‘How do financial services need to adapt to the individual?’: Argyle’s Hannah Arnold

The following was produced by Tearsheet Studios. We worked with employment data platform Argyle to create a podcast series about the rising importance of employment data and how lenders, banks and fintechs are using this data to make financial products available to more people, solving some of the challenges with today’s financial services. You can access the previous interviews with Argyle's CEO Shmulik Fishman here, and CTO Audrius Zujus here.

Good fintech solutions address the status quo of who gets to benefit from financial services. They do so by first recognizing that there is power in non-traditional data, and secondly that the ownership of that data belongs with its creator: the consumer. 

From providing mobile-based banking services where brick and mortar banks don’t compete, to simplifying payment flows for one-person businesses, fintechs empower individuals by giving them the financial tools and pathways to improving their lives. I spoke with Hannah Arnold, vp of business development at Argyle, about using employment data to supplement poor or nonexistent credit in the lending process.

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The following excerpts were edited for clarity.

Hannah Arnold: My name is Hannah Arnold, and I'm running business development and building our mortgage business at Argyle. Argyle is a user permissions gateway -- an API -- into accessing the data held within employment and payroll records. We offer businesses the ability to access real time, instant data from their customers’ income and employment records with consent. That can be used for verification of income and employment, or switching the destination of direct deposits to perhaps a new neobank, as well as lots of really interesting use cases emerging around better servicing people with multiple income streams, paychecks and spending, and lots of other things that we haven't yet discovered.

The fintech space seeks to improve the way we approach banking and finance. And within it, some fintechs intentionally set out to address complex social problems, by providing tools for people to take control of their finances and opportunities to improve their socioeconomic status. 

Hannah Arnold: I actually started out thinking I wanted a career in international development. I worked for an impact investment bank that was trying to create inclusive financial vehicles for investment all over the world. That’s where I started to engage with ideas like microcredit and alternative financial products, trying to figure out what products were helpful versus harmful and what works versus doesn’t. We were asking: Could you materially improve someone's financial situation even without structurally changing society? 

At that time M-Pesa was taking off in Kenya and I found that really fascinating. The whole space just captured my curiosity from pretty early on. I've always personally found myself more drawn to human and social problems, more so than very strictly technical or scientific problems. And here in fintech, there were these new technologies or new business models that were attempting to crack different, difficult problems affecting actual people around access to credit and wealth building. Employment data is a new version of a long trend towards getting deeper into changing the way we access financial products and services.

Access to financial products matters. Whether in Kenya or Kentucky, people are empowered when financial services are created and adapted to meet their needs. In America, where credit is king, and many people do not have the capacity to build it or do so well, it is important to provide alternatives to traditional scoring methods.

Hannah Arnold: M-Pesa is actually a really interesting example, because it was a payments company in Kenya that said, ‘We can bring banking products to people's mobile phones,’ the easiest way to bring financial access well beyond the cities and towns. And we're seeing that extend to the digital space, certainly today, where different types of individuals have more or less access to financial products. 

A really great example is needing credit history in order to get credit. That's really challenging for a lot of people, especially if you didn’t come from a situation where it was easy to begin building credit. With Argyle, we're trying to bring a solution to the credit space for someone who hasn't accessed credit before, and may not have a long of a history interacting with financial products. We’re thinking about how we can pull information from how they're earning, what they're earning, their tenure, their behavior characteristics around employment, and say that this person deserves to have access to credit beyond what would be otherwise suggested by their credit history. 

Though technology and science are at the forefront, many companies use these as means to reach greater ends: people’s livelihood and financial wellbeing. A direct path to that goal uses existing data to strengthen the individual’s position as a borrower. 

Hannah Arnold: Fintechs are doing that all across the landscape, with different versions of what I just laid out -- alternative data -- reaching people in different ways and building products that are easier for people to consume. I find that a lot of the founders I speak to talk about people's lives and how their product will improve them in their pitches. I always love that about the space and I think anyone who enters the sector feels that pretty immediately. Even the really technical products, like ours at Argyle, are inextricably linked to asking: How will this impact people?

Arnold’s path to fintech focused upon the impact payments could have on people. Her stint as a venture capital investor imprinted upon her the simple ways payments can improve an individual’s finances. 

Hannah Arnold: I had a series of different jobs, but was always listening to podcasts and reading and yapping on about fintech to anyone. But it wasn't until I joined a venture capital firm, F-Prime, that I was actually immersed in fintech for the first time. They were, and continue, making investments into companies like Toast, Flywire, Recurly -- some of the original subscription payment businesses -- and lots of other really interesting fintech companies right as the fintech funding boom started to take off. I was super grateful to have that opportunity to learn a lot about how the financial industry works, what products can do to improve financial situations, and even the more simple things, like how easier payments can make people's lives a little bit better.

Thanks to rapid tech advancements in recent years, we’re living in a time where the democratization of creation is constantly pushed to the precipice. It has never been easier to be a one-person venture. The new ways in which people create income raise new challenges and opportunities in processing that data. 

Hannah Arnold: One of the more interesting topics that's being written and spoken about right now is this idea of the Creator economy -- a term that was only coined recently. To summarize what's happening: we're in the midst of a decade's long shift, where thanks to the internet and the march of software and tech advancement, there's a full-scale democratization of creation happening -- not just in traditional media forms, but in all kinds of different verticals. 

To take media as an example, once upon a time, to produce, edit and distribute videos required specialized equipment, specialized skills, money to fund the creation, and it might have cost millions of dollars to create a production quality video. With tech advances, your phone is now capable of creating a high quality video; software tools make editing more affordable; and internet companies like YouTube or TikTok make wide distribution possible. We've moved into a different world where everyone can be a full stack media creator, whether that's being a blogger, an Instagram influencer, or a Twitch streamer. 

The same thing is happening in e-commerce. Back in the day, the firm was responsible for product design, manufacturing, shipping and marketing. At that point it made a lot of sense for a limited set of companies to be able to build up that set of assets and capabilities. Then enter Shopify, Amazon and dropshipping companies that are reducing into bits all of the pieces and parts required to create and distribute a product. Now it's much easier and much more cost effective for an individual to design their own product, market it and sell it on the internet. And we're seeing this happen all across different verticals.

Even in software engineering. My fiance built a consumer app this month by himself. And that's just crazy to think about -- he didn't need to buy a server, write his own code, authenticate users, or build a feed -- there are tons of little bits of code that he was able to leverage, he probably used 35 different packages that someone else had already put together. It’s the same concept: You take some portion of the foundational elements of building a thing and democratize them, make them cheaper, easier to access, easier to consume. Then, people can focus on the next hardest problem. This trend is playing out all over the place. What might have at one point cost millions to start up is now dramatically more affordable. And so we see the explosion of people breaking out on their own in all sorts of verticals.

With the rise of the Creation economy and multi-gig careers, people’s work and incomes change. For many people today, the traditional monthly pay stub is no longer relevant, or does not stand alone. It is up to financial services to reimagine their relationships to consumers and meet them where they are. 

Hannah Arnold: Lots of founders are starting to ask the question: What does it mean for financial services as the way we work starts to change? For example, someone might be earning some money off of YouTube with their videos, and may be taking tips on Twitch, and also have a Shopify store where they sell merch. As the idea of an individual earning in different ways starts to become more popular, how do financial services need to adapt to that individual? 

What is happening a lot today is self-employed people doing things like design, engineering, marketing, consulting on a contract basis or as an individual sole proprietor. For example, someone may work part time at a startup, have a consulting business on the side, and occasionally pick up Uber shifts. It's a big bucket of people -- you hear numbers as high as 50 or 60 million people in this bucket. Based on my own hunting it's probably more like 35 to 40 million. Still, that's 22 percent of working adults, which is up from 10 percent only 30 years ago. These are exciting sectors, and founders are doing lots of stuff to make sure that financial services adapt to this new type of individual.

With new solutions to manage and report multiple sources of income, fintech is arising to make financial services easier for creators. 

Hannah Arnold: Fintech innovation in the greater economy was first a business model innovation, changing the way an individual creator can make money. Originally, platforms took the vast majority of the earnings created by someone's content, starting with Twitch. Increasingly, there have been ways for people to directly monetize their own content creation and work. Twitter has now launched tips as well. You could argue that Substack is themselves a fintech company. NFTs are an interesting example of a financial tool to cash in on influence and actually capture growth and attention with growth and value. They’re all making it easy for someone to adapt a business model to a business of one.

People are also starting to build financial services that are specific to creators. Creative Juice, for example, lets creators invest in other creators. Stir is another one that manages income streams coming from multiple sources. 

There will be horizontal fintech plays as well, where people start to say: How do I help individuals that earn multiple streams of income better manage their financial situation? 

While some financial services provide newfound solutions to modern work lives, the industry still lags behind. Traditional systems are not quite ready to embrace the new worker’s needs for financial services and products.

Hannah Arnold: Argyle focuses on how prepared the financial industry is at large to handle the more mundane version of the Creator economy -- people who have multiple income streams via freelance, contract, or gig work. And really, the financial industry is quite unprepared to adapt to a different type of personal P&L.

One way Argyle is helping financial companies adapt is mortgage lending. As you read the requirements for self-employed people for a mortgage, it sounds like business diligence: two years of business tax returns, sometimes a cash flow analysis, a balance sheet, and there are even cases where a competitive market assessment is required. Clearly, the compliance and requirements around offering a mortgage loan to self-employed people is designed around a small business owner archetype, versus the archetype we talked about where an individual is somewhere between an employee, contractor, and sole proprietor who is earning income via multiple different streams. 

So in that scenario, even as this type of person becomes more common, and increasingly they're earning just as much income as traditional W2 employees, this industry is not really set up well to make it easy for them to access the same types of products. It’s not easy to have to provide three statements and an audited business report about my freelance and gig income streams. It requires work from both the borrower and the loan officer. And this applies to something as simple as income verification, even for just one of these streams. 

I've actually had a lender forward me an email thread of six or seven people trying to figure out how to verify income and employment from Instacart, asking: Is there a number we can call? That’s just one example of how the industry is not quite prepared for changing the way we onboard and underwrite in order to map to this new type of employment model.

When it comes to bank data and data aggregation, we think about the data ecosystem growing up around the financial institution, with fintechs simplifying that information. But for Argyle and other data aggregators, that ecosystem actually revolves around the individual. 

Hannah Arnold: Plaid connects bank account data, and a lot of institutions are starting to use that for cash flow underwriting. But what happens if I have a personal bank account, maybe a stored value account on some platform where I earn money for doing something, and a business bank account linked up to Shopify?

It’s not just in employment that there will be a fracturing of information sources, but actually in the amount of services that you even use. That makes aggregators like Plaid and Argyle all the more important -- to help people bring together all of the different data streams that might be relevant to their attractiveness as a borrower, and do so in a convenient fashion versus having to go through an entire process around one income stream and entire process around another income stream, and then providing full business diligence on the consulting revenue on each side.

As data aggregators put the power in the hands of the individuals, the question arises of whether individuals are actually aware of their financial data and empowered to take ownership over it.

Hannah Arnold: It’s a really good question. I think very much not. I can speak best to the way employment data is transacted. In that instance, the involvement of the individual is very limited. In the mortgage lending example, the traditional way that lenders might verify income and employment is paying a credit bureau, who may have collected this information -- often for profit -- over many years and has a very large file built up on anyone's income or employment. Granted coverage is not 100%, but there is a good amount of data sitting in a database somewhere, then they'll resell that to lenders.

Consumers may be aware of their data -- maybe they read the fine print on their employment contract, maybe they understand the space, but for the most part, they don't know that their data is being sent off somewhere else on a monthly basis without their consent. They're not in control -- certainly not the type of individually managed data economy that we're talking about yet. 

But at Argyle, we really hope that that is the future. What we're trying to build are the highways to make it easier to have that control and say: I want to move my employment data or my income data or anything about the work that I do from point A to point B. I want to be able to turn off that access at any time, and I want to be able to know exactly who's accessing it, and for what. That's part of the change that we are trying to push. We’re also seeing it in bank data, and hope that we'll start to see it in other sectors as well.

The great hope for the future is that fintech will help individuals own and control their financial data, easily navigating their evolving modern careers. And that’s the bottom line: making life easier, to make life better. With more information about people, lenders can offer better priced financial products. That’s a win for everyone.

Hannah Arnold: What I have always really liked about fintech is that it relates to people's lives. It relates to real life in a way that feels to me more direct than a lot of other really important and impactful technology that's built -- it's a little easier for me to draw the connection and that motivates me personally. 

Argyle can enable people that are earning via multiple income streams to access financial services -- that's one piece. But there's also an entire world of extremely predatory payday lenders out there that we would like to help disrupt by offering a lower risk way to lend with paycheck loans and bring down those interest rates -- the same thing we saw happen in Brazil when they implemented a similar policy. I’m excited about that, and I’m excited about building the new infrastructure for individuals who earn money in different ways to be able to access all of the products that they ought to be able to access without inconvenience and without unnecessary hurdles.