In Case You Missed It: Key Insights on Financial Inclusion and Data for Good at Money20/20

Last week, Gal Krubiner (Co-Founder and CEO of Pagaya ), Nicole A. Elam, Esq. (President and CEO of National Bankers Association ) and Liz Pagel (SVP and Head of Consumer Lending at TransUnion ) spoke on stage at the Money20/20 conference in Las Vegas for a timely and important panel discussion – Data for Good: Bettering the Financial Ecosystem Through Financial Inclusion. These three industry thought leaders discussed how data and technology are facilitating a new wave of financial inclusion, enabling millions of individuals to access financial services that were previously unavailable to them.?

A staggering 42% of US consumers who apply for a financial product are denied or not extended as much credit as they would like. Here were some key takeaways from the panelists on how their companies are advocating for change and making real progress:

On the overall importance of financial inclusion:?

• Gal: "Financial inclusion is important because it benefits the whole of society. Think about the number of companies here at Money20/20. You see billions of dollars invested in order to best serve the financial industry. But still, today in 2023,? we are facing an America where for the average American seeking credit - there is a 42% chance that they will be declined."
• Nicole: “Financial inclusion matters because it's how you buy, it's how you save, and it's how you invest. Without financial inclusion, you can't buy a house, you can't buy a car, and it's also how you save for the future. It is so much more than just your ability to open an account, even though we know that one in five Americans are still unbanked or underbanked. But financial inclusion is really a vital means to an end and the only path that you have towards pursuing economic opportunity. “
• Liz: “If you look across financial institutions today, you have so many people that have financial inclusion as part of their strategy and part of their goals. There is so much in underwriting that has been the same for many, many years. But now we have AI, ML and new types of data coming into the ecosystem to be more effective at underwriting some of the populations. There's a lot of change coming.”

Thoughts on the CFPB's guidance around AI and credit-driven underwriting, and on how technology can improve underwriting and advance financial inclusion:

• Gal: "The key goal from a regulation perspective is to provide transparency and guidance. As we or other fintechs and innovators interact with highly regulated institutions like big banks, the CFPB’s guidance on how to go about it will make things easier for us. So, in fact, we are actually the biggest benefactors as a FinTech industry from the CFPB’s regulation.”

On using new types of data, including alternative data:??

• Liz: “There's so many types of data that lenders are using to underwrite their cash flow, but there's also so much in just plain, boring, old credit data that we're not harnessing yet. For example, if a consumer has about a $5,000 credit card balance, we don't know if that is high or low. But if we can see that a year ago that consumer had a $10,000 credit card balance, that's a good signal. So it's all the same attributes of credit card balances, but may lenders aren't even seeing that type of trended data over time and the trajectory of the consumer. So, if we can layer all this new information on top of the boring credit data, we are really on the precipice of something exciting just from the data that we now have access to.”?

On the role of technology and minority financial institutions to expand financial inclusion across the industry:

• Nicole: “Minority banks have really helped to close the racial wealth gap and technology can play a role to help scale that impact. Relationship banking is very, very hard to scale. For example, because I know who you are, I don't look at you as a credit risk. I've always understood that because of the fact that you have consistent rent payments and utility payments and phone payments, we're getting to a ‘yes’ when other folks are saying ‘no’. Now the challenge is how do you scale that? Technology increases the accessibility and affordability of financial services. It increases accessibility because I can reach more people. And technology can make it more affordable. On AI - it's making banking high tech and high touch. You are taking the best of worlds and that's really difficult to do. Because you still need some level of human engagement in order to make it work. I can't just allow AI to do all the work for me, because it's going to start the racial biases all over again, so we do have to pay attention to it. So technology allows you to address a lot, but you have to layer in that human component.”

On scaling access to data:?

• Liz: “It's an imperative to scale the data access. Because through data we can tell, for example, that rent payments are paid very regularly. Defaults on rents are very low. So figuring out how we get that data at scale in the hands of lenders in order to help consumers is good not only for those consumers, but regulators love this too. And it's really good for business.”
• Gal: “The other thing that access to data provides - in addition to broadening approvals - especially because you now have the ability to look at financial trends over time, is you have the ability to better determine the probability of default. So, yes, you can lend to many more borrowers you otherwise would not have been able to, and it is good for business to have better accuracy in terms of risk.”?

Want to learn more? Check out Pagaya.com, NationalBankers.org and TransUnion.co.?