Fed Study Concludes FinTech Boosts Financial Inclusion
The Federal Reserve Bank of Philadelphia recently found that consumers in underserved credit markets (like areas that have experienced bank closures) benefit from the additional credit supply provided by online lenders. In particular, study data showed that the online lender’s use alternative information, like past rental housing and phone payments, to determine creditworthiness helped consumers secure loans at lower rates than would have been available from traditional bank sources.
Access to credit for the financially underserved is a constant problem in low and moderate income communities around the United States. Millions of Americans are classified as credit invisible, lacking the history necessary to accurately compile a credit score, and essentially left behind by major banks. A bipartisan bill was introduced last month in Congress hoping to expand the use of alternative data in calculating credit scores. So long as traditional credit scoring methods and bank practices discriminate against thousands of potential borrowers, online lenders will step up and serve America’s credit needs.