The financial marketplace, which includes credit reporting and mortgage servicing, among other homeownership-related services, is embracing more consumer-minded products, spurred by innovators who are developing technologies to the benefit of everypeople.
In support of this movement is the Consumer Financial Protection Bureau (CFPB), which recently released the Project Catalyst report, highlighting emerging consumer-centric products.
“Many novel products that FinTech (financial technology) companies and financial institutions are developing cut across existing regulatory frameworks,” said CFPB Director Richard Cordray in remarks at the Money 20/20 conference, held this week in Las Vegas. “That raises challenging issues for all of us. Certainly, we need to make sure that all players in the marketplace comply with existing law, whether they are new innovators or longstanding institutions. Notably, the same technology that empowers consumers to make decisions that service their interests can also be used to steer them in ways that benefit others at their expense.
“Yet we recognize that evolving technologies hold great promise,” Director Cordray said. “We will continue to work through these issues and encourage innovation that drives the financial system to deliver even more value to consumers.”
Those innovations, showcased in the report, are in areas such as:
Credit Accessibility – Financial technology companies are working to expand credit availability to consumers without sufficient history by conventional standards. This is being achieved, according to the report, through alternative data and analytics processes, which consider deeper—and often overlooked—information that can be indicative of creditworthiness.
“New technologies can open up new credit opportunities and more efficient ways to manage money and control spending,” said Director Cordray. “Computer-enabled data mining can lead to better understanding of the financial patterns of the underserved—their inflows and outflows and how they find ways to manage the gaps.”
Credit Reporting – Financial technology companies are also moving to introduce more accurate, clear credit reports—a gain for both consumers and lenders. One company, according to the report, has streamlined the error-disputing process, while others have offered more detailed information, as well as guidance for improvement.
“[Tens of millions] are credit invisible in that they lack a credit record or have credit reports too thin to generate a credit score,” Director Cordray said. “Others have scores that classify them as subprime borrowers….Some of the most exciting consumer-friendly innovations bring new products to those who had been locked out or underserved, whether or not they join the banking system.”
Emergency Savings – Financial technology companies are attending to a lacking area in consumer personal finance: emergency savings. Some companies, according to the report, have conceived services that calculate potential for savings based on income, as well as automate savings.
“Creative new tools can help working families better manage their finances,” Director Cordray said. “New product designs are empowering households to better anticipate and weather the inevitable income and expense shocks they face in an uncertain economy.”
Mortgage Servicing – Financial technology companies, in addition, are inventing intuitive home loan platforms, incorporating machine learning and other technologies in an effort to better predict consumer behavior, identify at-risk borrowers and avert credit-harming action.
Student Loan Refinancing – Financial technology companies have also developed technologies to address the pressing need for student loan refinancing. Many consumers with student loan debt, according to the report, have been locked into loans with high interest rates and no option to refinance.
“From the start, Project Catalyst has concentrated on encouraging marketplace innovation so that new products can be made safe for consumers,” said Director Cordray. “We see new developments in payments, transactions, lending, underwriting, budgeting, money management, and other areas, as well. That is a staggering list, even a revolutionary list, of areas ripe for change to benefit consumers.”
View the Project Catalyst report here.