• Sarah Davies, Chief Data & Analytics Officer, at Nova Credit


• 09.02.2022 09:00 am
#data #Financial

Even though the United States has more immigrants than any other country in the world, the process of entering as a resident has historically been extremely complicated, leaving newcomers to blindly navigate a variety of regulatory and financial obstacles upon entry.

One of the most surprising things to learn as a newcomer is that the credit history that they worked hard to build in their home country is stopped at the U.S. border, preventing them from obtaining financial support from lenders. For newcomers who can’t obtain these services, like access to credit cards or loans, this means having to rebuild their credit history to its previous levels, which can take years.

To address this need for systemic change, there are new solutions being introduced to this underserved market that push the boundaries of financial inclusion so lenders can better support no-file or thin-file credit holders in alternative, consumer-permissioned ways while still remaining fully acceptable within the regulatory frameworks for fair lending. This is one of the reasons why the U.S. is well-positioned to see an explosion of fintech companies serving this audience in 2022. In fact, this space is already starting to take off, and even has special classification in the industry as “finnigration” or “immitech” solutions. 

As an example, there are solutions, such as Nova Credit, that enable immigrants to share their credit history from their home country with financial service providers who can then translate their native credit into a U.S. credit score like FICO or VantageScore. This solution not only opens new opportunities for newcomers in the U.S., but also unlocks a new consumer segment for lending institutions and industries such as residential real estate that rely on credit checks for customers.

Immigrants are just the tip of the iceberg when it comes to audiences that are underserved in the U.S. financial services market. Millions of adults struggle with accessing similar services that require credit checks because they experience some of the same challenges when it comes to building credit when they’re labeled as no file or unscorable. In fact, it’s estimated that there are still approximately 53 million U.S. adults without a traditional FICO credit score. 

With the scope of this underserved and underbanked market in the U.S., lenders are realizing the potential impact of this untouched audience that could be reached through alternative consumer-permissioned data – according to Experian, 89% of lenders agree that alternative data sources allow them to extend their services to more consumers. 

For individuals who have never struggled with accessing or building credit, many don’t realize how much of your financial health hangs on this historical data. Those without credit scores, like newcomers, struggle with achieving even the simplest milestones that require credit checks such as purchasing a cell phone or getting auto financing. 

So, could alternative consumer-permissioned data sources be the solution to solving for financial inclusion? One of the growing areas for this information growth is currently cash flow underwriting, where consumers offer access to their checking and savings accounts in lieu of, or in addition to, traditional credit bureau reports. 

With this increase in popularity, we’re seeing more lenders starting to look at these alternative consumer-permissioned data sources as a strategic advantage in the marketplace since cash data can be used as a standalone evaluation tool or in addition to credit data for consumers with thin files. 

By knowing more about potential customers when they apply through these consumer-permissioned resources, lenders are able to outpace competitors and broaden their pool of applicants to those that have historically been locked out. Lenders are also able to offer better products and related terms to consumers because they are able to have a more complete picture of the consumers’ financial profile. As more institutions realize the potential of these resources, I expect we’ll see more lenders incorporate alternative consumer-permissioned data into their long-term growth strategies. 

The world of fintech is constantly evolving with the financial services industry and changing consumer demands. As globalization and advances in technology continue to drive the number of people moving to new countries, there will always be a growing audience that remains underserved in this space. In order to help facilitate the flow of human diversity, fintech players need to continue building solutions to remove these barriers and lenders need to understand the strategic advantages of data.