Financial Technology Association’s Post

My “a ha” moment around the power of cash flow underwriting (more below ⬇ ) Years ago, I was leading partnerships for a major lending marketplace when the pandemic hit. Unemployment rose, lenders tightened underwriting, and some stopped originating completely. At the time I’d ask lenders: what do you need to see to start making loans again? There was a consistent answer: they wanted a fuller financial picture of their applicants. The economic environment seemingly transformed overnight, and they needed more actionable and real-time cash flow data to supplement traditional credit data.  From that point on, I knew that cash flow data was the missing puzzle piece in lending. Years later, this is as true as ever. Today, I’m excited that cash flow underwriting is *finally* mainstream with Consumer Report, a new solution from Plaid Check, our consumer reporting agency. Built on Plaid’s expertise in bank account connectivity, Consumer Report provides lenders, property managers, and other credit providers real-time visibility into a borrower’s finances, along with signals only made possible through our vantage point as the leading open banking network. We look forward to working with customers to build the future of cash flow underwriting! See post in thread to learn more.

Cashflow-based underwriting can expand access to credit for populations who don't have established credit scores. (Think gig-workers, students, young people, etc.). Plaid's Consumer Report is another big step in our mission to unlock financial freedom for everyone. #Plaid #openbanking #credit #underwriting

Is cash flow underwriting the next big thing? Cash flow underwriting has been a promising yet underutilized tool in lending, but this could change with Plaid's latest announcement. A year after becoming a consumer reporting agency (CRA) called Plaid Check, Plaid is launching Consumer Report, which will provide lenders with insights from up to 24 months of consumer-permissioned bank account data. This includes Income Insights for verifying a consumer's ability to pay and a unique cash flow risk score developed in partnership with Prism Data. Plaid's expanded capabilities aim to simplify the complex cash flow data, making it more accessible and valuable for lenders. #cashflowunderwriting #lending #creditscore #plaid

Great article from Penny Crosman from American Banker discussing - "CFPB 1071 small-business loan rule to force tech upgrades". Thanks so much for leveraging the insights of Patrick Reily, co-founder Uplinq Financial Technologies, on how the rule will force banks to update their technology and the misconceptions surrounding AI in financial services, particularly in the "Which Banks Will Find This Hardest" and "A Fair Lending Law" sections. Read the full article via the link below. #smallbusiness #ai #1071 #fairlending https://lnkd.in/gwp_XAX4

Great article from Penny Crosman from American Banker discussing - "CFPB 1071 small-business loan rule to force tech upgrades". Thanks so much for leveraging the insights of Patrick Reily, co-founder Uplinq Financial Technologies, on how the rule will force banks to update their technology and the misconceptions surrounding AI in financial services, particularly in the "Which Banks Will Find This Hardest" and "A Fair Lending Law" sections. Read the full article via the link below. #smallbusiness #ai #1071 #fairlending https://lnkd.in/gwp_XAX4

Recently ASIC released a significant report on how lenders are supporting customers experiencing financial hardship. The bottom line? Lenders are not doing enough and need to get better – and the regulator is watching. So how can lenders improve their performance? At Nous, we have been thinking deeply about how lenders can support customers experiencing vulnerability.  From this thinking, we have identified the actions lenders can take, ranging from improving customer awareness to making better use of data, taking a trauma-informed approach and supporting front-line staff. Read more from Tony Fiddes and Edric (Ed) Verbeek-Martin now on our website. #FinancialServices #HumanServices #SupportingCustomers

New, Groovy Lenders Plan to Party with FICO Score 10T and VantageScore 4.0 Old Scoring Systems are so Yesterday Lenders today are hopping on the techno bandwagon and embracing modern scoring models such as the FICO Score 10T and VantageScore 4.0. They're ditching MS-DOS-like scoring systems and catching the next train to cool-town, with the primary goal to expand their borrowers' pool. Unlike Steve Buscemi trying to fit in a high school, this seems to be working for them. The Red Carpet of Borrowers These new scoring models are like the exclusive parties where everyone's invited, but not everyone gets past the bouncer. That's where the unique selling points of FICO Score 10T and VantageScore 4.0 come into play. The Trendsetter The '10T' in FICO Score 10T isn’t just for show—it stands for ‘trended’. This system doesn't just snap a Polaroid of your credit behavior but casts a slow, calculated scan over the past two years. It's like taking a fine French wine, giving it a sniff, a swirl, and a sip before deciding if it’s worthy. The Pattern Detector VantageScore 4.0, on the other hand, is a tech wizkid, utilizing machine learning models to predict your ability to pay based on patterns detected in the abyss of your consumer data. It's as if Sherlock Holmes had a tech-laden office in Silicon Valley. Can we Trust these New-fangled Systems? Just like the hipster's irresistible urge to discuss the value of indie movies and organic coffee, both these systems claim to have the power to hook lenders up with potential borrowers who'd otherwise be stuck at the door with more old-school methods. To sum things up, there's a party going on in the lending industry, and the attendees are the trendy FICO Score 10T and VantageScore 4.0. While these models might seem as fresh and inviting as a brand-new Moleskine notebook at an artisan coffee shop, the real question is whether they’ll stand the test of time. Or will they fall victim to the notorious fickleness of trends? Only time will tell, and until then, the lenders are enjoying the increased borrower pool. Are you ready to join the party? #FICO #VantageScore #credit #scoringsystems #lending #blog https://lnkd.in/gaSkDbgf

It’s great to see Cash Flow Underwriting finally having its moment — it's definitely necessary. But I have to re-emphasize something I’ve been saying for a while: Data from the credit bureaus (Experian, Equifax, TransUnion), and bank balance and transaction data from aggregators like Plaid, MX, Finicity, a Mastercard Company, and Envestnet | Yodlee — even data enriched for cash flow modeling — still lacks context. These data sources answer important questions like: ▪️ Where does a consumer earn and spend money? ▪️ How does their spending compare to their income? ▪️ Are there "signs" of loan stacking, especially with "Pay in 4"? It's all useful and better than relying solely on credit scores, which have been polluted over the years. But this is just the beginning. The next level of underwriting goes deeper: ▪️ What exactly does the consumer spend money on? ▪️ What’s their relationship with those merchants? ▪️ Who do they spend money with? ▪️ Do they dispute transactions often? ▪️ Do they have stacked BNPL loans, and what are they using BNPL for? Electronics and clothing? Or necessities like food, utilities, and transportation? The future of underwriting — and the key to building more meaningful financial and consumer products — lies in rich personal and financial context. And that’s exactly what we’ve been working on at Cushion for a while now. More to come.

Happy Friday Folks! What are the learnings from this saga? 1. 100% of these loans were “manually” underwritten 2. Automated Underwriting is the only way to remove systemic bias by making sure, lenders don’t depend on just traditional data & just traditional data based scores as they are already biased, understanding of member’s cashflow is important, only FCRA compliant data is used, ECOA redlining ratio compliance tests are performed to make sure no disparate action has crept into it inadvertently 3. Automated Underwriting doesn’t have bad Monday or happy Friday. Surveys have proved that in manual underwriting scenarios, Fridays have more loans approved vs. Mondays 4. Automated underwriting doesn’t have a fight with its spouse previous night and that anguish is carried forward next day during manual underwriting 4. Humans can be biased, racist, xenophobic; automated underwriting cannot be 5. Intent of the underwriting processes should be to find reasons to say “yes” and not the other way around I hope that the custodians of “manual underwriting” are taking a note from this situation as a starting point to look at the inherent issues with the legacy technology, only traditional data based scores, 100% or majority of human dependent processes and the same traditional methods of underwriting for the last 40-50 years. As they say, if you change nothing, nothing will change. Would you join us in bringing about the change? “Be the change that you wish to see in the world.” - Mahatma Gandhi #creditunions #automatedsolutions #underwriting #lending #fairlending #financialinclusion #bethechange Scienaptic AI #ai

Credit can be confusing, especially when you're seeing different scores than your lender and you don't understand why. There are a variety of different scoring models, each one specific to a particular product. If you're not looking at the correct model for what you're applying for, you could be in for quite a surprise when you have credit pulled. Questions? Leave a comment below or shoot me a message!