Several big American banks, including JPMorgan Chase, are signed up for a government-backed pilot using alternative data to get credit to people with low or no credit scores, according to the Wall Street Journal.
About 53 million American adults do not have regular credit scores, says the firm behind Fico scores. The problem disproportionately affects Black and Hispanic people, according to the CFPB.
The pilot, set for later this year, will see about 10 banks assess creditworthiness based on users’ account balances and overdraft history, says the Journal.
To do this, participants, including US Bank and Wells Fargo, will share customer deposit data from checking and savings accounts. They could do this through the main credit reporting players or the bank-owned firm behind Zelle, Early Warning Services.
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In the future, aggregators such as Plaid and Finicity could be brought in to bring in data from areas such as rent and utility payments.
Federal banking regulators in the US signalled their support back in 2019 of the use of the alternative data other than traditional credit scores in determining creditworthiness.
In recent years, a host of non-banks have been looking to take advantage of this alternative data to improve upon the traditional scoring methods and serve people typically frozen out by the big banks.
Petal is one of a number of startups shaking up the industry, building proprietary technology that analyses banking history — measuring creditworthiness based on income, spending, and savings.