How Fintech Partnerships Can Make Banking More Inclusive

Have you ever wondered how banks decide who to lend money to?

If you have a good credit history, you might not have any problem getting a loan or a credit card.

But what if you don’t have a credit history, or you have a low credit score?

You might find it hard to access credit from traditional banks, and you might miss out on opportunities to improve your financial situation.

Fortunately, there is a new trend in the banking industry that could help more people get access to credit. It’s called fintech, which stands for financial technology.

Fintech is the use of new technologies, such as data aggregation, artificial intelligence, and machine learning, to provide innovative financial services.

Fintech firms are often seen as competitors to banks, but more recently, they have been partnering with banks to share their technology and data.

Why would banks partner with fintech firms?

Well, one reason is that fintech firms can help banks reach more customers, especially those who are underserved by the traditional banking system.

These customers are often called the credit invisible or the below-prime.

They are people who don’t have a credit score or have a low credit score because they don’t have enough credit history or they have had some financial difficulties in the past.

These customers may be good borrowers, but they are often overlooked by banks because they don’t fit the standard criteria.

Fintech firms can help banks overcome this challenge by using alternative data and advanced algorithms to assess the creditworthiness of these customers.

Alternative data are information that is not typically used by banks, such as utility bills, rent payments, online transactions, social media activity, and so on. These data can provide a more holistic and accurate picture of a customer’s financial situation and behaviour.

Advanced algorithms are mathematical models that can process large amounts of data and find patterns and insights that are not obvious to humans. These algorithms can help banks make better and faster decisions about who to lend to and how much to lend.

How do we know that fintech partnerships can make banking more inclusive?

Well, there is a recent study that provides some evidence for this claim. The study was done by two researchers from Rutgers University and the Federal Reserve Bank of Philadelphia. They used data from different sources to analyze how the lending behaviour of banks changed after they partnered with fintech firms. They focused on three types of loans: mortgages, personal loans, and credit cards.

The study found that banks were more likely to offer credit cards and personal loans to the credit invisible and below-prime customers after they partnered with fintech firms.

They also found that banks were more likely to grant larger credit limits to those customers after the partnership.

Similarly, they found that fintech partnerships resulted in banks being more likely to originate mortgage loans to nonprime homebuyers and that they increased the mortgage loan amounts that banks granted to nonprime buyers as well.

What does this mean for you?

It means that if you are one of those customers who have difficulty accessing credit from traditional banks:

• You might have more options and opportunities thanks to fintech partnerships.
• You might be able to get a loan or a credit card that suits your needs and helps you achieve your goals.
• You might also be able to improve your credit score and build your financial reputation over time.

Of course, this doesn’t mean that you should borrow money without thinking carefully about your ability to repay it.

You should always compare different offers and choose the one that has the best terms and conditions for you.

You should also be responsible for your credit usage and make your payments on time and in full.

Remember, borrowing money is not free;

it comes with interest and fees that you have to pay back.

What if interest is not allowed for you or you do not want to get involved in interest?

Read the alternatives here.

Fintech partnerships can make banking more inclusive, but they also require you to be smart and prudent with your finances. If you use them wisely, they can be a great tool for improving your financial well-being.

Here are the main points of this blog post:

• Fintech is the use of new technologies to provide innovative financial services.
• Fintech firms can help banks reach more customers who are underserved by the traditional banking system, such as the credit invisible and the below-prime.
• Fintech firms can use alternative data and advanced algorithms to assess the creditworthiness of these customers.
• Fintech partnerships can make banking more inclusive by increasing the likelihood and amount of credit offers and originations for these customers.
• Fintech partnerships can also help these customers improve their credit score and financial reputation over time.
• Fintech partnerships require customers to be smart and prudent with their finances and compare different offers and choose the best one for them.

P.S. We’d love to hear your thoughts on this topic. Have you or someone you know ever benefited from a fintech partnership? Share your story in the comments below!

Remember, the world of finance is evolving, and with it, our opportunities. Embrace the change, explore your options, and take control of your financial future. You have the power to shape it!

Disclaimer: The views expressed in this blog are not necessarily those of the blog writer and his affiliations and are for informational purposes only.

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Read my other posts here: Conventional Finance - FinFormed, Islamic Finance - FinFormed, Takaful - FinFormed, Career - FinFormed and Randow Writings - FinFormed