What credit providers can learn from the evolution of television.
The credit information industry is evolving in ways that evoke the path of broadcast television. Tom Oscherwitz, VP of Operations and Counsel, explores the link.
When thinking about the future of credit, one can draw interesting parallels to the American network broadcasting industry of the late 1970s and early 1980s. For those old enough to remember, a few television networks — ABC, NBC, and CBS — ruled the airwaves. The final episode of M*A*S*H, a CBS war comedy-drama series, reached over 100 million viewers. That was true “must-see TV.” Reportedly, the last M*A*S*H episode was so widely watched it impacted the water system in New York City, as viewers collectively timed their restroom breaks with commercials and the show’s ending.
This television oligopoly loosened gradually as cable channels like Showtime (1976), Nickelodeon (1977), CNN (1980), MTV (1981) and new networks like FOX (1986) started offering tailored content that siphoned off particular viewer segments. With Facebook, Netflix, YouTube, TikTok, etc. consumer media attention has fragmented even more. Today, media watchers are awash with hyper-personalized, often consumer-generated content.
The evolution of broadcasting channels into the current digital matrix seems inevitable in retrospect. Consumers clearly have diverse tastes. But it wasn’t until there were advances in media distribution that enterprising content providers could target more specific consumer audiences.
Now consider the credit information industry. Just as with the old television networks, a gap exists between what the big industry players offer and the actual experiences of consumers. Lenders still depend on a few large companies — FICO, Equifax, TransUnion, and Experian — who broadcast standardized, well-mined, streams of data about consumers to banks and other users. While these data sources have value, they are running into fundamental limits. According to the Consumer Financial Protection Bureau (CFPB), the leading Federal financial consumer protection regulator, about 45 million American consumers have either no file with the nationwide credit bureaus or lack sufficient information in their file to be evaluated.
Additionally, like the old broadcast networks, these companies’ offerings may not reflect certain key demographic segments. According to one CFPB study, 58% of all trade lines at the largest bureaus come from banks and retail credit cards. It turns out that young adults have not adopted credit cards like previous generational cohorts. A January 2021 BankRate survey found that only 43% of individuals aged 18–31 had a rewards earning credit card. In comparison, 69% of baby boomers have rewards cards. So, if you’re an institution targeting the credit needs of young adults, credit bureau data may not offer a perfect fit.
The COVID pandemic has further exposed the gaps in traditional credit data. Part of the challenge relates to new restrictions on how furnishers supplied information to credit bureaus. Government stimulus payments, consumer job changes, and emerging credit products like Buy Now Pay Later, also have obscured lenders’ visibility into individual consumer financial circumstances.
So why is now the time for lenders to look for new sources and insights? First, meaningful consumer data is within reach. With so many consumers now comfortably living their life online, lenders can much more effectively engage with consumers to obtain information to seamlessly evaluate them in real-time. Additionally, analytical techniques have vastly improved. Aire is a part of a cadre of FinTechs to leverage the power of machine learning to generate truly novel insights into consumer income.
Like many of the Fintechs challenging the credit norm, Aire has a specific audience in mind. Aire is on a mission to redefine how lenders understand and access consumer income data. Today, verified income from the Internal Revenue Service or HR systems are considered the gold standard of accuracy. But these sources are expensive, not universally available, and relatively intrusive from a consumer privacy perspective. What’s more, they offer only a snapshot of the consumer’s income story.
…the source of most Americans’ incomes is their jobs
Aire takes an alternate approach and evaluates consumer income from the perspective of the work they do. This makes sense — the source of most Americans’ incomes is their jobs. By understanding job characteristics such as location of work, small or large employers, length of job experience, part-time or full-time work, and even stated income, Aire can draw powerful insights into what a consumer should be expected to make. And these insights are flexible and robust. A better understanding of a person’s job naturally will provide tailored insights into their current income, their ability to pay, their income risk, and even their future income — all potential inputs into a credit decision.
We believe consumers will benefit from Aire’s and other FinTechs credit insights the same way that the channel explosion in broadcast media enriched the experience of TV viewers. We all want the right content tailored to our particular needs at the time we want to use it.
