The Tech Helping Lenders Close the 100 Million Consumer Market Gap
Penned by Christian Widhalm, CEO & Mike Esler, CTO
As a growing business, talking to people in every corner of our industry is critically important. We’ve spent our fair share of time at fintech conferences, keeping our ears to the ground to garner insights about what people are seeing in the credit sector. Back in March, we attended Fintech Meetup, which is known for its rapid-fire speed networking component. Like everyone else who had roughly two dozen back-to-back meetings in a 48-hour span, we spoke with a lot of people.
Financial inclusion was a resounding theme. Financial institutions are concerned about the health of their customers and how the inner workings of the current system are impacting those customers. The reality is that the US credit industry is facing several problems, but there’s one lurking below the surface that is largely overlooked.
We’re facing a credit data reporting problem that impacts every corner and crevice of the ecosystem — from consumers to lenders and bureaus. The problem is that not enough data — and in many cases, not the right kind of data — is making its way into consumer credit files.
What’s more, inconsistencies in the types of data collected and the way it is furnished and reported mean consumers pay the price; they get boxed out of access to credit entirely or cornered into less favorable and/or more predatory options.
This problem casts a wide net. Consider that there are 100M invisible, unscorable, and subprime consumers. If you hypothetically extended a $1,000 line of credit (Experian puts the average credit limit across all credit cards at $30,763 in 2023, so we’re proposing a limit far below that) to this segment, the total missed opportunity is $100 billion.
The problem is clear. Yet, attempts at rectifying it have focused on fixing the unfixable instead of attempting a new avenue to get the right data to the right place.
Mind the (Credit Data) Gap
It’s obvious consumers feel the brunt of this problem. With 100 million consumers excluded from access to mainstream credit products and rates, there’s a major gap in the market. That doesn’t even account for the millions of consumers who have access to credit but are negatively impacted due to inconsistencies and inaccuracies in credit data reporting.
According to the CFPB, it received 800,000 credit or consumer reporting complaints in under two years, or more than 1,000 complaints each day. According to a report by the Congressional Research Service (CRS) that reviewed consumer complaints to the CRFP in fiscal year 2023, the vast majority (80.5%) of those complaints were related to credit reporting.
The resulting no/thin/inaccurate credit files mean huge swaths of American consumers are excluded from access to credit products. Those who do have access face the unpredictability of reporting inconsistencies across contributors and bureaus. Not all lenders report to all three major credit agencies, and lenders decide which information they report.
But in fairness to lenders, they take a hit, too. It’s extremely difficult to report data consistently and accurately. Incumbent financial institutions are no strangers to navigating digital transformation, but modernizing credit data reporting to include alternative data is a beast all on its own. The operational complexity and potentially high cost of building around the bureaus is a major hindrance to even the best-intentioned. And compliance requirements (credit data furnishment requires adherence to FCRA and the credit reporting standards in CDIA’s Credit Reporting Resource Guide) only add to the pressure.
As a result, the entire ecosystem is out of balance. Not only is there a lack of standardization to some degree in how credit data is reported, but also in which data is reported. Subsequently, lenders struggle to make fully informed business decisions, missing out on a huge chunk of the market. Consumers are hindered by the unpredictability and inconsistency of access to credit, which is dictated by different data translated to different credit scores and histories at different bureaus.
In short, consumers are falling through the cracks and lenders simply don’t have the right nets to catch them. The impetus to “get data right” falls squarely on the shoulders of consumers, who stand to benefit from more accurate, robust, timely credit data reporting.
The push to incorporate alternative data (rent payment history, utility bill payments, etc.) is gaining momentum, but the machinery to accurately furnish this data in a standardized format has lagged. Part of this is because alternative data providers (e.g., landlords, utilities, etc.) don’t necessarily have the means, tools, or perhaps the desire to report this data. On the lender’s side, technical, operational, and compliance factors hinder the furnishment of this data. And consumers don’t have an easy way to direct and benefit from this data. Until now.
A Consumer-Permissioned Translation Layer to Bridge the Gap
Bloom is championing and enabling the use of consumer-permissioned data to give consumers more control, visibility, accuracy, and reliability relating to their credit files. Put simply, our technology is making it easier than ever for consumers, lenders, and bureaus to get data right.
Consumer-permissioned data empowers consumers to opt-in to report demand deposit account (DDA) information to bureaus. Consumers — especially those with no or thin credit histories — will see improvements to their credit profile over time. The enrichment of these credit profiles will help those consumers gain access to more and more mainstream credit products. Since consumers would permission that data via the DDA with their current financial institution (FI), they’ll be more likely to seek out credit products from that FI as well.
This solves a major technical and operational problem for lenders. Rather than building a system from scratch, traditional FIs can offer an opt-in for consumer-permissioned data to their customers through Bloom’s low- and no-code options, the latter of which can be live within 24 hours of partnering with Bloom. It’s a simple, compliant, no-fuss translation layer that allows FIs to help their customers in a meaningful way.
Bloom’s consumer-permissioned data offering solves the incentivization problem, too. In cases where traditional and alternative credit data furnishers can’t or won’t share credit data information, consumers can easily opt-in to Bloom’s service via their primary FI. Once the service is enabled by the FI, consumers will be prompted about its availability. Those opting in would just complete a very simple enrollment and attestation process.
By giving consumers control over their DDA data, Bloom can help them include more of the right kind of data in their credit profiles in ways that make sense for them. For example, Bloom can parse and categorize historical recurring bank transaction data, presenting each as a potential tradeline for consumers to opt in and report.
Not only is Bloom helping consumers and lenders report more data, but it’s also helping them do it accurately and completely. Once Bloom collects consumer consent, it transforms the data into formats that are highly accurate and in a format acceptable for credit bureaus. Bloom re-pulls bank transaction data monthly and reports that data to the bureaus so long as the consumer continues their payment transactions from their DDA.
What’s good for the goose is good for the gander — and more complete, accurate credit data is good for the entire credit ecosystem. Bloom is bridging the gap between those who need credit data to participate in the credit economy and those who have valuable data but no good way to furnish it.
Removing the roadblocks to better credit data furnishment equates to a more financially inclusive ecosystem. Consumers have more access to credit and a deeper understanding of their credit scores. Bureaus gain access to a wealth of information that helps paint a more accurate picture of consumers’ abilities to pay. And lenders can make more informed decisions and broaden product offerings to be more inclusive and appealing to the 100 million consumer market gap.
