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The Promise of AI: Level Up Decisioning Across The Entire Customer Lifecycle

Written by Amy Sariego on . Posted in Blog.

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The Promise of AI:
Level Up Decisioning Across The Entire Customer Lifecycle

  • Brendan Deakin, SVP Sales, North America

If there are kids in your life (or even some adults – we don’t judge), you may have heard of Minecraft. You start with nothing – gathering some basic raw materials and finding food and shelter – but in order to really get ahead in your worlds you need to level up your game. You have to figure out which elements to put together to create the things you need to not only survive but thrive.

Today’s risk decisioning is also about evolving beyond the basics. When you start out making credit risk decisions you may just have the essentials – some data, some workflow tools, some basic automation. But to really level-up your decisioning you need more. More data, more automation, more sophisticated processes, more forward-looking predictions. And to do that, you need AI.

We’ve all seen the end-of-year roundups, predictions for 2022 and ongoing fintech trend reports. (Sidenote: we’ve even conducted our own proprietary survey of 400 leaders in financial services and banking – want to see what’s in and what’s out?  And they all agree – artificial intelligence and machine learning are here to stay. 64% of those we surveyed said AI is currently an important feature of their risk decisioning or consider it one of the most important features when selecting a system, and 86% of financial services executives plan to increase their investment in AI.

Much of the discussion around AI centers around cost and time – as in, it takes a long time to develop and implement AI, and it can be prohibitively expensive. And if you do manage to implement a successful AI project, it can take months (or longer) to see any tangible ROI results. “56% of global CEOs expect it to take 3-5 years to see any real ROI on their AI investment.” Who has time for that??

But there’s more to it. AI-powered risk decisioning is about more than just more accurate decisions and better predictability. What’s talked about less is how it impacts the entire credit risk lifecycle.

Currently, only a small amount of AI projects are perceived as a success. Those that are successful create tangible benefits across the credit risk lifecycle that drive growth, increase agility, and make your business more competitive. For example, Provenir customer Pinjam Modal, saw a huge performance lift in their decisioning accuracy, with bad rate reduced by 60%. AI, implemented and used correctly, has the ability to power performance improvements in multiple ways.

Expand Your Customer Base

AI empowers you to confidently say yes to customers you haven’t been able to approve before, driving business growth without sacrificing performance. How? AI flips your traditional risk analytics on its head. Rather than starting with a set of clear rules and decisioning based on those rules, AI models don’t need rules. Instead, they can identify patterns within data and then decision using those patterns. So, instead of needing to know the story data tells before you start decisioning, AI identifies those stories for you!

What does this mean for your customer base and in turn your business? With AI you are no longer confined to pursuing customers with the attributes of your existing lending base. Instead, you can use AI models to discover new patterns in the data that empower you to lend to a much wider base of people. It’s a quick way to drive business growth without increasing costs or risks – like getting special powers in a video game that immediately boost you over the finish line.

Support Financial Inclusion

We can’t talk about the benefits of AI without mentioning financial inclusion. In the US alone, 24% of the population are underbanked with a further 10% completely unbanked. Approximately 3.6 billion people in Asia have no access to formal credit and there are about 200 million unbanked individuals in Latin America. Globally, up to one-third of all adults (1.7 billion at last count, according to the Global Findex database) lack any type of bank account, meaning that access to financial services is difficult for a significant number of consumers. Financial services organizations typically struggle to support these consumers because they don’t come with a history of data that is understandable by traditional decisioning methods. However, because AI can identify patterns in a wide variety of alternative, traditional, linear, and non-linear data, it can power highly accurate decisioning, even for no-file or thin-file consumers. It’s like finding a secret shortcut – the data was there, you just needed the right tools to uncover it. In a recent report, PWC reported that banks launching AI initiatives were able to increase their lending approvals by 15-30% with no change in loss rates. These figures include loans to previously overlooked borrowers. AI gives your organization the opportunity to support unbanked and underbanked consumers on their financial journeys. 

Identify Fraud + Say Yes More

Did you know that identity fraud losses hit $56 billion in 2020? In today’s digital world, where all types of fraud attacks, not just identity fraud, are getting more sophisticated and widespread, how do you really know who’s legitimate and who’s not?

If you’re struggling to manage high fraud rates and false positives using rule-based detection, AI could have an immediate and significant impact on your fraud management performance. A key benefit of using AI for fraud detection is its ability to get smarter with each transaction it processes. So, even when fraudsters evolve their methods, your AI models can use real-time data to identify new patterns, learn, and adapt decisioning to maximize the right fraud alerts and minimize false positives. Financial institutions who had already adopted AI were surveyed in a recent PMYNTS study on the benefits of AI – 81% cited being alerted to fraud before it happens, 75% said the reduction of false positives and 56% said the reduction of payment fraud were key outcomes of their AI systems. 

Be More Competitive With Optimized Pricing

Increasing competition means that you need to make the right offer at the right price. Using AI for pricing optimization not only makes your products more attractive, it lets you maximize profitability. How does it do this? AI empowers you to be more confident about the risk a credit application poses, so you can more accurately assess how to price the credit you offer. Instead of lumping applications into price buckets you can get closer than ever to personalized pricing. Innovative lenders are also using AI to measure an applicant’s propensity to buy and combining this information with credit worthiness to determine the most attractive rate.

And more accurate decisioning means lower loss reserves, enabling you to have more capital available for lending activities. AI empowers you to make your lending portfolio work harder.

Expand Your Relationship With Personalized Upsell and Cross-sell Offers

What was the most frustrating part of playing video games in the 90s? Finding out the Princess was in another castle. Why? Because you’d done all of the work without the satisfying ending. Your customers have already gone through the work of onboarding with you for a specific product, but what happens when you don’t offer them other products they need at exactly the right time? They find it in another castle. These days, loyalty to particular financial institutions is waning, quickly – 31% of consumers surveyed will switch primary providers over everything from fee levels and rewards to security issues and convenience. According to the Financial Brand, “while 66% of customers expect companies to understand their unique needs and expectations, only 32% of executives say they have the full ability to turn data into personalized prices, offers and products in real time across channels and touch points.”

What advantage do you have over your competitors when it comes to existing customers? Data. Lots of it. But finding the patterns in that data to show how, when and what offers to give your customers has traditionally been expensive, time consuming and difficult. Enter AI.

With the right AI models and automated decisioning you can analyze your customer data and automatically make the upsell and cross-sell offers when they are most likely to convert. Big brands we all know and love do this extremely well – according to McKinsey, “35% of what consumers purchase on Amazon and 75% of what they watch on Netflix come from product recommendations” based on AI algorithms. Become the only castle your customers need for all of their financial services needs by showing that you truly understand and anticipate their needs.

Predict and Prevent Losses Through Better Customer Management

Is your technology and analytics reacting to delinquent accounts, instead of predicting which customers will face financial challenges? Does it use a set of defined rules to predict delinquencies? Are predictions based on historical data? If so, you could be missing out on the opportunity to both better support your customers and reduce losses.

More traditional analytics approaches to predicting which accounts will go into collections rely heavily on historical data and predefined rules. But, in today’s digital, fast-moving world, the data you need to make accurate collections predictions is often produced in real-time. Put simply, traditional risk decisioning looks for delinquency patterns that we already know. AI on the other hand, ingests real-time data and uses that data to identify new patterns, enabling you to make more accurate delinquency predictions. This, in turn, empowers you to work with customers to help them manage their finances. It’s a win-win situation: you get to reduce the number of customers being pushed to collections and you get to build stronger relationships with your customers. Kind of like the advent of online gaming – working with a partner in real-time produces better results, and a higher win rate. As Forbes puts it, “Machine learning can also be used to determine the probability of delinquency for specific borrowers. This early warning system allows lenders to focus their energies on at-risk clients to prevent their accounts from becoming delinquent in the first place.” 

Organize Your Resources

In any endeavor, it’s critical to be organized. Implementing an AI project is no different. It may seem daunting, but it’s clearly worth it. Particularly if you work with a technology partner to implement AI quickly and efficiently – and see the returns faster than you thought possible. Talk about a winning strategy.

Explore our resources to accelerate your innovation journey. Browse our articles, videos, webinars and podcasts.

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Ten Fintechs Driving Auto Financing Innovation

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Ten Fintechs Driving Auto Financing Innovation

How to Improve the Auto Lending Experience with Technology

The very first car loan was originated by General Motors Corporation in 1919, and in the century since, leasing and financing has become a critical part of the automotive industry globally. But has the customer experience changed much since then? Picture your last automotive purchase – did it involve lots of paperwork, sitting around at a dealership, and painful photocopies of every single piece of your ID?

Ninety minutes is all it takes for customer satisfaction to decline at a car dealership, and according to AutoTrader, 65% of car shoppers think that financing and paperwork take too long. But don’t fret – as the world continues its rapid advance towards digitizing everything, auto lenders are following suit. In fact, 72% of consumers want to complete credit applications and their financing paperwork online. So we’ve found ten innovative fintechs/financial services organizations that have figured out how to help them do so or have innovated other aspects of the auto financing process.

  1. Upstart – Auto Retail: Combining online and in-store digital retail capabilities, Upstart Auto Retail aims to help car sellers/dealers create a truly omni-channel purchasing experience. Upstart is an AI lending marketplace that looks to improve access to credit, and has automated the auto lending experience, enabling more loan approvals in real-time, based on individual pricing and financing rules established by the dealer.
  2. Caribou: With a mission to put drivers in control of their automotive finances, U.S.-based Caribou enables ‘flexibility and freedom’ in car payments, thanks to their fast and easy auto refinancing program. Offering instant access to competitive financing rates and a secure online application platform, Caribou saves its customers an average of $100 per month on their car payments.
  3. TU Auto Payment Shopper: Combining affordability with real-time inventory, TransUnion’s Auto Payment Shopper is an upgraded retail portal that allows consumers to complete more of the auto financing process online. Enabling consumers to compare vehicles (and vehicle payments) before submitting an application, the program, in partnership with CarNow, ensures people understand which vehicles they can afford before having to go through the entire process.
  4. Cazoo: UK-based Cazoo allows consumers to buy or finance vehicles entirely online, with delivery or pickup of new cars in as little as 72 hours. Promising ‘simple’ financing of used cars, Cazoo offers competitive interest rates, fast decisions, and applications and agreements for financing all done online, thanks to its data-driven strategy.
  5. AutoFi: With online commerce and showroom options, as well as a whole suite of APIs, AutoFi enables auto lenders to incorporate digital sales and finance tools right into their existing platform or build their own from the ground up. And AutoFi ensures automated financing processes with direct partnerships with over 40 lenders, smart lender routing, and real-time decisioning direct to consumers.
  6. Carvana: Carvana, one of the leading online car-buying sites in the U.S., also makes it easier for consumers to finance used vehicles. Consumers can browse the site to find their next vehicle, apply for financing directly with Carvana, and have their new vehicle delivered right to their driveway. With their pre-qualifying auto loan program, the company allows buyers to browse inventory with personalized financing terms, without impacting credit scores with hard credit checks until they are ready to buy.
  7. Automatic: Billed as a one-stop-shop for auto financing, Automatic is a platform that allows both small and large independent dealerships to take control of their financing products. Featuring an open marketplace that enables dealers to connect to a variety of financing options instantly after pushing through a credit application from a consumer, Automatic offers real-time results and speedy approvals, all in a single online platform.
  8. AusLoans: Based in Australia, AusLoans Finance Group positions itself as one of the nation’s leading Asset Finance aggregators, thanks to its dedicated investment in technology and transparency, and also offers customer financing options for automotive businesses. Featuring a point-of-sale automotive financing solution, partnerships with over 40 local lenders, fast approvals, and paperless application processes, AusLoans can offer loans of up to $500K to dealerships to pay for automotive services.
  9. Ally: Ally, a leader in digital financial services, also offers personal vehicle financing with flexible terms and easy payment options. With online account management and a mobile app for customers to keep on top of their account on the go, Ally aims to provide auto financing that fits every type of consumer. They even offer specialty vehicle financing, with flexible terms that cover accessibility needs like hand controls and wheelchair lifts.
  10. CarDoor: Partnering with multiple lenders, Canada’s CarDoor ensures consumers get the best possible financing rates and receive approvals in only minutes. With a completely digital car buying process, CarDoor offers an online application process and financing that is promised to be secure, transparent, and flexible – all at the best possible rates. And as a bonus, customers can pre-quality with only a soft credit check, and approved loans also get a free TransUnion Risk Score Report.

These organizations all understand that a memorable, satisfying consumer experience is one that is fast, digital, and easy. The future of auto financing is here, but how can all lenders join the club? One way to ensure automated decisioning, rapid approvals and personalized experiences is with real-time data and AI-powered decisioning solutions. Being able to easily access, integrate and analyze alternative data especially is key, thanks to today’s increasingly diverse populations. Many people globally don’t have traditional credit histories or can’t easily prove creditworthiness with a traditional credit report or score. But being able to integrate things like rental and utility payment data, social media and web presence info, and travel information can help. Despite the current economically uncertain climate, Mordor Intelligence predicts that the global automotive financing market is expected to reach $300 billion by 2026, so there’s never been a better time to drive more innovation in auto lending.

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Shaking Off the Tech Debt

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Shaking Off the Tech Debt

What is Tech Debt?

Tech debt is the idea that when a business uses the easiest tech solution instead of the best tech solution, they’re creating a technology debt that’ll need to be repaid in the future. This means that companies who have accumulated tech debt are often weighed down by technology that slows down their agility and impacts their growth potential.

Tech Debt in the Financial Services Industry

Let’s look at the story of a financial services company that started out three years ago. Like many startups, it needed to launch quickly, so it used a combination of simple technology developed in-house and some manual steps to get the job done. Once the product was live, the business experienced a period of rapid growth which placed a heavy burden on the technology underpinning the product. The company quickly realized that it couldn’t grow any more with its existing set-up.

This isn’t the only company that finds itself in this situation; in fact, tech debt is increasingly common in growing fintechs as well as in the large banks who are famously beset by the challenges of legacy IT. Startups aren’t expected to have this problem because they’re new and began in the technology era; they’re seen as nimble and able to deliver value quickly. However, in reality, business decisions, and IT decisions that go with them, set companies on a course, and if that course needs to change, the business can only pivot as quickly as their technology can be turned.

The Growing Interest on Your Technology Troubles: Paying the Bank of Tech Debt

Just like any other type of debt, there’s always a cost to borrow. While the cost to future technology development is obvious, it’s the growing interest on your business that is often the bigger problem. Financial services businesses operating any kind of digital service rely on technology for agility, flexibility, and scalability. When your technology is broken or in debt, all parts of your business suffer.

Breaking Down Walls – How to Tackle Tech Debt

To address the limitations of traditional conference venues, new venues are built with partition walls that can be added or taken away depending on the type of event and number of people. This makes them more flexible, scalable, and profitable.

It’s not so very different to the tech debt issue. In the past, companies, including those in credit and lending, payments and eCommerce, opted for hard-coded systems to perform certain functions. These systems will scale up to a point, and beyond that, everything has to be done manually. Making changes to the systems takes weeks or months.

Companies setting up now can’t opt for this approach anymore and those already struggling with a tech debt can’t afford to not plug their IT gap or they will struggle to compete. Instead, these companies need to invest now (rather than invest more later) in ‘partition-wall-like’ technology that will grow with them and adapt.

In a digital world where the cost of tech debt is more than just a tech problem, businesses need to look for their ‘partition’ technology. Only with scalable and flexible solutions will financial services businesses tackle tech debt and be prepared for the future.

Many companies, including those in financial services, are grappling with tech debt. To stay competitive, companies need to invest in scalable and flexible technology solutions that can adapt as their business needs change. By doing so, they will be better prepared to tackle the challenges of the future.

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Dear Mr. Lender: A Letter From An Anonymous Customer

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Dear Mr. Lender:
A Letter From An Anonymous Customer

Dear Lender,

It’s that time of year when we make plans, we think about ways we want to give more, and make resolutions to change. So, I thought it would be a good time to talk about how we could improve our relationship…

This isn’t a break up letter dear Lender, this is me reaching out to try and make our relationship keep working for many years to come—because when your service works well we’re great together. There’s just a few glitches in the system that we need to work through!

Did you know that it took almost 280 pages of paper to get my mortgage with you?

That’s right, two hundred and eighty. How did that happen? I get that you need copies of my bank statements, information about my earnings, and a billion other pieces of information. But there’s got to be a better way, don’t we live in a digital world?

On its own 280 might not seem like a whole lot of paper to buy a home, but I’m just one person. In 2017 the US used over 2.2 billion sheets of paper to process mortgage applications. That means as a country we had 204,000 trees chopped down so we could print out digital documents.

In the long-run I think switching to digital files would be good for both of us, think of all the time your team could save if they didn’t have to print out hundreds of documents a day! Not to mention the reduced stress of not having to fix printer paper jams and reprint the pages that came out pink because you’ve ignored the ‘low ink’ warning for too long. And storing all of those paper files? Well, that’s just a fire hazard.

I understand that there’s regulations that you need to comply with and data security to worry about, but other lenders are able to solve these problems, can’t you too? I really want this to work between us, we’ve been together since I opened my first account and I honestly don’t want to move on, but I’d really like it if we didn’t need to contribute to deforestation the next time I buy a home. Could this be one of your New Year’s Resolutions, perhaps something to put on your Christmas list? I’m sure your CRO would approve.

While I’m here there’s a couple of other changes that could really help our relationship…

Like quick access to funds in emergencies.

It would make life so much easier if loans were credited to my account on the same day that I applied for them. The loan I needed to cover a car repair earlier this year took almost 72 hours to hit my account. I know that for you 72 hours doesn’t seem like a long time, but for me it meant that I had to pay for a Lyft for 3 days to get to and from work.

What made this more frustrating is that other lenders offered same day approval, but I’ve been banking with you forever, so I trusted you to provide a fair loan. Honestly, I was pretty tempted to try one of those mysterious fintechs I’ve heard about. Apparently they make an instant decision. I really wish you’d do this so I didn’t have to worry about when I’d be able to pay for unexpected emergencies. Do you think faster loans are something you could provide in the future? Perhaps it could all be completed online so I didn’t have to come down to the branch. I’m sure with the right technology your talented risk team could make this work!

This last request is really advice to help you get along with my friends better, after all, their opinion matters a great deal to me, especially when they say bad things about you. Those bad reviews can make it a little tempting to move on…

It would be really awesome if when they communicated with you that you saw them as more than a number.

While I get that traditional credit scores are a simple way of assessing applications, behind every application is a human who’s more than a number. After all, not everyone has been in the country long enough to build a credit history that bureaus pay attention to. And my immigrant friends aren’t the only ones who have struggled to build a traditional credit score. My friends that only use cash have also found it hard as their thin credit files make them difficult to understand. I’m sure there’s data that could tell you more about our lives than a traditional credit score does. Maybe you could look at more than our credit scores to dig deeper into our lives. With bank statements you could really understand how careful we are with money and other alternative data could tell you about our lifestyle.

So, instead of seeing a 550, you could see a recent immigrant with two kids who just secured a high paying job. Or a single mother working three jobs who consistently pays her bills on time but needs extra cash to pay for Christmas gifts. Is there a way you could see my friends as more than a number? How do other lenders do it? I’d love for you to see the bigger picture so my friends can take advantage of your great products too!

Sincerely,

(Redacted)

AKA Credit score: 610

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Guest Blog: Closing the Friction Gap in Lending

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Closing the Friction Gap in Lending

  • Don Chapman, Head of Strategic Partnerships, Powerlytics

Twenty years ago, day-to-day experiences such as bill payment and shopping were filled with hurdles and hassles, but consumers accepted these inconveniences because it’s all they knew. Today, smartphones, high-speed internet, and platforms like Amazon make many of these experiences a simple one or two click process. And as technology advances and each previous friction point is eliminated, we become even less tolerant when we are confronted with a complicated user experience or hurdles to completing a transaction.

Zero-friction Remains a Challenge for Banks and Lenders

While some industries have been highly transformed, zero-friction in financial services remains more aspiration than reality. While some financial processes have become a model of zero-friction – think of the ease of paying a friend with Venmo or the simplicity of online bill payment – account opening and loan decisioning are often cumbersome and frustrating for consumers. This is because banks and other lenders must follow strict regulatory requirements and sound credit risk management practices making it much tougher to simplify these experiences. In effect, this creates a “friction gap” for financial services providers. Consumers have moved beyond friction in many parts of their daily lives, so they become even more frustrated when dealing with the complexity that still exists in these financial interactions.

This is a particular challenge for banks and lenders. In fact in a recent webinar, Peter Wannemacher, Senior Analyst at Forrester, said abandon rates for online banking applications were at an all-time high of 97.5%.  While this percentage may be lower if we look only at loan applications, lending is a particular challenge because available data such as bureau scores are often not sufficient to make a fully informed credit decision. As a result, many lenders will ask the applicant to provide paystubs, tax returns, access to their bank accounts directly or through a third party, which results in a portion of these busy and creditworthy individuals choosing to avoid the friction and look for other options.

The Answer – Innovative Data Sources

The good news is that there are new solutions that can help streamline this process. The key for lenders comes down to data strategy and those lenders focused on identifying and integrating innovative new data sources are likely to gain a major competitive edge.

One example of an innovative zero-friction data solution is anonymized tax return information.  By simply using the loan applicant’s 9-digit ZIP Code, these data solutions provide accurate income estimates and confidence scores against an applicant’s stated income, giving any US lender the financial insights needed to enable a quick “yes” decision with zero friction for the loan applicant. For additional fine tuning of the estimate, knowing whether a person owns or rents their home provides an increased measure of accuracy. And because these solutions are based on tax data, they go well beyond the applicant’s W2 and cover all sources of income to provide a truly holistic financial view of the loan applicant.  The Office of the Comptroller of the Currency (OCC) has reviewed these income solutions and allows commercial usage to get to a “yes” in a loan decisioning process as well as other use cases including replacing stated income for proactive credit line increases and prospect targeting. 

Powerlytics provides this type of zero-friction income solution based on anonymized tax return data. Today, a range of banks and other lenders use Powerlytics True Income solutions to streamline loan decisioning and expand proactive credit line increases.  Powerlytics also offers a broad dataset of 5,000 financial variables delivering a comprehensive financial view of the over 200 million adults and 30 million businesses that comprise the American economy. Today, banks and lenders use this broad dataset to improve outcomes in prospect targeting, cross-sell, and portfolio risk analytics. 

While the friction gap remains a challenge to banks and lenders, those who actively explore innovative data solutions can accelerate their path to closing this gap and differentiate themselves in this highly competitive marketplace. Visit www.powerlytics.com for more information.

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Giving Thanks: Fintechs/Finservs Aimed at Solving the Unique Needs of Minorities

Written by Amy Sariego on . Posted in Blog.

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Giving Thanks:
Fintechs/Finservs Aimed at Solving the Unique Needs of Minorities

Ten Organizations Focused on Ensuring Access to Financial Services for Immigrant and Minority Populations

They say the holiday season brings people together – reuniting families and friends and providing an opportunity for joy, gifts and gorging on delicious food (or bickering with siblings, fighting for the best piece of turkey and being forced to wear ugly sweaters). Whatever you celebrate, the holidays are often seen as a good time to give back and consider the people who may be at a disadvantage in some way. To get into the spirit of the season, we’ve been looking at financial services organizations and fintechs that encourage environmental sustainability or aim to serve the underserved – empowering marginalized populations with access to credit, banking and other innovative fintech products.

Minorities and recent immigrants face unique challenges when it comes to accessing financial services products. But encouraging financial inclusion of all individuals “strengthens the availability of economic resources… [and] helps the overall economic development of the underprivileged population.”1 Ensuring everyone has access to financial services and credit products helps to improve overall household income, increases the size of the economy, builds individual/household asset holdings, increases financial and health security, reduces vulnerability and encourages job development.2

Certain Credit Reporting Agencies in various regions won’t recognize credit history from other countries, effectively ensuring the immigrant population remains unbanked/underbanked. Minorities have faced discriminatory banking practices for decades, including the varied pricing of financial products based on region or neighborhood, not having physical bank branches in lower income areas and exorbitant overdraft fees. 28% of American Black and Latinx households have no traditional credit history on file; leaving 43% of Latinx and 47% of Black households in the United States unbanked or underbanked. Yet research suggests that by 2044 the U.S. will be a majority people-of-color nation – not only should financial inclusion for all be a moral obligation and basic human right, it will also be essential for the future health of the American economy. While these examples may speak to North America more specifically, the issues of inclusion are critical in all parts of the globe.

These ten innovative organizations are focused on offering financial products and services geared to the unique needs of these populations:

  • Camino Financial: A family-owned success story, Camino Financial is devoted to helping small Latinx businesses thrive, offering simple, affordable loans to small businesses who may not have access to credit otherwise. Helping these small businesses in low-to-moderate income communities help to ensure sustainable business growth and encourages job development.
  • Greenwood: A digital mobile banking experience, Greenwood is focused on Black and Latinx customers, aimed at helping its customers save money and recirculate wealth throughout the community. With charitable donations including feeding meals to families when an account is created, donations to non-profits, and small business grants to Black and Latinx-owned businesses, the company also focuses on entertaining educational content geared to the specific need of their customers.
  • First Boulevard: This neobank aimed at Black Americans focuses on helping the community build generational wealth and control spending. With no minimum balance required, financial education programs and real-time insights and recommendations based on purchase history, First Boulevard believes that controlling finances is one way to help fight systemic racism.
  • Cheese: Asian immigrants face unique challenges when accessing financial services, particularly around language requirements. Cheese offers customer support in both English and Chinese, customer messaging via WhatsApp, and even cashback on purchases from Asian-owned businesses.
  • Proto: Canada, known for its vast multiculturalism, is also home to Proto, a tech company focused on inclusive chatbots and multi-lingual contact center automation. Focused on emerging financial services markets in Asia and Africa, Proto allows first-time consumers to access support in a variety of languages and ways, including via SMS and other messaging apps.
  • DreamStart Labs: In community savings groups, transactions are often calculated by hand, on paper, with cash stored in informal ways including lockboxes. DreamStart Labs provides mobile apps that enable these unbanked individuals to conduct transactions, build credit history, save money and connect to formal banks. To date, the company has enabled thousands of savings groups across Africa, Asia and Latin America to formalize their banking.
  • Purple: A mobile banking platform, Purple aims to empower individuals with disabilities to achieve financial independence. Often overlooked by traditional financial institutions, people with disabilities are more likely to be unbanked/underbanked than those living without disabilities. With no hidden fees, no minimum balance, and the ability to easily track spending, the company also donates a portion of revenue from each debit card swipe to the Special Olympics.
  • BABB: When BABB founder Rushd Averroes moved from Yemen to the U.K., he found himself unable to open a traditional bank account. With the belief that everyone deserves to have access to basic financial services, BABB was created to address the issue – aiming to decentralize banking and offering peer-to-peer banking services to the global micro-economy, this fintech is bringing financial inclusion to as many individuals as possible.
  • BCIF: The Black Cooperative Investment Fund, founded in 2016, is a community-based organization providing microloans to the Black community while raising awareness about the importance of economic empowerment, equity and wealth building. Focusing specifically on the Southern California region of the United States, BCIF has a long-term vision of providing dedicated, reliable, perpetual sources of capital to help create assets and build generational wealth for the local community.
  • Welcome Tech: Based in the United States, Welcome Tech leverages proprietary data to provide tailored financial services and trusted info to immigrant families. Using machine learning technology, financial education programs and personalized service offerings including debit accounts/cards, a portfolio of monetary award options and consumer credit products, Welcome Tech aims to improve financial inclusion among the millions of underbanked/unbanked immigrants in the U.S.

Our understanding of the world and all of the people and identities living in it continues to evolve. And so must the way we do business and develop products and services. As digital transformation takes the world by storm, financial services organizations have a unique opportunity to shift from a product-focused mindset to one that is more centered on their audience.3 What do most audiences want? To be seen, heard and understood.

For more inspiration on fintechs/finservs doing good in the world, check out the other blogs in our Giving Thanks series:  Fintechs/Finservs Encouraging Environmental Sustainability and Fintechs/Finservs Helping Women Be More Financially Secure.

And for more information on how an all-in-one risk decisioning ecosystem can make innovating in fintech even easier, check out our AI-Powered Risk Decisioning Platform page.

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10 Fintechs that are Transforming SME Lending

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Giving Thanks: Fintechs/Finservs Encouraging Environmental Sustainability

Written by Amy Sariego on . Posted in Blog.

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Giving Thanks:
Fintechs/Finservs Encouraging Environmental Sustainability

Ten Financial Services Organizations Putting the Environment First – And Why It’s Also Good for Business

If you live in or near the United States, everything in the month of November is Thanksgiving themed. But even if you don’t celebrate U.S. Turkey Day, there’s still a lot to be thankful for as the year 2021 slowly winds down. To help celebrate, we’ve been looking at financial services organizations and fintechs that work to help populations that remain underserved by more traditional institutions, as well as innovative organizations that aim to encourage sustainability and help further the goals of environmental activism. As digital transformation continues to evolve rapidly, financial services organizations have a unique opportunity to shift from a product focus to a more audience-centric one.1 And what do customers want these days? They want to engage with companies that truly match their values – not just as lip-service, but those that really walk-the-walk.

The United Nations has released 17 Sustainable Development Goals (SDG) as a way for institutions of all types to ensure they are making both short and long-term investments in products and services that further sustainable projects. These goals include everything from Clean Water and Clean Energy to Responsible Consumption and Climate Action.2 And consumers are readily looking at the products and services they consume to see how they stack up.

Check out these ten organizations focused on offering sustainable financial services/products:

  • Ekko: Based in the UK, this climate-friendly debit card, app and finance platform helps consumers fight climate change, just from using their services. For every five transactions using their debit card, Ekko pays for an ocean-bound plastic bottle to be collected, and at every 50 transactions they pay for a tree to be planted. The app allows you to track the impact your purchases have had on the environment and they’ve even created an entire marketplace of sustainable products and services to further the cause.
  • MasterCard’s Priceless Planet Coalition: As part of MasterCard’s extensive variety of offerings, the Priceless Planet Coalition aims to restore 100 million trees by 2025, focusing on regions that represent the greatest global need of forest regrowth. The program is dedicated to creating visibility around the carbon footprint of producing/consuming certain products and collaborates with both local communities and stakeholders.
  • Stripe Climate: A service launched by Irish-American payment-provider Stripe, Stripe Climate allows businesses to direct a portion of revenue to help scale and grow emerging carbon removal technologies. Available globally, 100% of contributions from participating businesses is directed to carbon removal, with on-hand scientific advisors to help maximize long-term impact.
  • Trine: Swedish company Trine is on a mission to make it easier for people to invest in solar energy in growing markets, enabling participants to earn a profit while making both a social and environmental impact. Once you set up an account, you can choose which solar partner to invest in – if that solar partner/borrower succeeds, you’ll get back your investment with interest, all while helping to further green energy sources.
  • Aspiration: A U.S.-based challenger bank, Aspiration vows to help customers “spend, save and invest with a conscience.” With a promise to never use deposit money or revenue to fund oil or coal projects, the company also plants trees on behalf of consumers by allowing them to round up to the nearest dollar on debit card purchases. They also offer a Planet Protection program, which helps to offset the climate impact from every gallon of gas you purchase for your vehicle.
  • Treelion: This sustainable fintech company has developed a blockchain-based solution enabling a decentralized network that launches and manages green digital projects. Based in Singapore, the company is dedicated to the green economy and helping to ensure the creation and success of large-scale green digital ecosystems. With a mission to “create an inclusive green financial ecosystem to improve the global environment,” the Treelion Foundation aims to create a global sustainable ecological business model.
  • Green Fintech Network: Established in 2020 by the Swiss government, the Green Fintech Network is an action plan containing 16 concrete proposals for digital technology and sustainable finance – including proposals around a platform for sustainability data, the creation of an innovation challenge for green fintech startups, the broad promotion of open finance, and the expansion of funding for green fintechs. Hoping to make Switzerland a global leader in sustainable financial services, the action plan aims to provide incentives for the business community to drive innovative, green solutions.
  • Joro: Powered by smart spending analytics, this fintech provides insights on how purchases contribute towards carbon emissions, enabling consumers to make more informed shopping decisions. This U.S. company allows consumers to “track, reduce and offset” carbon emissions of purchases, and compensate for those unavoidable purchases that result in carbon emissions by supporting a broad portfolio of carbon projects.
  • Ecolytiq: Offering ‘Sustainability-as-a-Service,’ this German fintech provides banks and financial institutions with the digital infrastructure necessary for them to offer consumers ‘green finance,’ including everything from personalized impact offsetting to ESG investments. Ecolytiq offers a comprehensive sustainable banking solution that uses the Open Payment Standard released by the EU, utilizing the latest scientific research and machine learning technology to analyze individual banking transactions and offer personalized environmental footprints.
  • Novus: This UK fintech, in partnership with Visa and Railsbank, provides a mobile banking app that rewards users for sustainable purchases. Consumers earn ‘impact coins’ for purchases made on the card and can then use those coins to help support various green initiatives, including ocean conservation and reforestation. Novus also allows you to track your carbon footprint, enabling you to understand which purchases are the most sustainable and providing ways to offset carbon-emitting consumption by contributing to environmental projects available directly in their app.

As the world continues to sharpen its focus on climate change, carbon emissions, reforestation and other facets of environmental activism, the business opportunity for fintechs who can respond to this need continues to expand. Younger consumers in particular have helped stimulate the growth of green finance and sustainable investment – but it’s not just millennials interested in these options anymore.3

Increasingly, consumers are not tied to traditional financial institutions and will shop around for organizations that help further causes they believe in. As Alex Johnson, Director of Fintech Research at Cornerstone Advisors said, “Consumers… want sustainability built into the products they use on a daily basis. Checking accounts, for example. Are you building a deposit, investment or lending product? You better have a plan for how usage of your product positively impacts the environment.”4

For more inspiration on fintechs/finservs doing good in the world, check out the other blogs in our Giving Thanks series: Fintechs/Finservs Helping Women Be More Financially Secure and Fintechs/Finservs Aimed at Solving the Unique Needs of Minorities.

And for more information on how an all-in-one risk decisioning ecosystem can make innovating in fintech even easier, check out our AI-Powered Risk Decisioning Platform page.

Resources:

  1. https://bbgventures.medium.com/not-another-neobank-why-the-market-is-overcrowded-and-where-bbgv-sees-opportunity-835ebd231154
  2. https://sdgs.un.org/goals  
  3. https://www.cnbc.com/2021/05/21/millennials-spurred-growth-in-esg-investing-now-all-ages-are-on-board.html  
  4. https://newsletter.fintechtakes.com/p/what-do-customers-want-from-fintech

10 Fintechs that are Transforming SME Lending

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

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

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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A New Bank and Not a Ball Chain Pen in Sight

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A New Bank and Not a Ball Chain Pen in Sight

What does it take to launch a bank these days?

If you’re Atom bank, it takes a mobile app and face and voice biometrics. What it doesn’t take is bank branches, paperwork or those pens distrustfully tethered to counters via ball chains.

Atom completed its UK launch back in 2016. Entirely app-based, customers do all their banking through their smart phone.

In fact, on Atom’s website, the answer to the question “where’s my nearest branch?” begins, “on your nearest tree.” Fair enough. Atom does go on to add that they, “don’t have high street branches because they’re unnecessary, no one wants to visit them and no one likes queuing.”

In true technology leapfrogging style, there isn’t even a plan to release a website version.

It’s all a far cry from the founding of Lloyds Bank 250 years ago. The fascinating Anniversary eBook ‘Helping Britain Prosper’ gives us an insight into the bank’s early days.

Such is the bank’s heritage, it was nearly 130 years before the first typewriter. Pre-computerisation, operations were manual. When it came to customer statements for example, staff copied out ledger entries, initially by hand and later by typewriter until 1960 and the arrival of the Post Tronic accounting machine.

It’s a rich and wonderful history of the progression of customer experience as much as it is one of computerisation. Compare how the customer wishing to write a cheque had to go into the bank in person to request a form, with today’s customer convenience. Not only is Atom 24/7 banking anytime, anywhere, but it’s also customised to the individual, right down to their own logo and choice of colours that drive their visual experience.

Banking has certainly come a long way. For challengers and traditional banks alike, it is now undoubtedly the era of the customer.

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Guest Blog: Financial Services in 2021 and Beyond

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Financial Services in 2021 and Beyond

  • Allison Van Rooijen, Vice President, Consumer Credit at Meridian Credit Union

Allison Van Rooijen, Vice President, Consumer Credit at Meridian Credit Union, shares her perspective on providing the instant digital experience customers now expect

Q: What do you see as the main drivers for channels to achieve this digitization of the banks?

There is the obvious profitability and cost containment exercise, but we’ve seen the rapid consumer adoption of not just digital transactions but also digital experiences. Things we thought we never could/would do online are being accepted rapidly by consumers, conducting transactions in a non-face- to-face way.

As a result, there is a new expectation and a perhaps comparison mindset in the consumer’s eyes. Why can’t I do this online? Why can’t I sign that form electronically instead of going to a branch? If I can buy a car online, groceries online, why can’t I do XYZ in the financial services space.

There is no excuse now – you can do anything online if you find a way to adapt your business model to it. Consumers will find a way to seek out those opportunities and not necessarily wait for us to make those changes. The industry is already moving this way perhaps in bits and pieces and balancing profitability and automation opportunities but not at the pace consumers are willing to adopt. The bar is now higher. The user group or pool of prospects that were willing to transact digitally before has exponentially expanded. The speed at which they transact is even faster – they are used to same day/next day Amazon delivery so expect credit decisions instantly – why should I have to wait. As a consumer, I would start comparing you outside of the financial services space and the digital experiences to other consumer companies. It becomes more transactional and then transactional becomes experiential. We must focus on improving that experience. There can be no excuse. This is the new normal. Lenders who embrace this opportunity to challenge every bit of every process and embrace the momentum at which this challenge is facing us will flourish. It’s hard but it is happening. Now is the time to embrace that digital transformation – adapt or die.

Q: When you’re looking at how do we continue to evolve at the rate at which consumers and customers want us to, do we build, buy, partner? How do we stay on course with this?

There absolutely is a place for each one of these models. It comes back to taking a step back and determining where do you want to own the experience and where are you comfortable partnering with someone who may be working with your competitors and the bureaus. Sourcing data is one perspective. Where do you want to differentiate that experience and using that in the evaluation to build, buy or partner?

The other side is looking at your company culture and capabilities. Is this something that is core to who you are? Do you have the people who can drive you forward enough, especially with this entrepreneurial lens? Can they challenge the status quo enough and do you have the time to give them to really think outside the box of perhaps what you need for this transformation?

Also, it’s important to spend time with your fintech partners to understand the roadmap for their solution. Are they going to take you as one client and build it to five to six other clients? Spend time to understand the companies you are partnering with and what their vision is. Do our visions align? You need to have those tough conversations upfront.

Then focus on governance program or regulatory perspective. Are we seeing the same thing when it comes to principles-based regulations? Are we interpreting them the same way? Do my regulatory requirements get satisfied by the practices of that partner? When you take a step back and look at full end to end spectrum, being strategic about where to partner, where to build and where to buy, can lead to great partnerships to accelerate that journey but you need to spend that extra time up front to understand where you are and where you want to be.

Q: When Meridian is looking its approach and the role you can play in advancing all this forward as a credit union, what is your perspective?

We’ve taken a step back and looked at whole end to end consumer lending journey from prospect shopping to loan servicing and recovery. It is a lot of take in because there are so many large components of it. Like many lenders, we have legacy pieces and bolt-ons. We had to look at where do we want to be, how can we start fresh and how big is that. When talking about architecture, it becomes a much broad conversation than just system architecture. It has really proven to us that the data team, the analytics team and the users of that data at every component of the organization – if they are going to use that data to drive models, AI, ML, they are just as invested a stakeholder in the end-to-end design as the treasury group that is going to use that data in managing the portfolio, in the credit risk group. It really doesn’t become a discussion between credit, sales and the architecture group – it becomes a fully integrated approach to architecting what the new end to end system is to ensure it is robust and scalable.

I know I speak for my partners in IT – if every time I come to them every time and say I have this great API – you just need to plug it in and it should be easy. Yes, the integration is easy but what do you do with that data? How does it sit in your data lake? Where does it integrate into your models? What is the governance of that data? Having all those stakeholders integrated that whole end to end process has been to key to our success in reimagining that process.

In Closing

Fantastic time to be in lending. We’re on the brink of some pretty exciting transformation. No two deals are the same. No two borrowers are the same. Coming out of this pandemic, we have consumer adoption of digital at an all time high. We have great tools. We have a fintech sector that is thriving with innovation. Grab your running shoes because it is moving fast.

Excerpted from “Financial Services in 2021 and Beyond” webinar hosted by Kathy Stares, Executive Vice President, Americas, Provenir.

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