutting-edge technologies emerge, as well as a change in mindset among regulators and lenders about what data is useful for assessing risk.
As Loganathan told PYMNTS, financial inclusion is a “complex subject that impacts both the consumer as well as the businesses that provide services.”
The pandemic has brought to light the glaring economic inequalities between those who have access to credit and those who do not. This is a timely topic to discuss as the technological tools necessary to level the playing field are increasingly available as economic activity moves online. He noted that âthe trend is definitely towards technology, data and new solutions from an analytical point of view. This opens the door to a strategic review of the data that opens more doors to credit. “
The regulatory environment, he said, is also changing. Regulators are more inclined to look at alternative data beyond sources historically used to provide visibility into responsible financial behavior.
As for what these alternative sources might include: Financial institutions (FIs) and FinTechs increasingly allow potential lenders to delve into the business of current accounts and deposit accounts, where “you can certainly understand the overall consumer balance sheets, both inputs and outputs. Having data that can show consumers pay their rent and utility bills on time provides potential lenders with evidence of on-time payments not captured by more traditional reporting bureaus.
He highlighted the REACh project – short for Roundtable for Economic Access and Change – as promoted by the OCC, which brings together leaders from the banking sector, businesses (including early warning) and national organizations. advocacy campaign to improve financial inclusion. Its goals include establishing an alternative method of credit scoring to include cash flow data to aid underwriting and improve access to credit and capital for individuals and small businesses and corporate-owned businesses. minorities. He noted that to date, more than 115 organizations have joined the project.
Alternative credit assessment
As Loganathan said, “The alternative public credit reporting workflow is a great example of government-private sector collaboration to find alternative solutions.” Early Warning, he said, has developed a solution that provides data that may not be held by traditional credit bureaus – with insight into deposit accounts and utility payments.
With a plethora of alternative data to collect and examine to establish creditworthiness, he said, more granular information “certainly has a positive impact on financial institutions” that wish to expand access to credit, he said. -he declares. “There is this domino effect of expanding the credit ‘box’ to include more consumers, businesses and their respective communities.”
See also: Customer relations at the heart of the transformation of financial services