Financial inclusion in the fintech world doesn’t mean exactly the same thing it does to the credit union movement. But they may be converging some.
A recurring theme at the Money 20/20 conference this week has been using machine learning and artificial intelligence techniques, non-traditional sources of payment histories, and real-time updates to rate risk more comfortably and produce higher credit scores.
Higher credit scores mean many mainstream institutions can then lend money to millions of people who otherwise would be turned away. Improving access to fairly priced products and services that help improve people’s lives, of course, is a major tenet for credit unions.
Credit raters long established and just starting up used Money 20/20 to announce new services, some of which embedded financial literacy into the process, and used verbiage that should sound familiar in credit union land, such as this: “TransUnion believes in using information for good. Financial inclusion is an important part of that.”
That was from a Monday afternoon session titled “Alternative Credit Scoring & Management: Enabling Lending to the Underserved Consumer.”
Panelist Steve Chaouki, TransUnion’s executive vice president for financial services, touted his company’s new CreditVision Link Risk Score, which uses traditional and alternative borrowing and payment histories into what Chaouki called “our next-generation credit report.” He said it already has been used to move 23 million borrowers up one risk tier, and meets new requirements from key lenders such as Fannie Mae.
“That’s a big step toward inclusion,” Chaouki said. “We’ll be seeing a variety of these kinds of products coming out now.”
That included from others on the panel, such as Chad Swensen, founder of well-heeled startup Lantern Credit that made its debut at the Las Vegas conference.
His company uses artificial intelligence to score risk in ways that he says have never been possible before. And Swensen, too, struck the inclusion note: “All consumers can be better served by enhancing the existing structure of the consumer credit world.”
Swensen, whose board includes former Apple CEO John Sculley and a former Morgan Stanley CEO, added, “We’re pro-bank. We’ll be starting at the end of this quarter with some of the largest in the world and reaching millions of customers.”
He added that “archaic systems that are really just new skin on old technology” still abound in the marketplace, and drew a chuckle from the large audience when he noted that one of his financial backers had himself run into credit scoring issues when he was turned down on a loan for a private jet.
Meanwhile, Michele Raneri, vice president of analytics and business development at Experian, said her company is also focused on what she said were 26 million “invisible” people whose credit files are too thin to rate but not necessarily bad.
“We’re using prescriptive analytics to help create the right tools to segment the right consumer for the right products, Raneri said.
She said consumer regulations prevent her credit bureau from using some alternative data that could help raise scores for individual consumers, but did say Experian was in the process of launching a new scoring system for small businesses that would include studying their social media presence. Again, using machine learning and artificial intelligence.
Jill Nowacki, president and CEO of the Credit Union League of Connecticut, also noticed the talk of inclusion and reaching the underbanked that marked the four-day confab in the Venetian.
“What strikes me as I sit in these sessions is that fintech innovators working in these areas are doing so with the hearts of non-profits and the mentality of hungry entrepreneurs,” Nowacki said. “They’re designing with blank slates and consumer needs in mind, and some of them seem to be doing a better job reaching the audiences credit unions were designed to serve than we are as an industry.”
Nowacki, who focused her time in Vegas on the financial inclusion session track at Money 20/20, noted that there are an estimated 63 million people in the United States with no credit score.
“But when alternative scoring methods are used, 20% of them are actually prime scored,” the CULC leader said. “This is a huge group of people out there that credit unions could be lending to at affordable rates, helping these consumers establish financial security.”