Technology can prove critical in helping create a wider lending pool for banks and fintech.
Building a more holistic view of customers’ finances through machine learning (ML) algorithms may bring financial services to more consumers and extend the customer base for financial institutions.
Data creates a more accurate financial picture of an individual, which banking institutions can draw upon to make better-informed lending decisions, according to industry expert Ed Maslaveckas.
“Traditionally, the bank data we have is not used in these affordability assessments, but it is also a technical challenge to do it well,” he says. However, with rising inflation and interest rates creating a tougher environment for households, he believes it is now more important than ever to provide a holistic overview of people’s finances.
Maslaveckas is Co-Founder and CEO of financial data intelligence firm Bud, which launched in 2015 as a consumer-facing app focused on transaction data to give people a better insight into their finances.
More recently, the approach has pivoted to help banks and fintech better support their customers. “It is a two-fold approach: to give customers a real-time picture of their finances and make better decisions while enabling businesses to make clearer assessments of the affordability of their customers,” he says.
If customers of banks and fintechs are not resilient, they are not going to be able to repay.
Building financial resilience and predicting future outcomes remains crucial. “If customers of banks and fintechs are not resilient, they are not going to be able to repay,” he adds.
Accurate information leads to customer resilience and longer-term financial planning while giving the financial sector a clearer picture of their customers’ finances and, in turn, helping avoid default on loans or mortgages. As most people have transactions in different places and formats, using ML to stitch the technology together delivers richer financial understanding, he adds.
Today, banks and fintech use Bud technology for clearer insights to make more realistic lending decisions and build financial resilience for both sides.
“Globally, this is where the market is moving because there are efficiencies to be gained,” says Maslaveckas. Traditionally, banks have been limited in the experience they can provide customers due to complex processes and fragmented systems; but with more data, lenders can use Bud products to verify income and speed up identity confirmation to improve experiences and create a more tailored lending process, he concludes.