The intersection of FinTech, Alternative Data, Millennials, and Financial Inclusion at the 2017 Lendit Conference in NYC
When I first heard it, I thought it would make a great headline. It was recently declared by a panelist during a discussion of the challenges facing the credit industry at the 2017 LendIt USA Conference in New York City. The panelist went on to clarify that while the mainframe was a great tool and has lingering application, its relevance is diminishing. .Can you say “legacy system?” While this is rather hyperbolic language, their point was there is now so much more data that lenders can use to better understand the riskiness of the consumer and the only way to make sense of it is with newer, more powerful technologies that can handle big data. (I’m sure my former colleagues at the bureaus will have something to say about this.)
Alternative Data: Creating a Meaningful Dialogue with the Consumer
Another panelist discussed how this additional data allows lenders the ability to create a meaningful dialogue with the consumer. That is an interesting comment as regulatory controls restrict the use of this data in the consumer lending ecosystem. So, it is not without its challenges.
Recently the CFPB issued an RFI to explore the efficacy of alternative data. Their initial premise is to determine if there is a disparate impact created by the use of alternative data. This shines a much-needed spotlight on the potential of alternative data. Even Freddie Mac has mentioned it is looking at alternatives to the FICO score. Isn’t it about time?
So how do millennials fit into this mix?
According to the Pew Research Center tabulations of U.S. Census Bureau, population projections released December 2014 and 2015 population estimates that millennials will soon be the largest segment of the population. (See more on Credit Worthy Millennials in this white paper by LexisNexis Risk Solutions.)
Millennials are vastly underserved because of their lack of a traditional credit footprint. As a result, determining their creditworthiness by solely looking at traditional data is not effective. In addition, there are many channels in which to communicate with them. The only way to truly be effective is to embrace alternative data and analytics in your marketing and underwriting efforts. The sheer size and scope of this generation mandates that you crack this code sooner rather than later.
The confluence of technology and alternative data will provide the FinTech companies and traditional lenders the ability to be more financially inclusive and thus help pave the road to financial freedom for underserved segments like the Millennials.
I’ll be speaking on the topic of identifying and marketing to millennials at the Marketing to Millennials for Financial Services Summit on April 20. If you are attending the conference then I hope you can attend this session or perhaps we can catch up in the hallway.