113 Million US Adults Have Non-Prime Credit Scores – What Are We Doing About It?

Author: Paul Thomas

The World Bank estimates that two billion adults don’t have an account at a bank or other financial institution. They are the unbanked; outside the financial system. PwC puts the unmet deposit demand of the un(der)banked at $360 billion. How can forward-thinking companies help close the big gap that exists between the banked and underbanked? We sat down to ask Greg Rable, CEO of FactorTrust, which helps lenders manage the credit lifecycle of underbanked consumers.

Greg, tell us about FactorTrust. What’s the vision?

Alternative financial services has always been our business at FactorTrust but we used to focus on identity verification. We turned our expertise towards credit risk because the companies we talked to were saying, “please help us with this.” The rise in alternative credit for ‘non-prime’ borrowers has been significant and is indicative of the situation that many people from many different walks of life find themselves in – nearly 113 million US adults have non-prime credit scores, which is an astonishing number.

Alternative finance has been around for some time, but the advent of digital services caused a significant shift in the industry to online. And this created additional challenges for risk management, not only the need to return credit risk assessment results at speed – as expected from a digital channel – but also to confirm identity with the customer not present. The three big credit bureaus historically hadn’t tracked data in this area so we set out to help lenders more accurately predict consumer borrowing behaviour in the growing, often neglected, underbanked segment.

Who are the underbanked and what trends are you seeing in this market segment?

They can be anyone and everyone; people facing a range of everyday circumstances that have placed them outside regular criteria for many traditional lenders.

The thing is, there’s a lot of misinformation about the underbanked – about levels of education, employment and so on. Our data spans upwards of 22 million consumers, with around half a million added each month, so we consider ourselves well-placed to address misconceptions. To help with this we launched the FactorTrust Underbanked Index three years ago. It tells the story of the underbanked and delves into particular aspects of the market segment in more detail.

For example, the typical underbanked consumer we see is employed and has a primary banking relationship. The top three employers of these consumers are fast food restaurants, government agencies and – perhaps surprisingly – big banks.

Each person’s situation is different. Sure, some are unable to get credit because of a poor previous credit performance but there are also those who are new entrants into the credit market and simply lack a history, as well as divorcees who haven’t previously had credit in their own name. Then there are those who use alternative finance simply because they like the speed and convenience of the service.

How does FactorTrust help lenders serve the underbanked?

It’s all about data. We have a real-time database of more than 200 million loan transactions from alternative lenders which provides lenders with a holistic view of the creditworthiness of underbanked consumers and their ability to repay loans. ‘Real-time’ is important – we capture data from the time a consumer’s application reaches a lender; we also then capture it throughout the process of advancing the loan and repayments being made against that loan. That’s what generates the value, it’s unique alternative credit information – proprietary data – augmented through third-party sources to meet, for example, anti-money laundering criteria.

And what role does technology play in what you do?

An essential role. Technology is central to our entire operation. You have to remember that our ten-year-old business grew up in the online world. It’s what we know; it’s what we’ve always done. Everything is about speed and convenience. And accuracy. Our response times to lenders requesting credit score information on an applicant is around a second to a second and a half.

Integration into the systems that lenders use is essential, and that comes down to technology too. The method of integration needs to be flexible, as there’s such a range of systems in use out there, and convenient to set up. This is where strategic partnering with key solutions providers that lenders use – like Provenir – is important.

Risk analytics is so important in this industry. What trends are you seeing and what influence are they having?

I would say three things – flexibility, data, and collaboration. Flexibility, because companies are realising that the traditional ways of doing things don’t work in every situation – 113 million is a lot of unserved customers; it’s hard to think of an industry to compare that level of unmet need to. When we take alternative credit data into account we see that this population deserves credit options and that it is possible to offer them.

Data, because that’s where the value is. So much data is generated about and by individuals every day. And the right technology can capture it and work it to provide something of real value.

And collaboration because there are so many specialisms now that couldn’t have been envisaged ten, fifteen, twenty years ago. They might not exist within the four company walls of many traditional lenders but companies like FactorTrust, and like Provenir, have found their niche and become expert in what they do. Our clients and our partners, embrace the value that specialised risk analytic services bring to their brand, to their portfolio and, ultimately to their customers.

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