Changing credit scores: Startups are rethinking the system
Hello and welcome to Protocol Fintech. This Monday: Rethinking Credit Score, Ranking Congressional Crypto Views, and Revolut Pay.
out of the chain
It was royally offensive. Moments after Queen Elizabeth passed away, opportunists were creating memecoins in her name. “The Queen is dead, but corruption lives forever”, Tom Carreras wrote for Crypto Briefing. Blockchain is censorship-resistant, of course, and some level of fraudulent behavior will always be present. But would it be too much to ask, I don’t know, a little restraint?
—Owen Thomas (E-mail | Twitter)
Keep the score or change it?
Credit scoring doesn’t work well for many people. Low-income people, people of color and immigrants have been historically sidelined by the current system. Some of the most prosperous countries struggle with low credit scores despite their wealth. And if your fortune comes from crypto, you might as well be invisible to the credit bureaus.
Where some see flaws, startups see opportunities. Finding a way to accurately insure people left out of the existing system could mean unlocking a whole new customer base for loan and investment products.
- It also carries a lot of risk, as an inaccurate assessment of borrowers’ ability to repay can lead to costly defaults.
- Credit rating is broken, but fixing it is not easy. FICO “is the dumbest system except for all the others,” Eric Wiesen, general partner of Bullpen Capital, told Protocol. “Somebody clearly should do it, but I haven’t found anyone who does it yet.”
More data could be the answer. Rent or utility payments are generally not incorporated into credit scores, for example.
- Some fintechs claim this could improve the scores of many consumers. “Buy now, pay later” companies also strive to integrate their payment data on time into credit reports.
- Consumer advocate Rachel Gittleman, head of financial services outreach at the Consumer Federation of America, argues that credit scoring is broken not because it doesn’t take enough information into account, but rather because she takes too much. Much of the information on a credit report is not predictive, she argues, such as medical debt, which is a poor indicator of a consumer’s ability to repay because people don’t choose to get sick.
Some believe the problem requires new credit reporting systems. That could mean finding a replacement for the famous FICO score, or even the credit bureau system itself.
- Zest AI uses data from the credit bureau and LexisNexis to create its own score, which the company says is less biased.
- Trust Science also uses AI to assess exponentially more data points than FICO, but also collects and stores its own data, like a credit bureau.
- Others tailor their underwriting process to the specific loan products they administer. Line, for example, a company that issues small lines of credit for emergency expenses without a credit check, uses its own proprietary process. “We believe people are more than numbers,” Line CEO Akshay Krishnaiah told Protocol.
Regulators have been peeping cash flow underwriting, a common approach to assessing those who don’t have much of a traditional credit history, for years. Considering crypto assets is even trickier. Expect more guardrails to emerge as the industry matures, lest these attempts at credit rating correction cause more problems than they solve.
— Veronica Irwin (E-mail | Twitter)
A version of this story first appeared on Protocol.com. Read it here.
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on the money
The Treasury Department will issue a crypto warning in upcoming reports. A series of reports ordered by President Joe Biden should expose potential risks to consumers if crypto is not properly regulated. The reports will be also recommend the United States continues to work toward a CBDC, but only implements one if further study reveals a clear national interest.
Credit card purchases at gun stores will be tracked by a separate merchant code. The plan of Visa, Mastercard and American Express to add new category comes as gun control advocates have pushed the financial industry to report suspicious gun sales.
JPMorgan Chase has struck a deal for payments startup Renovite. The acquisition is part of an effort by the bank, CNBC Reportsto offer more merchant services and fend off threats from fintech companies such as Stripe and Block.
Revolut has launched one-click payments. Revolut payment options the London-based fintech against PayPal and Apple.
A Pew Research Center survey reveals that payment apps are ubiquitous — and perhaps still too vulnerable to manipulation. Pew data offered some good news for peer-to-peer payment apps: 76% of Americans have used PayPal, Venmo, CashApp or Zelle at least, with convenience being the main reason. However, the convenience has its downside, as around 1 in 10 users reported being scammed on a P2P app.
A new crypto lobby group has a ballot for Congress. The Crypto Action Network ranking for compatible with cryptocurrencies politics gives an “A” to Republican senses Cynthia Lummis and Ted Cruz, as well as Democratic senses Kirsten Gillibrand and Ron Wyden. Representative Brad Sherman and Senator Elizabeth Warren, both Democrats, received an “F”.
Inside Apple’s agreement with federal authorities for mobile driver’s licenses. Documents obtained by Fintech Business Weekly Apple entered into a research and development agreement with the Transportation Security Administration starting in March 2019 to launch digital IDs.
Marc Cuban ain’t too crazy about the co-creator of dogecoin Jackson Palmer the caller a crypto profiteer. “It sounds like the same thing that’s been said about every new technology I’ve been involved in,” he told Insider, and adding a E-mail Decrypt, “Anyone can say what they want. I’m still a huge fan of crypto. Palmer is not – having created dogecoin in 2013 with Billy Marcus jokingly, he became a crypto-skeptic.
New SECOND Commissioner Marc Uyeda talked about crypto. “To the extent that crypto assets raise unique issues that are not otherwise addressed in the current regulations, the commission should consider proposing rules,” he said at the Institute for the Practice of Law conference. This may reflect a disagreement with the president Gary Gensleris of the opinion that the industry does not need more advice.
Finovate waterfall is this Monday through Wednesday in New York. The fintech event brings together founders, investors and media to network and listen to over 100 expert speakers and over 60 live demos.
SALT New York also returns this week from September 12-14. Discussions will cover topics such as bitcoin, alternative investments, fintech, sustainability and infrastructure.
Loan360 runs through Wednesday in Chicago. Speakers represent companies like NerdWallet, TransUnion and Trust Science at the fintech lending conference.
Blockworks Digital Asset Summit is Tuesday and Wednesday in New York. The conference is primarily attended by asset managers and financial services professionals working on crypto from an industry perspective.
On Tuesday, the Senate Committee on Banking, Housing and Urban Affairs will hold an audience on the impact of consumer fintechs on workers. Speakers are Rachel Gittleman of the Consumer Federation of America, Financial Technology Association CEO Penny Lee, law professor Todd Zywicki and David Seligman of Towards Justice, a nonprofit law firm.
The Talent Nordics Fintech Conference it’s Wednesday. The virtual conference highlights fintech successes in Northern European and North Atlantic countries.
On Wednesday, Public Citizen is hosting a virtual conversation between CFPB Director Rohit Chopra and Public Citizen President Robert Weissman. The event is open to the public: RSVP online for the Zoom link.
House Committee on Financial Services welcomes an audience Wednesday on the impacts of banks leaving the Caribbean. The 10 a.m. Eastern time event is available to watch online.
On Thursday, the Senate Agriculture Committee will host an audience on the law on the protection of consumers of digital products. Representatives from Coinbase, Crypto Council for Innovation, Citadel Securities, Stellar Development Foundation, and Center for American Progress will speak.
The Senate Banking Committee will hold a SEC Surveillance Hearing Thursday. The only witness will be SEC Chairman Gary Gensler.
The Top of the Crypto Valley it’s this Wednesday and this Thursday. The event focuses on showcasing the Swiss blockchain ecosystem, with speakers representing CV VC, Bitcoin Suisse and a range of Swiss startups.
Next Monday, September 19, the Protocol Enterprise team will host the online event”The customer experience in the company.” The event will cover technology tools, tips, and actionable strategies for delivering an excellent end-to-end customer experience in enterprise technology.
Modern Treasury Sponsored Content
Software changes payments and banks should care: Activities that once took place in person or over the phone (obtaining a loan, making a payment, investing in a security) now take place entirely in software. Covid has only accelerated this trend. To continue to be part of customers’ financial lives, banks need to play well with software.
Thanks for reading – see you tomorrow!