VALID Systems’ Post

Transcript

Hello everyone, this is Gaurav Jain. I'm an SVP of Credit and Product Innovation at Valid Systems. I'm very excited to be here and talk about overdraft innovation with smaller loan product to expand higher rough fees from the financial institutions and financial stress to the consumers. And how can we innovate? By replacing this how? Your draft fees with an affordable, smart, alone product to enable Consumer Financial inclusivity. Imagine Cynthia, a college student, purchased a $6 coffee at Starbucks but overdrafted. Did you know she may end up paying on an average $26 in additional overdraft fee per transaction? Talking about industry trends, did you know more than $7 billion were collected as overdraft fees? That financial institutions in 2022, though the overdraft fees collection trend is declining year over year, but still similar billions of dollars were collected historically. According to the Federal Reserve, 96% of the American households are banked with 20 to 25% experience and overdraft. Adding to that, approximately 40% of the checking accounts have low account balance under $1000. These staggering. Higher draft statistics fuels the financial setback to the consumers and especially when they are experiencing unexpected expenses. This has a profound impact on low to moderate income households who often have thin file credit history. How does overdraft fee work? Let me clarify one thing that OH, drafters usually use overdraft as a form of credit so as to get an additional cache. They lack an alternative means of liquidity. Early this year, CFPB, as you know, Consumer Financial Protection Bureau, a Regulatory agency proposed changes to regulations E&Z to cap overdraft fees from an average $26 to around $3 per transactions. Especially applicable for large banks with an asset size of more than $10 billion. Though this is intended to favor consumers by reducing overdraft fees, it still doesn't solve the core problem of financial stress due to overdraft fees applied at that transaction level. Our team has built AI powered solutions to predict overdraft towards behavior attrition and charge offs. We did an extensive study on consumer checking accounts data to understand. Signals from over drafters activity and segmented them based on the frequency of the overdrafts. We observed that historical account balances usually trending within under $1000 across all these segments and I think that's where we have an opportunity to introduce an affordable smart alone product. We use supervised motional learning modeling and consortium financial data of 60 million plus bank accounts apply behavior analytics. And evaluate the credit risk to design these accessible financial products. In fact, the leasing these fees with an affordable smaller loan option can save consumers U to 80 versus paying higher draft fees or high interest payday loan options. Remember Cynthia who overdrafted? Assuming she is a high overdraft her and overdrafted 5 * a month and assuming certain other new product features, smart alone could cost 80%. Less than overdraft fees and possibly like 60% less than payday loan options. Smarter to loan product not only provides financial inclusivity to the old rafters but also enable additional cash at the time of unexpected expenses at a very low cost. To conclude at valid, We strongly believe in driving value for our customers by providing #1 accessible financial products #2 be the beacon in AI powered. Risk management and #3 educate our customers in responsible lending and help them to build an excellent credit. That's all for now. Hope you have found it valuable. Thank you for watching. In the next episode, you will hear from our industry expert Kevin Moss, an executive from Wells Fargo and X Pro from so far. He will talk about real life overdraft use cases and how he had dealt with the overdraft market, trans liquidity, options and especially regulatory challenges. Stay tuned. Thank you. Great.