Lending Briefing: Customers would share data to improve their creditworthiness
- Over 75% consumers believe that a credit score shouldn’t be the only determinant for loan eligibility.
- In the absence of lending products that fit their needs, consumers are turning to fintechs and their families to avoid predatory loans or rejections.
Credit scores have been waning in popularity for a while now, as consumers and financial services look towards other data such as income and cash flow trends to determine people’s credit risk.
At the moment, at least 60% of employed people in the United States don’t think their credit score accurately represents how financially responsible they are. The biggest issues revolve around updated data and a reevaluation of what factors into the credit score, a recent survey points out.
Most consumers believe that a credit score shouldn’t be the only determinant for loan eligibility – they believe that information about utility bills, income and bank account balances paint a more accurate picture of their credit risk situation.
At least 71% of consumers expect their data to be up to date within the last 24 hours. Similarly, 67% think that income is the most crucial addition they would like to make to their credit score, followed by utility and phone bill payment records.
Non-prime consumers are also eager to share information, with 80% reporting that they would share information about payroll and income with their FIs.
However, when FIs fail to meet consumers where they are, most have to look for a viable recourse. For example, 66% of consumers with income of less than $50,000 and 79% of those with a poor credit score will ask friends or family members for money. The data reports more than a third of this segment asks for money more than twice, however 89% pay it back.
These statistics highlight the shortcomings of the current lending products on the market. More than 60% of the consumers polled want their FIs and fintech to offer “personalized financial experiences” like automatic credit line adjustments or proactive loan repayment plans based on consumer income.
"This particular data point tells a sad story about people in need being failed by the financial system," said Lin. "These folks may have feared being denied or are receiving high-interest options. They were mischaracterized as uncreditworthy with an almost 90% repayment rate. There's no reason why a bank or fintech couldn't have offered them a solution, something like EWA or a cash-flow based loan, tailored to their financial needs." said Kurtis Lin, co-founder, and CEO of Pinwheel.
Chart of the week
Open Banking is spurring a new wave of interest in the embedded lending space. By linking multiple consumer accounts within one platform, these companies are able to provide a more holistic view of a consumer’s financial situation.
In highly regulated environments like NA and the EU, regulatory complexity continues to deeply impact embedded lending products. NA and the EU also display highly consistent demand for these products but most compete with rising competition in the regions.
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